<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO
SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended November 30, 1998
OR
( ) TRANSITION REPORT PURSUANT TO
SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For The Transition Period From _____________
To _____________
---------------------
Commission File Number 0-15295
NICHOLS RESEARCH CORPORATION
(Exact name of registrant as specified in its charter)
---------------------
DELAWARE 63-0713665
-------- ----------
(State or other jurisdiction of (I.R.S.Employer
incorporation or organization) Identification no.)
4090 Memorial Parkway, South
Huntsville, Alabama 35802-1326
(256) 883-1140
(Address, including zip code, and telephone number of principal offices)
---------------------
4040 Memorial Parkway, South
Huntsville, Alabama 35802-1326
(Former name, address and fiscal year if changed since last report)
---------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
<PAGE>
YES X NO __
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practical date.
COMMON STOCK, $.01 PAR VALUE
14,074,693 SHARES OUTSTANDING ON November 30, 1998
---------------------
================================================================================
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
QUARTERLY REPORT FOR THE PERIOD ENDED NOVEMBER 30, 1998
<TABLE>
<CAPTION>
INDEX
Page
----
<S> <C>
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Statements of Income for the Three Months
Ended November 30, 1998 and November 30, 1997 (Unaudited)............. 1
Consolidated Balance Sheets as of November 30, 1998 and
August 31, 1998 (Unaudited)........................................... 2-3
Consolidated Statements of Changes in Stockholders' Equity
for the Three Months Ended November 30, 1998 and
November 30, 1997 (Unaudited)......................................... 4
Consolidated Statements of Cash Flows for the Three Months
Ended November 30, 1998 and November 30, 1997
(Unaudited)........................................................... 5
Notes to Financial Statements (Unaudited)............................. 6-8
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................................ 9-19
Item 3. Quantitative and Qualitative Disclosures About Market Risk............ 19
Part II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K...................................... 20
Signatures............................................................ 21
</TABLE>
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended
November 30, November 30,
1998 1997
Restated
---------------------------------------
(amounts in thousands except share data)
<S> <C> <C>
Revenues............................................. $ 101,349 $ 88,540
Costs and expenses:
Direct and allocable costs....................... 84,678 73,944
General and administrative expenses.............. 10,033 7,875
Amortization of intangibles...................... 1,021 1,095
---------------------------------------
Total costs and expenses.................. 95,732 82,914
---------------------------------------
Operating profit..................................... 5,617 5,626
Other income (expense):
Interest expense................................. (70) (90)
Other income, principally interest............... 146 285
Equity in earnings of unconsolidated affiliates.. 128 130
Minority interest in consolidated subsidiaries... (66) (331)
---------------------------------------
Income before income taxes........................... 5,755 5,620
Income taxes ....................................... 2,266 2,172
---------------------------------------
Net income........................................... $ 3,489 $ 3,448
=======================================
Earnings per common share............................ $ .25 $ .26
=======================================
Earnings per common share assuming dilution.......... $ .25 $ .25
=======================================
Weighted average common shares....................... 13,849,824 13,463,386
=======================================
Weighted average number of common and common equivalent
shares............................................... 14,142,861 14,022,045
=======================================
</TABLE>
NOTE: The Company has not declared or paid dividends in any of the periods
presented. All prior periods have been restated to reflect the acquisition of
Welkin Associates, Ltd., which was accounted for as a pooling of interests.
See accompanying notes.
1
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
November 30, August 31,
1998 1998
Restated
-----------------------------------
(amounts in thousands)
<S> <C> <C>
ASSETS
Current assets:
Cash and temporary cash investments.................. $ 11,150 $ 11,275
Accounts receivable.................................. 121,538 113,392
Deferred income taxes................................ 2,513 2,488
Other................................................ 2,473 3,939
-----------------------------------
Total current assets............................. 137,674 131,094
Long-term investments..................................... 1,513 1,519
Property and equipment:
Computers and related equipment...................... 31,443 29,465
Furniture, equipment and improvements................ 12,880 12,210
Equipment-contracts.................................. 5,934 5,771
-----------------------------------
50,257 47,446
Less accumulated depreciation............................. 26,737 25,011
-----------------------------------
Net property and equipment........................... 23,520 22,435
Goodwill and other intangibles(net of accumulated
amortization).......................................... 56,209 57,262
Software development costs (net of accumulated
amortization).......................................... 4,024 3,928
Investment in affiliates.................................. 9,819 9,607
Other assets.............................................. 1,457 1,491
-----------------------------------
Total assets.............................................. $ 234,216 $ 227,336
===================================
</TABLE>
NOTE: The Company has not declared or paid dividends in any of the periods
presented. All prior periods have been restated to reflect the acquisition of
Welkin Associates, Ltd., which was accounted for as a pooling of interests.
2
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
CONTINUED
<TABLE>
<CAPTION>
November 30, August 31,
1998 1998
Restated
------------------------------------
(amounts in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities:
Accounts payable....................................... $ 20,858 $ 24,278
Accrued compensation and benefits...................... 23,881 18,317
Income taxes payable................................... 3,546 1,681
Current maturities of long-term debt................... 997 997
Borrowings on line of credit........................... 5,000 5,000
Deferred revenue....................................... 797 1,797
Other.................................................. 238 1,040
------------------------------------
Total current liabilities.......................... 55,317 53,110
Deferred income taxes....................................... 572 354
Long-term debt:
Industrial development bonds........................... 1,335 1,335
Long-term notes........................................ 1,484 1,613
------------------------------------
Total long-term debt............................... 2,819 2,948
Minority interest in consolidated subsidiaries.............. 1,190 1,177
Stockholders' equity:
Common stock, par value $.01 per share
Authorized - 30,000,000 shares
Issued -14,074,693 and 13,997,455 shares........... 141 140
Additional paid-in capital............................. 96,712 95,631
Retained earnings...................................... 78,753 75,264
Less cost of treasury stock - 168,500 shares........... (1,288) (1,288)
------------------------------------
Total stockholders' equity......................... 174,318 169,747
------------------------------------
Total liabilities and stockholders' equity.................. $ 234,216 $ 227,336
====================================
</TABLE>
NOTE: The Company has not declared or paid dividends in any of the periods
presented. All prior periods have been restated to reflect the acquisition of
Welkin Associates, Ltd., which was accounted for as a pooling of interests.
3
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY (UNAUDITED)
<TABLE>
<CAPTION>
Additional Total
Common Stock Paid-In Retained Treasury Stockholders'
Shares Amount Capital Earnings Stock Equity
---------------------------------------------------------------------------------------------
(amounts in thousands except share data)
For the Three Months Ended November 30, 1998
--------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance, August 31, 1998
(Restated) 13,997,455 $ 140 $ 95,631 $ 75,264 $ (1,288) $ 169,747
Exercise of stock options 43,988 1 477 -- -- 478
Employee stock purchases 33,250 -- 604 -- -- 604
Net Income -- -- -- 3,489 -- 3,489
---------------------------------------------------------------------------------------------
Balance, November 30,1998 14,074,693 $ 141 $ 96,712 $ 78,753 $ (1,288) $ 174,318
=============================================================================================
For the Three Months Ended November 30, 1997 - Restated
-------------------------------------------------------
Balance, August 31, 1997 13,533,346 $ 135 $ 90,076 $ 61,545 $ (1,288) $ 150,468
Exercise of stock options 127,398 1 1,321 -- -- 1,322
Employee stock purchases 24,273 1 484 -- -- 485
Adjustment for Welkin -- -- -- (479) -- (479)
Net Income -- -- -- 3,448 -- 3,448
---------------------------------------------------------------------------------------------
Balance, November 30,1997 13,685,017 $ 137 $ 91,881 $ 64,514 $ (1,288) $ 155,244
=============================================================================================
</TABLE>
4
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months Ended
November 30, November 30,
1998 1997
Restated
--------------------------------------
(amounts in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................... $ 3,489 $ 3,448
Adjustments to reconcile net income to net cash provided (used)
by operating activities:
Provision for doubtful accounts.......................... 104 --
Depreciation ............................................ 1,858 1,303
Amortization............................................. 1,021 1,095
Equity in earnings of unconsolidated affiliates.......... (128) (130)
Minority interest........................................ 66 331
Deferred Taxes........................................... 193 75
Changes in assets and liabilities net of effects of acquisitions:
Accounts receivable...................................... (8,250) 820
Other assets............................................. 1,663 (716)
Accounts payable......................................... (3,420) (3,846)
Accrued compensation and benefits........................ 5,564 1,556
Income taxes payable..................................... 1,865 1,800
Other current liabilities................................ (1,802) (1,151)
--------------------------------------
Total adjustments........................................ (1,266) 1,139
--------------------------------------
Net cash provided/(used) by operating
activities........................................... 2,223 4,587
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment............................ (2,943) (2,854)
Purchase of long-term investments............................. -- (100)
Purchase of capitalized software.............................. (280) (62)
Payment for investment in affiliates.......................... (84) (500)
Proceeds from maturity of long-term investments............... 6 550
--------------------------------------
Net cash provided/(used) by investing activities......... (3,301) (2,966)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock........................ 1,082 1,807
Payments of long-term debt.................................... (129) (135)
Proceeds from line of credit................................... 5,000 --
Payments on line of credit borrowings......................... (5,000) (10,000)
--------------------------------------
Net cash provided/(used) by financing activities......... 953 (8,328)
--------------------------------------
Net increase/(decrease) in cash and temporary cash
investments.............................................. (125) (6,707)
</TABLE>
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)CONTINUED
<TABLE>
<CAPTION>
For the Three Months Ended
November 30, November 30,
1998 1997
Restated
--------------------------------------
(amounts in thousands)
<S> <C> <C>
Cash and temporary cash investments at
beginning of period...................................... 11,275 23,964
--------------------------------------
Cash and temporary cash investments at end of period.......... $ 11,150 $ 17,257
======================================
</TABLE>
5
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
November 30, 1998
Note 1 - Basis of Presentation
----------------------
The condensed consolidated financial statements (and all other information in
this report) have not been examined by independent auditors, but in the opinion
of the Company, all adjustments, consisting of the normal recurring accruals
necessary for a fair presentation of the results for the period, have been made.
The condensed consolidated financial statements include the accounts of Nichols
Research Corporation and its majority-owned subsidiaries and joint ventures. All
significant intercompany balances and transactions have been eliminated in
consolidation. The Company's earnings in unconsolidated affiliates and joint
ventures are accounted for using the equity method.
Note 2 - Accounting Pronouncements
-------------------------
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement No. 128, Earnings Per Share. The overall objective of Statement No.
128 is to simplify the calculation of earnings per share (EPS) and achieve
comparability with recently issued international accounting standards. The
Company first reported on the new EPS basis in the second quarter ended February
28, 1998. All prior period EPS amounts (including information regarding EPS in
interim financial statements, earnings summaries, and selected financial data)
have been restated to conform to the provisions of Statement No. 128.
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive Income
(SFAS 130). Statement No. 130 establishes new rules for the reporting and
display of comprehensive income and its components. Adoption of Statement No.
130 by the Company on September 1, 1998 had no impact on the Company's
consolidated results of operations or stockholders' equity.
In June 1997, the FASB issued Statement No. 131, Disclosures About Segments of
an Enterprise and Related Information (SFAS 131). Statement No. 131 changes the
method of determining segments from that currently required, and requires the
reporting of certain information about such segments. The Company has not
finalized how its segments will be reported or whether and to what extent
segment information will differ from that currently presented.
Note 3 - Reclassification
----------------
Certain prior period amounts have been reclassified to conform with the current
period's presentation and the final purchase price allocation for TXEN, Inc.
6
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
Note 4 - Investment in affiliates
------------------------
As of November 30, 1998 the Company holds a 50% interest in
NCCIM, LLC. at an aggregate cost of $1,345,000. Undistributed equity earnings of
$652,000 are included in the November 30, 1998 Retained Earnings balance
reported in the Consolidated Balance Sheet.
Note 5 - Line of Credit
--------------
The Company has a bank line of credit which provides for unsecured
borrowings up to $100,000,000. The credit agreement provides for interest at
London Interbank Offered Rate (LIBOR) plus a margin ranging from 0.325% to
0.450% and a facility fee, payable quarterly, of approximately 0.125% on the
unused portion of the line of credit. The short-term commitment agreement
($50,000,000) expired in November, 1998 and was renewed for one year. The
100,000,000 line of credit continues to be renewable annually and the long-term
commitment agreement ($50,000,000) is renewable in November, 2000. At November
30, 1998, there was $5,000,000 outstanding on this line of credit at an
effective interest rate of 5.62 percent.
Note 6 - Earnings Per Share
------------------
The following table sets forth the computation of earnings per common share and
earnings per common share assuming dilution:
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
<TABLE>
<CAPTION>
For the Three Months Ended
November 30, November 30,
1998 1997
Restated
------------------------------------
<S> <C> <C>
Numerator:
Net income and income available to
common stockholders and income
available to common stockholders
after assumed conversions.................... $ 3,489,000 $ 3,448,000
====================================
Denominator:
Denominator for earnings per common
share - weighted average common shares....... 13,849,824 13,463,386
Effect of dilutive securities:
Employee stock options....................... 293,037 558,659
Denominator for earnings per common share
assuming dilution - adjusted
weighted average common shares
and assumed coversions....................... 14,142,861 14,022,045
====================================
Earnings per common share............................. $ .25 $ .26
====================================
Earnings per common share assuming
dilution......................................... $ .25 $ .25
====================================
</TABLE>
7
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
Note 7 - Restatement
-----------
In connection with the Company's filing of a Form S-3 registration
statement unrelated to TXEN, the Company engaged in discussions with the Staff
of the Securities and Exchange Commission (SEC) regarding the purchase price
allocation related to its acquisition of TXEN. These discussions included the
amount allocated to in-process research and development. The Company and its
independent auditors, Ernst & Young LLP, believed the purchase price allocation
recorded and related amortization charges, were in accordance with widely
recognized appraisal practices and generally accepted accounting principles.
However, the SEC Staff has recently expressed views on in-process research and
development as set forth in a letter dated September 15, 1998 to the American
Institute of Certified Public Accountants. The Company, in consultation with its
independent auditor and based on its discussions with the Staff, has adjusted
the amount originally allocated to acquired in-process research and development
and, accordingly, has restated its 1997 and 1998 consolidated financial
statements. As a result, the 1997 write-off of acquired research and development
was decreased $3.5 million from the $12.0 million amount previously recorded to
$8.5 million. Intangible assets and net income were increased by a like amount
because the write-off was not tax deductible. Accordingly, 1997 earnings per
common share and earnings per common share assuming dilution were increased
$0.29 and $0.28 to $0.39 and $0.37, respectively. For 1998, amortization of
intangibles increased $225 thousand or $0.02 per common share and $0.01 per
common share assuming dilution, respectively. Accordingly, 1998 earnings per
share and earnings per common share assuming dilution were reduced by $0.02 and
$0.01 to $1.04 and $1.01, respectively. For the first quarter of 1999,
amoritzation of intangibles increased $56 thousand but had no effect on earnings
per common share assuming dilution.
8
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
EXCEPT FOR HISTORICAL INFORMATION CONTAINED HEREIN, THIS QUARTERLY REPORT
CONTAINS FORWARD-LOOKING STATEMENTS AS DEFINED IN SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. SUCH FORWARD-LOOKING STATEMENTS ARE SUBJECT TO VARIOUS
RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY
FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS. THESE RISKS AND
UNCERTAINTIES ARE DISCUSSED IN MORE DETAIL IN THE COMPANY'S ANNUAL REPORT ON
FORM 10-K FOR THE FISCAL YEAR ENDED AUGUST 31, 1998, AND IN THE FOLLOWING
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS SECTION OF THIS QUARTERLY REPORT. THESE FORWARD-LOOKING STATEMENTS
CAN BE GENERALLY IDENTIFIED AS SUCH BECAUSE THE CONTENT OF THE STATEMENTS WILL
USUALLY CONTAIN SUCH WORDS AS THE COMPANY OR MANAGEMENT "BELIEVES,"
"ANTICIPATES," "EXPECTS," "PLANS," OR WORDS OF SIMILAR IMPORT. SIMILARLY,
STATEMENTS THAT DESCRIBE THE COMPANY'S FUTURE PLANS, OBJECTIVES, GOALS OR
STRATEGIES ARE FORWARD-LOOKING STATEMENTS.
Overview and Business Environment
- ---------------------------------
The Company is a leading provider of technical and information technology
(IT) services, including information processing, systems development and systems
integration. The Company provides these services to a wide range of clients,
including the Department of Defense (DOD), other federal agencies, state and
local governments, healthcare and insurance organizations, and commercial
enterprises. The Company's business strategy consists of three key elements: (i)
maintain the Company's leadership in technology; (ii) apply the Company's
technology to create solutions for new clients; and (iii) make strategic
acquisitions and investments to expand the business of the Company and gain
industry knowledge.
The Company is organized into four strategic business units, reflecting
the particular market focus of each line of business. The Defense and
Intelligence unit, formerly Nichols Federal, provides technical services
primarily to U.S. Government defense agencies. The Government Information
Technology unit, formerly Nichols InfoFed, provides information and technology
solutions and services to a variety of governmental agencies. The Commercial
Information Technology unit, formerly Nichols InfoTec, provides information and
technology services to various commercial clients, other than healthcare
clients. The Healthcare Information Technology unit, formerly Nichols SELECT,
provides information and administrative services to clients in the healthcare
and insurance industries. For the quarter ended November 30, 1998, the
percentage of total revenues attributable to the four business units was
approximately 60% for Defense and Intelligence, 18% for Government IT, 10% for
Commercial IT, and 12% for Healthcare IT.
Risk Factors
- ------------
The Company's business and financial performance are subject to risks and
uncertainties, including those discussed below.
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
ACQUISITION STRATEGY
Expansion through acquisitions is an important component of the Company's
overall business strategy. The Company has successfully completed ten strategic
acquisitions and alliances since September 1, 1994, most of which have centered
on IT and healthcare information services markets. Since the respective dates of
the acquisitions, the Company has integrated these acquired entities in order to
draw on the Company's base of technical expertise and capabilities in designing
solutions for government, commercial, and healthcare clients. The Company's
continued ability to grow by acquisitions is dependent upon, and may be limited
by, the availability of compatible acquisition candidates at reasonable prices,
the Company's ability to fund or finance acquisitions on acceptable terms, and
the Company's ability to maintain or enhance the profitability of any acquired
business.
9
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
PERFORMANCE OF LARGE SYSTEMS INTEGRATION CONTRACTS
As part of the Company's business strategy to enter new markets, the
Company continues to pursue large systems integration contracts in both the
government and commercial markets, although competition for such contracts is
intense and many of the Company's competitors have greater resources than the
Company. While such contracts are working capital intensive, requiring large
equipment and software purchases to be funded by the Company before payment from
the customer, the Company believes such contracts offer attractive revenue
growth and margin expansion opportunities for the Company's range of technical
expertise and capabilities.
VARIABILITY OF QUARTERLY EARNINGS OR OPERATING RESULTS
The Company's revenues and earnings may fluctuate from quarter to quarter
based on such factors as the number, size, and scope of projects in which the
Company is engaged, the contractual terms and degree of completion of such
projects, expenditures required by the Company in connection with such projects,
any delays incurred in connection with such projects, employee utilization
rates, the adequacy of provisions for losses, the accuracy of estimates of
resources required to complete ongoing projects, and general economic
conditions. Under certain contracts, the Company is required to purchase,
integrate and deliver to the customer large amounts of computer processing
systems and other equipment. Revenues are accrued as costs to deliver these
systems are incurred, and as a result, quarterly revenues will be impacted by
fluctuations related to equipment purchases which occur on a periodic basis
depending on contract terms and modifications.
UNCERTAINTIES ASSOCIATED WITH GOVERNMENT CONTRACTS
The Company performs its services under U.S. Government contracts that
usually require performance over a period of one to five years. Long-term
contracts may be conditioned upon continued availability of Congressional
appropriations. Variances between anticipated budgets and Congressional
appropriations may result in delay, reduction, or termination of such contracts.
Contractors can experience revenue uncertainties with respect to available
contract funding during the first quarter of the government's fiscal year
beginning October 1, until differences between budget requests and
appropriations are resolved. The Company's contracts with the U.S. Government
and its prime contractors are subject to termination, in whole or in part,
either upon default by the Company or at the convenience of the government. The
termination for convenience provisions generally entitle the Company to recover
costs incurred, settlement expenses, and profit on work completed prior to
termination. Because the Company contracts to supply goods and services to the
U.S. Government, it is also subject to other risks, including contract
suspensions, audit adjustments, protests by disappointed bidders of contract
awards which can result in the re-opening of the bidding process and changes in
government policies or regulations.
10
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
CONTRACT PROFIT EXPOSURE
The Company's services are provided primarily through three types of
contracts: fixed-price, time-and-materials and cost-reimbursement contracts.
Fixed-price contracts require the Company to perform services under a contract
at a stipulated price. Time-and-materials contracts reimburse the Company for
the number of labor hours expended at an established hourly rate negotiated in
the contract, plus the cost of materials incurred. Under cost-reimbursement
contracts, the Company is reimbursed for all actual costs incurred in performing
the contract to the extent that such costs are within the contract ceiling and
allowable under the terms of the contract, plus a fee or profit.
The Company assumes greater financial risk on fixed-price contracts than on
either time-and-materials or cost-reimbursement contracts. As the Company
increases its commercial business, it believes that an increasing percentage of
its contracts will be fixed-priced. Failure to anticipate technical problems,
estimate costs accurately, or control costs during performance of a fixed-price
contract, may reduce the Company's profit or cause a loss. In addition, greater
risks are involved under time-and-materials contracts than under
cost-reimbursement contracts because the Company assumes the responsibility for
the delivery of specified skills at a fixed hourly rate. Although management
believes that adequate provision for its fixed-price and time-and-materials
contracts is reflected in the Company's financial statements, no assurance can
be given that this provision is adequate or that losses on fixed-price and
time-and-materials contracts will not occur in the future.
11
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
Results of Operations
- ---------------------
The following tables set forth, for the periods indicated, the percentages
which certain items in the consolidated statements of income bear to
consolidated revenues, and the percentage change of such items for the periods
indicated:
<TABLE>
<CAPTION>
Percentage of Revenues
for the Three Months Ended
November 30, November 30, Percentage
1998 1997 Change
Restated
--------------------------------------------------
<S> <C> <C> <C>
Revenues 100.0% 100.0% 14.5%
Costs and expenses:
Direct and allocable costs............. 83.6 83.5 14.5
General and administrative expenses.... 9.9 8.9 27.4
Amortization of intangibles............ 1.0 1.2 (6.8)
-----------------------------------
Total costs and expenses........... 94.5 93.6 15.5
-----------------------------------
Operating profit............................ 5.5 6.4 (0.2)
Other income (expense):
Interest expense............................ (0.1) (0.1) 22.2
Other income, principally interest.......... 0.2 0.3 (48.8)
Equity in earnings of unconsolidated
affiliates............................... 0.2 0.1 (1.5)
Minority interest in consolidated
subsidiaries............................. (0.1) (0.4) (80.1)
-----------------------------------
Income before income taxes.................. 5.7 6.3 2.4
Income taxes................................ 2.2 2.4 4.3
-----------------------------------
Net income.................................. 3.5% 3.9% 1.2%
===================================
</TABLE>
The table below presents contract award and backlog data for the periods
indicated:
Quarter Ended November 30,
1998 1997
----------------------------------
(amounts in thousands)
Contract award amount..................... $ 32,684 $ 42,428
Backlog (with options).................... $ 1,197,816 $ 1,227,338
Backlog (without options)................. $ 330,568 $ 380,574
12
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
COMPARISON OF OPERATING RESULTS FOR FIRST FISCAL QUARTER 1999 WITH FIRST FISCAL
QUARTER 1998
REVENUES: Revenues increased $12.8 million (14.5%) for the fiscal quarter
ended November 30, 1998 as compared to the fiscal quarter ended November 30,
1997. The revenues of the Defense and Intelligence unit, representing
approximately 60% of the Company's consolidated revenues for the quarter,
increased $ 7.7 million (14.6%), primarily the result of continued growth in
existing contracts. The revenues of the Government IT unit, representing
approximately 18% of the Company's consolidated revenues for the quarter, was
$18.0 million as compared to $17.9 million in the prior year. The revenues of
the Commercial IT unit, representing approximately 10% of the Company's
consolidated revenues for the quarter, increased $ 2.3 million (28.4%),
primarily the result of its expanded business base. The revenues of the
Healthcare IT, representing approximately 12% of the Company's consolidated
revenus for the quarter, increased $ 2.7 million (28.5%), primarily the result
of continued growth in number of clients.
OPERATING PROFIT: Operating profit was $5.6 million for the fiscal quarter
ended November 30, 1998 as compared $5.6 million for the fiscal quarter ended
November 30, 1997. Direct and allocable costs increased $10.7 million (14.5%)
for the fiscal quarter ended November 30, 1998 as compared to the fiscal quarter
ended November 30, 1997, as a result of the increase in revenues. General and
administrative expenses increased $2.2 million (27.4%) for the fiscal quarter
ended November 30, 1998 as compared to the fiscal quarter ended November 30,
1997, primarily the result of acquisition of Mnemonic System, Incorporated
completed in April 1998. Total costs and expenses were 94.5% of revenues for the
fiscal quarter ended November 30, 1998 as compared 93.6% for the fiscal quarter
ended November 30, 1997.
OPERATING MARGINS: The operating margin was 5.5% for the fiscal quarter
ended November 30, 1998 as compared to 6.4% the fiscal quarter ended November
30, 1997. The Defense and Intelligence unit realized a 6.4% operating margin for
the fiscal quarter ended November 30, 1998 as compared to 4.7% the fiscal
quarter ended November 30, 1997. These improved margins are primarily the result
of increased margins on time-and-material contracts. The Government IT unit
realized a 5.7% operating margin for the fiscal quarter ended November 30, 1998
as compared to 7.8% the fiscal quarter ended November 30, 1997. This decrease in
margins is primarily the result of a decrease in high margin contracts. The
Commercial IT unit realized a -6.6% operating margin for the fiscal quarter
ended November 30, 1998 as compared to 9.2% the fiscal quarter ended November
30, 1997. The decrease in margins is primarily the result of the expenses
associated with overstaffing. Healthcare IT realized an 11.8% operating margin
for the fiscal quarter ended November 30, 1998 as compared to 11.6% the fiscal
quarter ended November 30, 1997.
13
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
OTHER INCOME (EXPENSE). Other income (expense) increased $0.1 million for
the fiscal quarter ended November 30, 1998 as compared to the fiscal quarter
ended November 30, 1997. Other income includes equity in earnings of
unconsolidated affiliates and interest income; other expense includes interest
expense and minority interest in consolidated subsidiaries. Substantially all
available cash is invested in interest-bearing accounts or fixed income
instruments. Interest expense includes the cost of long-term and short-term
borrowings of the Company and the commitment fee on its unused line of credit.
Equity in earnings of unconsolidated affiliates for the fiscal quarters
ended November 30, 1998 and 1997 primarily represents the Company's share of the
earnings of NCCIM, LLC a joint venture, 50% of which is owned by the Company.
Minority interest in consolidated subsidiaries primarily represents the
minority partner's share of earnings of Nichols ENTEC, LLC a joint venture, 60%
of which is owned by the Company. The decrease in minority interest of $0.3
million for the fiscal quarter ended November 30, 1998 as compared to the fiscal
quarter ended November 30, 1997 is primarily the result of expenses associated
with overstaffing.
INCOME TAXES. Income taxes as a percentage of income before taxes was
39.4% in the fiscal quarter ended November 30, 1998 as compared to 38.7% in the
fiscal quarter ended November 30, 1997.
NET INCOME. Net income increased $0.04 million (1.2%) for the fiscal
quarter ended November 30, 1998 as compared to the fiscal quarter ended November
30, 1997. The increase is a result of the items discussed.
EARNINGS PER COMMON SHARE ASSUMING DILUTION. Earnings per common share
assuming dilution for the fiscal quarter ended November 30, 1998 were $.25 as
compared to $.25 for fiscal quarter ended November 30, 1997. Net income
increased 1.2% ($0.04 million), while weighted average number of common and
common equivalent shares outstanding increased 0.9% (120,816 shares) for fiscal
quarter ended November 30, 1998 as compared to fiscal quarter ended November 30,
1997.
14
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
Liquidity And Capital Resources
- -------------------------------
Historically, the Company's positive cash flow from operations and
available credit facilities have provided adequate liquidity and working capital
to fully fund the Company's operational needs and support the acquisition
program. Working capital was $82.4 million and $73.2 million at November 30,
1998 and 1997, respectively. Operating activities provided cash of $2.2 million
for the quarter ended November 30, 1998 and cash of $4.6 million for the quarter
ended November 30, 1997. Investing activities used cash of $3.3 million for the
quarter ended November 30, 1998 and $3.0 million for the quarter ended November
30, 1997. Financing activities provided cash of $1.0 million for the quarter
ended November 30, 1998 and used cash of $8.3 million for the quarter ended
November 30, 1997.
Cash provided by operating activities decreased $2.4 million for the
quarter ended November 30, 1998 as compared to the quarter ended November 30,
1997. The primary difference is changes in operating assets and liabilities.
Cash used for investing activities was $3.3 million for the quarter ended
November 30, 1998. Purchases of property and equipment were $3.0 million and
$2.9 million for the fiscal quarters ended November 30, 1998 and 1997,
respectively.
Cash provided from financing activities was $1.0 million for the quarter
ended November 30, 1998. The Company realized proceeds from the sale of common
stock of $1.1 million and $1.8 million for the the fiscal quarters ended
November 30, 1998 and 1997, respectively.
The Company renegotiated its bank line of credit in November, 1998. The
agreement provides for unsecured borrowings up to $100,000,000. The credit
agreement provides for interest at London Interbank Offered Rate (LIBOR) plus a
margin ranging from 0.325% to 0.450% and a facility fee, payable quarterly, of
approximately 0.125% on the unused portion of the line of credit. The short-term
commitment agreement ($50,000,000) is renewable annually and the long-term
commitment agreement ($50,000,000) is renewable in November, 2000. There was
$5,000,000 in outstanding borrowings on this line of credit at November 30,
1998.
The Company is regularly evaluating potential acquisition candidates and
expects to complete other transactions in fiscal year 1999.
15
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
The Company continues to actively pursue contracts for information system
development and computer system integration activities, which could require the
Company to acquire substantial amounts of computer hardware for resale or lease
to customers. The timing of payments to suppliers and payments from customers
under the Company's system integration contracts could cause cash flows from
operations to fluctuate from period to period.
The Company believes that, for the next four fiscal quarters, its existing
capital resources, together with available borrowing capacity, will be
sufficient to fund operating needs, finance acquisitions of property and
equipment, and make strategic acquisitions, if appropriate.
EFFECTS OF INFLATION
Substantially all contracts awarded to the Company have been based on
proposals which reflect estimated cost increases due to inflation. Historically,
inflation has not had a significant impact on the Company.
YEAR 2000
Overview
Historically, certain computerized systems have had two digits rather
than four digits to define the applicable year, which could result in
recognizing a date using "00" as the year 1900 rather than the year 2000. This
could cause significant software failures or miscalculations and is generally
referred to as the "Year 2000" problem.
The Company recognizes that the impact of the Year 2000 problem extends
beyond its computer hardware and software and may affect utility and
telecommunication services, as well as the systems of customers and suppliers.
In response to the Year 2000 problem, the Company has developed a
compliance program to evaluate and address date related problems with the
Company's internal systems, services, products, and the systems and products of
the Company's vendors and suppliers. The compliance program is managed by the
Vice President of Corporate Information Systems and Services, and is patterned
after the United States General Accounting Office (GAO) and Office of Management
and Budget project management model. The Company's Year 2000 compliance program
includes five major phases:
Awareness Phase. The Year 2000 problem is defined and managers at the
executive level are educated about potential date related problems and the
potential impact to the Company and its customers from Year 2000 date handling
errors. A Year 2000 program team is established and an overall strategy is
developed.
16
<PAGE>
Assessment Phase. The Year 2000 program team assesses the Year 2000
impact on the Company by: (i) identifying core business areas and processes;
(ii) performing an inventory and analysis of systems supporting the core
business areas; (iii)contacting third party service providers, and software and
hardware vendors to determine Year 2000 issues and their plans for becoming Year
2000 compliant; and (iv) prioritizing conversion or replacement of systems.
Renovation Phase. The Year 2000 program team corrects Year 2000
problems identified in the Assessment Phase by modifying program software,
updating databases, replacing systems or utilizing other appropriate methods.
Implementation Phase. The Year 2000 program team tests, verifies, and
validates converted or replaced systems, applications, databases and utilities
within a limited operational environment.
Validation Phase. The Year 2000 program team fully implements converted
or replaced systems, applications, databases and utilities. The Year 2000
program team also performs extensive testing of all system changes.
As part of the awareness phase the Company has reviewed
- Mission Essential Software Systems
- Mission Essential Computational Systems (hardware)
- Mission Essential Facilities Systems, including elevators, heating
and air conditioning systems, photocopying machines and utility services
- Mission Essential Network Systems
- Customer Software Services,provided by the Company's business units
- Mission Essential Vendor-Supplied Software and Services
The Company considers a system "mission essential" if a failure in that
system would materially disrupt the ability of the Company to perform
contractual services or to process business information in a timely manner. The
Company monitors the status of its Year 2000 compliance program and routinely
updates its Intranet to provide compliance data to its managers and employees.
The Company provides services and products to the U.S. Government pursuant
to specific contractual terms and exact specifications. The Company believes
that it will be responsible for upgrading only those services or products that
specify Year 2000 compliance and do not yet meet this requirement. The Company
is not currently aware of any such services or products.
Status and Timetable for Year 2000 Compliance
Nichols Research has developed a master timetable for its year 2000
compliance program. The updated status of each major category of mission
essential systems is as follows:
17
<PAGE>
<TABLE>
<CAPTION>
SYSTEM CATEGORY PHASE ESTIMATED DATE FOR COMPLIANCE
------------------------------------------------------- ----------------- ------------------------------
<S> <C> <C>
Mission Essential Software Systems Renovation April 1999
------------------------------------------------------- ----------------- ------------------------------
Mission Essential Computational Systems Renovation April 1999
------------------------------------------------------- ----------------- ------------------------------
Mission Essential Network Systems Validation Completed
------------------------------------------------------- ----------------- ------------------------------
Mission Essential Facilities Systems Validation Completed
------------------------------------------------------- ----------------- ------------------------------
Mission Essential Customer Systems Renovation April 1999
------------------------------------------------------- ----------------- ------------------------------
Mission Essential Vendor-Supplied Services Validation Unknown
------------------------------------------------------- ----------------- ------------------------------
</TABLE>
The phases listed above represent the status of the majority of products
within each category. There may be, within each "system," components at a lower
or higher phase in the Year 2000 assessment.
While the Mission Essential Vendor Supplied Services category is listed as
having an Unknown estimated date for compliance, many of the Services within
this category have had their validation phase completed.
Contingency Plans
Because the Company's Year 2000 conversions are expected to be
completed prior to any potential disruption to the Company's business, the
Company has not yet completed the development of a comprehensive Year 2000
contingency plan. However, the Company has minimized its exposure to Year 2000
failures of vendor supplied products by adding Year 2000 compliance as a
standard condition to its purchase orders. These contracts also reference
Federal Acquisition Regulation 39.106, which addresses Year 2000 compliance
issues. The Company is currently negotiating a Risk Management Insurance Policy
designed to protect the Company in the event that it is involved in litigation
arising from errors and omissions relating to Year 2000 issues. If the Company
determines that its business is at material risk of disruption due to the Year
2000 problem, or anticipates that its Year 2000 conversions will not be
completed in a timely fashion, the Company will work to develop a detailed
contingency plan.
Cost for Year 2000 Compliance
The Company believes that the total cost of its Year 2000 compliance
activity will not be material to the Company's operation, liquidity and capital
resources. The Company estimates that the total cost for its Year 2000
compliance will be $688,500 which represents 11,475 hours of analysis,
18
<PAGE>
modification and testing, and $34,500 for new equipment purchases. To date, the
Company has completed 6,850 hours of Year 2000 compliance work, and purchased
new equipment valued at $27,000, for a total cost of $438,000.
Year 2000 Risks Faced by the Company
Although the Company believes that its Year 2000 compliance program is
comprehensive, the Company may not be able to identify, successfully remedy or
assess all date-handling problems in its business systems or operations or those
of its customers and suppliers. As a result, the Year 2000 problem could have a
materially adverse affect on the Company's business financial condition or
results of operations.
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
19
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit No. Description
----------- -----------
10.1 Employment Agreement of Charles A. Leader*
10.2 Supplemental Retirement Benefit Plan
between the Registrant and Charles A. Leader*
10.3 Form of Indemnification Agreement between
Registrant and Its Directors
27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the fiscal quarter ended November
30, 1998.
- -----------------
* Denotes management contract or compensatory plan or arrangement required to be
filed as an exhibit to this report.
20
<PAGE>
FORM 10-Q
NICHOLS RESEARCH CORPORATION
SIGNATURES
MANAGEMENT REPRESENTATION
-------------------------
The accompanying unaudited Consolidated Balance Sheets at November
30, 1998 as well as the Consolidated Statements of Income, Consolidated
Statements of Changes in Stockholders' Equity and Consolidated Statements of
Cash Flows for the three months ended November 30, 1998 and 1997, have been
prepared in accordance with instructions to Form 10-Q and do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments, consisting only of normal recurring accruals, considered necessary
for a fair presentation have been included.
January 14 , 1998 Allen E. Dillard
----------------- ----------------
Date Allen E. Dillard
Corporate Vice President,
Chief Financial Officer
and Corporate Treasurer
(Principal Financial and
Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NICHOLS RESEARCH CORPORATION
January 14 , 1998 Allen E. Dillard
----------------- ----------------
Date Allen E. Dillard
Corporate Vice President,
Chief Financial Officer
and Corporate Treasurer
(Principal Financial and
Accounting Officer)
21
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
OF
CHARLES A. LEADER
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement"), dated as of October 26,
1998, is entered into by and between Charles A. Leader, residing at 1125 Dogwood
Drive, McLean, Virginia 22101 (the "Employee"), and Nichols Research
Corporation, a Delaware Corporation, having its principal place of business at
4090 South Memorial Parkway, Huntsville, Alabama 35802 ("Company").
W I T N E S S E T H:
--------------------
The Company desires to obtain the services of the Employee and the
Employee is willing to render services to the Company upon the terms and
conditions herein set forth.
NOW, THEREFORE, in consideration of the mutual promises set forth
herein and other good and valuable consideration, the parties agree as follows:
1. DUTIES. The Employee shall be employed on a full-time basis as
President and Chief Operating Officer of the Company and shall perform such
other duties as a president and chief operating officer of a company would
normally perform (subject to the direction of the Chief Executive Officer and
Board of Directors of the Company), including, but not limited to, the duties
set forth on the job description contained in Exhibit "A" attached hereto. The
Employee shall perform such other employment duties as the Board of Directors or
Chief Executive Officer may, from time to time, reasonably prescribe. The
Employee will work from the Company's Arlington, Virginia, office with the
understanding he will make frequent trips to corporate headquarters in
Huntsville, Alabama.
2. EXCLUSIVE EMPLOYMENT. The Employee shall render his services
exclusively to the Company during the term of his employment and shall use his
best efforts, judgement and energy to improve and advance the business and
interests of the Company in a manner consistent with the duties of his position.
3. NONDEFERRED COMPENSATION.
(a) BASE SALARY. The Employee shall receive, as compensation
for his services hereunder, an annual salary of $250,000.00 (the "Base Salary").
The Base Salary shall be paid at least bi-weekly or on a more frequent basis or
schedule as determined by the Company. The Base Salary may be increased on an
annual or more frequent basis if such increase is approved in the discretion of
the Board of Directors.
(b) DISCRETIONARY BONUSES. In addition to the Base Salary, the
Employee may be awarded performance bonuses in accordance with Company policies.
4. STOCK OPTIONS. Effective upon the date of the Employee's employment,
the Employee shall be awarded the following options:
(a) An incentive stock option issued pursuant to
the Company's 1997 Stock Option Plan for such number of shares of common stock
of the Company that is equal to the quotient of $300,000 divided by the fair
market value per share of the common stock of the Company on November 2, 1998
(the "Grant Date") rounded down to the nearest whole number of shares. This
option shall vest in accordance with the provisions of the 1997 Stock Option
Plan as follows: (i) one-third of the shares covered by the option may be
exercised after two years; (ii) one-third of the shares covered by the option
may be exercised after three years; and (iii) one-third of the shares covered by
the option may be exercised after four years. The option expires after five
years. The incentive stock option shall be subject to all of the terms and
provisions of the 1997 Stock Option Plan.
(b) A non-statutory stock option issued pursuant
to the Company's 1997 Stock Option Plan for such number of shares of the common
stock of the Company that is equal to the difference between 90,000 shares and
the number of shares of common stock covered by the incentive stock option
granted pursuant to subsection (a) above. These options shall vest as follows:
(i) after one year, 20,000 shares; (ii) after two years, the difference between
20,000 shares and one-third of the shares subject to the incentive stock option
granted under subsection (a) above; (iii) after three years, the difference
between 20,000 shares and one-third of the shares subject to the incentive stock
option granted under subsection (a) above; (iv) after four years, the difference
between 20,000 shares and one-third of the shares subject to the incentive stock
option granted under subsection (a) above; and (v) after six years, the balance
of the shares covered by the non-statutory stock option. The non-statutory stock
option expires after six years. The non-statutory stock option shall be subject
to all of the terms and provisions of the 1997 Stock Option Plan.
(c) A stock option issued pursuant to the Nichols
TXEN Corporation 1998 Stock Option Plan for 10,000 shares of common stock of
Nichols TXEN Corporation. This option shall vest as follows: (i) one-third after
two years; (ii) one-third after three years; and (iii) one-third after four
years. The option expires after five years. The Nichols TXEN Corporation option
shall be subject to all of the terms and provisions of the Nichols TXEN
Corporation 1998 Stock Option Plan. The Nichols TXEN Corporation option shall
have an exercise price equal to the price at which the common stock of Nichols
TXEN Corporation is initially offered for sale to the public and as shown on the
cover of the prospectus included in the registration statement which is declared
effective by the Securities and Exchange Commission. Notwithstanding the
foregoing, in the event Nichols TXEN Corporation does not complete an initial
public offering of its common stock within four months of the date of this
Agreement, then the Company will issue to Employee a stock option for 10,000
shares pursuant to the Company's 1997 Stock Option Plan. Such option shall have
the same terms as to vesting and expiration as stated above, but the exercise
price for such option shall be the fair market value per share of the Company's
common stock on the date Nichols TXEN Corporation determines not to complete an
initial public offering of the common stock of Nichols TXEN Corporation. Such
option shall be subject to all the terms and provisions of the Company's 1997
Stock Option Plan.
5. NO CONFLICTS. The Employee affirms and represents that he is under
no obligation to any former employer, and that his employment by the Company
will not violate any covenants or agreements entered into by the Employee.
6. TRAVEL. The Employee will undertake such travel as may be required
in the performance of his duties. The reasonable travel expenses of the Employee
shall be reimbursed in accordance with the Company's reimbursement policy in
effect from time to time.
7. TERM OF EMPLOYMENT. The Employee's employment shall commence
November 2, 1998. This Agreement shall have a term of two years unless earlier
terminated as provided in Section 8 below. After the initial term of two years
and if this agreement is not earlier terminated, this agreement shall be
extended on a year-to-year basis.
8. TERMINATION. Notwithstanding the foregoing, the term of
employment and the Employee's employment with the Company shall be terminated
upon one or more of the following events:
(i) the death of the Employee;
(ii) the disability of the Employee (disability is defined as
the inability of the Employee after reasonable accommodation by the Company to
perform substantially his duties by reason of accident or sickness which
continues for ninety (90) days within a consecutive twelve (12) month period);
(iii) upon sixty (60) days' prior written notice given by
either party to the other party which termination may be with or without cause;
provided that by mutual written agreement the actual date of employment
termination may occur before expiration of such sixty (60) day notice period.
(iv) immediately by the Company upon a determination by the
Board of Directors that the Employee (A) and has breached the terms of this
Agreement, provided that five (5) days' notice has been given Employee of such
event and the Employee has not cured such event within such five (5) day period;
(B) has refused or failed to carry out any instruction of the Board of
Directors, the Chief Executive Officer, or their respective designees, provided
that five (5) days' notice has been given Employee of such event and the
Employee has not cured such event within such five (5) day period; (C) has
demonstrated gross negligence or repeated acts of ordinary negligence in the
execution of his duties; (D) has neglected his duties, provided that five (5)
days' notice has been given Employee of such event and the Employee has not
cured such event within such five (5) day period; (E) has been convicted of a
felony or an illegal act involving moral turpitude or fraud; or (F) has
committed dishonesty, breach of fiduciary duty, or other behavior constituting
grounds for termination for good cause under the laws of the State of Alabama.
Upon termination of employment, the Employee shall be entitled
to receive his Base Salary for the month in which employment terminates,
prorated to the date of termination and, if applicable, the severance pay set
forth below. Vested and unexercised stock options which are currently
exercisable may be exercised by the Employee prior to termination if such
options have not previously lapsed.
If the Employee is terminated by the Company within five (5) years from
the date hereof pursuant to Section 8(iii), the Company shall pay to the
Employee as additional compensation beginning from the date of termination of
employment his Base Salary prorated for a period of six (6) months and paid in
equal installments over such six (6) month period in accordance with the regular
pay practices of the Company. [For example, if the Employee's Base Salary were
$250,000 and his employment terminated 60 days after notice under Section 8(iii)
during the first five years of employment, he would receive $125,000 payable at
$20,833.33 per month for six (6) months following termination of employment.]
If, however, the Employee becomes employed anytime following termination of his
employment with the Company and before full payment of the additional
compensation due under this paragraph, the obligation of the Company to pay the
Employee the balance due of such additional compensation shall terminate and the
Company shall have no further obligation to pay the additional compensation
herein set forth.
Except as provided by this Section 8, the Employee shall not be
entitled to any other compensation or benefits upon termination of employment
and all obligations of the Company to the Employee shall cease upon termination
of employment.
9. WELFARE BENEFIT PLANS. The Employee shall be entitled to participate
in all benefit plans and programs that may be provided by the Company for its
key executive employees and/or to its employees generally, in accordance with
the provisions of any such plans.
10. ASSIGNMENT. The rights and obligations of the Company under this
Agreement may be assigned by the Company to the successors in interest of the
Company or of that part of the business of the Company to which this Agreement
applies or to its affiliates. This Agreement may not be assigned by the
Employee.
11. APPLICABLE LAW; JURISDICTION. This Agreement shall be governed by,
construed and enforced in accordance with the internal substantive laws and not
the choice of law rules of the State of Alabama.
12. ENTIRE AGREEMENT. The foregoing contains the entire agreement
between the parties relating to the subject matter of this Agreement, and may
not be altered or amended except by an instrument in writing signed by both
parties hereto. This Agreement supersedes all prior understandings and
agreements (oral or written) relating to employment of the Employee by the
Company. The parties acknowledge that any prior oral or written agreements
between the Company and the Employee, if any, are hereby terminated. No oral
amendments to this Agree ment and no course of dealing or performance shall be
effective to add to, delete from or vary the terms of this Agreement.
13. COMPANY POLICIES. As an employee of the Company, the Employee shall
be subject to the policies, procedures, rules and regulations generally
applicable to all employees as the same may be published and amended from time
to time.
14. WITHHOLDINGS. Any compensation due the Employee shall be subject to
payroll taxes and other withholdings as may be required by law.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed by its duly authorized officer and the Employee has hereunto set his
hand as of the date first above written.
NICHOLS RESEARCH CORPORATION
By: Michael J. Mruz
---------------
Michael J. Mruz, Chief Executive Officer
Charles A. Leader
-----------------
Charles A. Leader, Employee
<PAGE>
EXHIBIT 10.2
NICHOLS RESEARCH CORPORATION
SUPPLEMENTAL RETIREMENT BENEFIT PLAN
Between
NICHOLS RESEARCH CORPORATION
and
CHARLES A. LEADER
Dated: November 2, 1998
SUPPLEMENTAL RETIREMENT BENEFIT PLAN
THIS SUPPLEMENTAL RETIREMENT BENEFIT PLAN (the "Plan") is made and
entered into this 2nd day of November, 1998, by and between NICHOLS RESEARCH
CORPORATION, a Delaware corporation, having its principal place of business at
4040 South Memorial Parkway, Huntsville, Alabama (the "Company") and CHARLES A.
LEADER residing in the City of McLean, Virginia (the "Employee").
W I T N E S S E T H:
--------------------
The Company adopted a defined contribution plan containing a cash or
deferred arrangement which plan is known as the Nichols Research Corporation
Retirement Plan (the "401(k) Plan"). Contributions to the 401(k) Plan by and on
behalf of participants are based, in part, on the compensation received by such
participants. Under Section 404(l) of the Internal Revenue Code of 1986 (the
"Code"), the amount of compensation which may be taken into account is limited
to $160,000, plus cost-of-living increases (the "Section 404 Limit"). The
Employee's compensation is expected to exceed the Section 404 Limit, and
accordingly, the amount contributed to the 401(k) Plan for the Employee's
benefit is limited. The Company desires to supplement the Employee's retirement
benefits by contributing to a nonqualified retirement plan for the benefit of
the Employee.
THEREFORE, to provide the Employee with additional incentive and to
supplement the deferred compensation benefits payable to the Employee, the
Company hereby adopts this Plan and the parties agree as follows:
1. The Company shall supplement the Company provided benefits available
under the 401(k) Plan by crediting to a book reserve or deferred compensation
account during the period of Employee's employment by the Company commencing
November 2, 1998, a sum equal to seven percent (7%) of the Employee's
compensation for each such fiscal year above the Section 404 Limit. For this
purpose, compensation shall mean all taxable wages reported on Form W-2.
2. The amount credited to the deferred compensation account as provided
in Section 1 above shall be paid to the trustee under that certain agreement of
trust between the Company and Fidelity Management Trust Company, dated as of the
date hereof and shall be held, administered and disposed in accordance with such
trust. Any appreciation or depreciation with respect to the funds invested in
accordance with the trust shall be credited or charged to the Employee's
deferred compensation account. The Employee shall assume the risk of diminution
in the value of his deferred compensation account in the event any invested
funds depreciate in value. Nothing contained in this Plan and no action taken
pursuant to the provisions of this Plan shall create or be construed to create a
fiduciary relationship between the Company and the Employee or any other person.
Any funds which may be invested under the provisions of this Plan shall continue
for all purposes to be part of the general funds of the Company and no person
other than the Company by virtue of the provisions of this Plan shall have any
interest in such funds. To the extent that any person acquires the right to
receive payments from the Company under this Plan, such rights shall be no
greater than the right of any unsecured general creditor of the Company. The
trust referred to above (and any amendment thereof) shall conform in all
material respects to the terms and provisions of the model trust described in
Revenue Procedure 92-64 adopted by the Internal Revenue Service. It is the
intention of the parties that the Plan constitute an unfunded deferred
compensation plan for tax purposes and for purposes of Title I of the Employee
Retirement Income Security Act of 1974.
3. The benefit to be paid as deferred compensation shall be as
follows:
(a) Commencing one month after termination of employment and for the
next 120 months thereafter, the Company shall pay or cause to be paid to
Employee an amount equal to the quotient of the fair market value of his
deferred compensation account as of the end of each month divided by 120 less
the number of full months since termination of employment. The balance of his
deferred compensation account shall be paid to the Employee 120 months after
termination of employment. The total amount payable to the Employee shall be
increased or decreased as the case may be, to reflect the appreciation or
depreciation in value of the deferred compensation account which remains
invested. Notwithstanding the foregoing, the Board of Directors of the Company
shall have the right in its discretion to accelerate the installment payments
due hereunder and may make such distribution in lump sum or over a shorter
period of time than 120 months as it may find appropriate.
(b) If the Employee should die before the entire supplemental
benefit has been credited, the Company shall be obligated to pay the balance of
the benefits due hereunder. If the Employee should die prior to termination of
his employment or after termination of his employment but before his entire
deferred compensation account has been paid to him, the unpaid benefit due
hereunder will be paid in a lump sum to a beneficiary or beneficiaries
designated in writing to the Company by the Employee. If no designation of
beneficiary has been made by the Employee, or if such designation has been
revoked, the unpaid balance shall be paid to the Employee's estate.
(c) The right of the Employee to payments under this Plan
shall be fully vested and nonforfeitable at all times. The right of Employee or
any other person to the payment of deferred compensation or other benefits under
this Plan shall not be subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, attachment or the garnishment by
creditors of the Employee or the Employee's beneficiary.
(d) If the Board of Directors shall determine that the
Employee is unable to care for his affairs because of any physical or mental
impairment, any payment due (unless a prior claim therefore shall have been made
by a duly appointed guardian, conservator or other legal representative) may be
paid to or for the benefit of the Employee in such manner as the Board may
determine. Any such payment shall be in complete discharge of the liabilities of
the Company under this Plan.
4. Nothing contained herein shall be construed as conferring upon the
Employee the right to continue in the employ of the Company as an executive or
in any other capacity.
5. Any deferred compensation payable under this Plan shall not be
deemed salary or other compensation to the Employee for the purpose of computing
benefits to which he may be entitled under any other pension plan or other
deferred compensation arrangement of the Company for the benefit of its
employees.
6. The Board of Directors of the Company shall have full power and
authority to interpret, construe and administer this Plan and the Board's
interpretation and construction thereof, and actions thereunder, including any
valuation of the deferred compensation account, or the amount or recipient of
the payment to be made therefrom, shall be binding and conclusive upon all
persons for all purposes. No member of the Board shall be liable to any person
for any action taken or omitted in connection with the interpretation and
administration of this Plan unless attributable to willful misconduct. The
Company shall indemnify and hold harmless the members of the Board of Directors
against any liability or threatened liability, including attorneys' fees, court
costs, and damages, related or in any manner connected with decisions and
actions or inactions taken by such Board member in connection with the Plan,
except for such Board member's willful misconduct.
7. This Plan shall be binding upon and inure to the benefit of the
Company, successors and assigns, and the Employee, his heirs, executors,
administrator and legal representatives.
8. This Plan shall be construed in accordance with and governed by the
laws of the State of Alabama.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed by
its duly authorized officers and the Employee has hereunto set his hand and seal
as of the date and year first above written.
NICHOLS RESEARCH CORPORATION
By: Michael J. Mruz
---------------
Its Chief Executive Officer
-----------------------
Charles A. Leader
---------------------------
CHARLES A. LEADER, Employee
<PAGE>
EXHIBIT 10.3
FORM OF INDEMNIFICATION AGREEMENT
BETWEEN REGISTRANT AND ITS DIRECTORS
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is executed as of
______________, 1998, by and between Nichols Research Corporation, a Delaware
Corporation ("Nichols") and Director, a director, officer or representative (as
hereinafter defined) of Nichols (the "Indemnitee").
RECITALS:
Nichols and the Indemnitee are each aware of the exposure to litigation
of officers, directors and representatives of Nichols as such persons exercise
their duties to Nichols. Nichols and the Indemnitee are also aware of conditions
in the insurance industry that have affected and may continue to affect Nichols'
ability to obtain appropriate directors' and officers' liability insurance on an
economically acceptable basis. Nichols desires to continue to benefit from the
services of highly qualified, experienced and otherwise competent persons such
as the Indemnitee; the Indemnitee desires to serve or to continue to serve
Nichols as a director or an officer, or as a director, officer or trustee of
another corporation, joint venture, trust or other enterprise in which Nichols
has a direct or indirect ownership interest, for so long as Nichols continues to
provide on an acceptable basis adequate and reliable indemnification against
certain liabilities and expenses that may be incurred by the Indemnitee.
AGREEMENT:
In consideration of the foregoing premises and the mutual covenants
herein contained, the parties hereto agree as follows:
1. INDEMNIFICATION. Subject to the terms of this Agreement, Nichols shall
indemnify the Indemnitee with respect to his activities as a director or officer
of Nichols and/or as a person who is serving or has served on behalf of Nichols
("representative") as a director, officer, or trustee of another corporation,
joint venture, trust or other enterprise, domestic or foreign, in which Nichols
has a direct or indirect ownership interest (an "affiliated entity") against
expenses (including, without limitation, attorneys' fees, judgments, fines, and
amounts paid in settlement) actually and reasonably incurred by him or her
("Expenses") in connection with any claim against Indemnitee which is the
subject of any threatened, pending, or completed action, suit, or proceeding,
whether civil, criminal, administrative, investigative or otherwise and whether
formal or informal (a "Proceeding"), to which Indemnitee was, is, or is
threatened to be made a party by reason of facts which include Indemnitee's
being or having been such a director, officer or representative, to the extent
of the highest and most advantageous to the Indemnitee, as determined by the
Indemnitee, of one or any combination of the following:
(a) The benefits provided by the Certificate of Incorporation, or
Bylaws or their equivalent of Nichols in effect at the time
Expenses are incurred by Indemnitee;
(b) The benefits allowable under Delaware law in effect at the
date hereof;
(c) The benefits allowable under the law of the jurisdiction under
which Nichols exists at the time Expenses are incurred by the
Indemnitee;
(d) The benefits available under liability insurance obtained by
Nichols;
(e) Such other benefits as are or may be otherwise available
to Indemnitee.
Combination of two or more of the benefits provided by (a) through (e) shall be
available to the extent that the Applicable Document, as hereafter defined, does
not require that the benefits provided therein be exclusive of other benefits.
The document or law providing for the benefits listed in items (a) through (e)
is defined as the "Applicable Document". Nichols hereby undertakes to use its
best efforts to assist Indemnitee, in all proper and legal ways, to obtain the
benefits selected by Indemnitee under items (a) through (g) above.
For purposes of this Agreement, references to "other enterprises" shall
include employee benefit plans for employees of Nichols or of any affiliated
entity without regard to ownership of such plans; references to "fines" shall
include any excise taxes assessed on the Indemnitee with respect to any employee
benefit plan. References to "serving on behalf of Nichols" shall include any
service as a director, officer, employee or agent of Nichols which imposes
duties on, or involves services by, the Indemnitee with respect to an employee
benefit plan, its participants or beneficiaries. References to the masculine
shall include the feminine; references to the singular shall include the plural
and vice versa. If the Indemnitee acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan, he shall be deemed to have acted in a manner
consistent with the standards required for indemnification by Nichols under the
Applicable Documents.
2. INSURANCE. Nichols shall maintain directors' and officers' liability
insurance for so long as Indemnitee's services are covered hereunder, provided
and only to the extent that such insurance is available in amounts and on terms
and conditions determined by Nichols to be acceptable. However, Nichols agrees
that the provisions of this agreement shall remain in effect regardless of
whether liability or other insurance coverage is at any time obtained or
retained by Nichols, except that any payments in fact made to Indemnitee under
an insurance policy obtained or retained by Nichols shall reduce the obligation
of Nichols to make payments hereunder by the amount of the payments made under
any such insurance policy.
3. PAYMENT OF EXPENSES. At Indemnitee's request, Nichols shall pay the Expenses
as and when incurred by Indemnitee, but only after receipt of written notice
pursuant to Section 5 of this agreement and an undertaking by or on behalf of
Indemnitee to repay such amounts so paid on Indemnitee's behalf if it shall
ultimately be determined under the Applicable Document that Indemnitee is not
entitled to be indemnified by Nichols for such Expenses. The portion of Expenses
that represents attorneys' fees and other costs incurred in defending any
Proceeding shall be paid by Nichols within thirty (30) days of Nichols' receipt
of such request, together with reasonable documentation (consistent, in the case
of attorneys' fees, with Nichols' practice in payment of legal fees for outside
counsel generally) evidencing the amount and nature of such Expenses, subject to
its having received such a notice and undertaking.
4. ADDITIONAL RIGHTS. The indemnification provided in this Agreement shall not
be exclusive of any other indemnification or right to which Indemnitee may be
entitled and shall continue after Indemnitee has ceased to occupy a position as
an officer, director or representative as described in Section 1 above with
respect to Proceedings relating to or arising out of Indemnitee's acts or
omissions during his service in such position.
5. NOTICE TO NICHOLS. Indemnitee shall provide to Nichols prompt written notice
of any Proceeding brought, threatened, asserted or commenced against Indemnitee
with respect to which Indemnitee may assert a right to indemnification
hereunder, provided that failure to provide such notice shall not in any way
limit Indemnitee's rights under this Agreement.
6. COOPERATION IN DEFENSE AND SETTLEMENT. Indemnitee shall not make any
admission or effect any settlement of any Proceeding without Nichols' written
consent unless Indemnitee shall have determined to undertake his own defense in
such matter and has waived the benefits of this Agreement. Nichols shall not
settle any Proceeding to which Indemnitee is a party in any manner which would
impose any Expense on Indemnitee without his written consent. Neither Indemnitee
nor Nichols will unreasonably withhold consent to any proposed settlement.
Indemnitee and Nichols shall cooperate to the extent reasonably possible with
each other and with Nichols' insurers, in attempts to defend or settle such
Proceeding.
7. ASSUMPTION OF DEFENSE. Except as otherwise provided below, to the extent that
it may wish, Nichols jointly with any other indemnifying party similarly
notified will be entitled to assume Indemnitee's defense in any Proceeding, with
counsel mutually satisfactory to Indemnitee and Nichols. After notice from
Nichols to Indemnitee of Nichols' election to assume such defense, Nichols will
not be liable to Indemnitee under this Agreement for Expenses subsequently
incurred by Indemnitee in connection with the defense thereof other than
reasonable costs of investigation or as otherwise provided below. Indemnitee
shall have the right to employ counsel in such Proceeding, but the fees and
expenses of such counsel incurred after notice from Nichols of its assumption of
the defense thereof shall be at Indemnitee's expense unless:
(a) The employment of counsel by Indemnitee has been authorized by
Nichols;
(b) Counsel employed by Nichols initially is unacceptable or later
becomes unacceptable to Indemnitee and such unacceptability is
reasonable under then existing circumstances;
(c) Indemnitee shall have reasonably concluded that there may be a
conflict of interest between Indemnitee and Nichols in the
conduct of the defense of such Proceeding; or
(d) Nichols shall not have employed counsel promptly to assume the
defense of such Proceeding.
In each of these cases the fees and expenses of counsel shall be at the expense
of Nichols and subject to payment pursuant to this Agreement. Nichols shall not
be entitled to assume the defense of Indemnitee in any Proceeding brought by or
on behalf of Nichols or as to which Indemnitee shall have made either of the
conclusions provided for in clauses (b) or (c) above.
8. ENFORCEMENT. In the event that any dispute or controversy shall arise under
this Agreement between Indemnitee and Nichols with respect to whether the
Indemnitee is entitled to indemnification in connection with any Proceeding or
with respect to the amount of Expenses incurred, then with respect to each such
dispute or controversy Indemnitee may seek to enforce the Agreement through
legal action or, at Indemnitee's sole option and written request, through
arbitration. If arbitration is requested, such dispute or controversy shall be
submitted by the parties to binding arbitration in the City of Huntsville,
Alabama, before a single arbitrator agreeable to both parties. If the parties
cannot agree on a designated arbitrator within 15 days after arbitration is
requested in writing by Indemnitee, the arbitration shall proceed in the City of
Huntsville, Alabama, before an arbitrator appointed by the American Arbitration
Association. In either case, the arbitration proceeding shall commence promptly
under the rules then in effect of that Association. The arbitrator agreed to by
the parties or appointed by that Association shall be an attorney other than an
attorney who has been or is associated with a firm having associated with it an
attorney who has been retained by or performed services for Nichols or
Indemnitee at any time during the five years preceding the commencement of
arbitration. The award shall be rendered in such form that judgment may be
entered thereon in any court having jurisdiction thereof. The prevailing party
shall be entitled to prompt reimbursement of any costs and expenses (including,
without limitation, reasonable attorneys' fees) incurred in connection with such
legal action or arbitration; provided that Indemnitee shall not be obligated to
reimburse Nichols unless the arbitrator or court which resolves the dispute
determines that Indemnitee acted in bad faith in bringing such action or
arbitration.
9. EXCLUSIONS. Notwithstanding the scope of indemnification which may be
available to Indemnitee from time to time under any Applicable Document, no
indemnification, reimbursement or payment shall be required of Nichols hereunder
with respect to:
(a) Any claim or any part thereof as to which Indemnitee shall
have been adjudged by a court of competent jurisdiction from
which no appeal is or can be taken to have acted in willful
misfeasance, or willful disregard of his duties, except to the
extent that such court shall determine upon application that,
despite the adjudication of liability, but in view of all the
circumstances of the case, Indemnitee is fairly and reasonably
entitled to indemnity for such expenses as the court shall
deem proper;
(b) Any claim or any part thereof arising under Section 16(b) of
the Securities Exchange Act of 1934 pursuant to which
Indemnitee shall be obligated to pay any penalty, fine,
settlement or judgment;
(c) Any obligation of Indemnitee based upon or attributable to the
Indemnitee gaining in fact any personal gain, profit or
advantage to which he was not entitled; or
(d) Any Proceeding initiated by Indemnitee without the consent or
authorization of the Board of Directors of Nichols, provided
that this exclusion shall not apply with respect to any claims
brought by Indemnitee to enforce his rights under this
Agreement or in any Proceeding initiated by another person or
entity whether or not such claims were brought by Indemnitee
against a person or entity who was otherwise a party to such
Proceeding.
Nothing in this Section 9 shall eliminate or diminish Nichols' obligations to
advance that portion of Indemnitee's Expenses which represent attorneys' fees
and other costs incurred in defending any Proceeding pursuant to Section 3 of
this Agreement.
10. EXTRAORDINARY TRANSACTIONS. Nichols' covenants and agrees that, in the event
of any merger, consolidation or reorganization in which Nichols is not the
surviving entity, any sale of all or substantially all of the assets of Nichols
or any liquidation of Nichols(each such event is hereinafter referred to as an
"Extraordinary Transaction"), Nichols shall:
(a) Have the obligations of Nichols under this Agreement expressly
assumed by the survivor, purchaser or successor, as the case
may be, in such Extraordinary Transaction; or
(b) Otherwise adequately provide for the satisfaction of the
Company's obligations under this Agreement, in a manner
acceptable to Indemnitee.
11. NO PERSONAL LIABILITY. Indemnitee agrees that neither the directors nor any
officer, employee, representative or agent of Nichols shall be personally liable
for the satisfaction of Nichols' obligations under this Agreement, and
Indemnitee shall look solely to the assets of Nichols for satisfaction of any
claims hereunder.
12. SEVERABILITY. If any provision, phrase, or other portion of this Agreement
should be determined by any court of competent jurisdiction to be invalid,
illegal or unenforceable, in whole or in part, and such determination should
become final, such provision, phrase or other portion shall be deemed to be
severed or limited, but only to the extent required to render the remaining
provisions and portions of the Agreement enforceable, and the Agreement as thus
amended shall be enforced to give effect to the intention of the parties insofar
as that is possible.
13. SUBROGATION. In the event of any payment under this Agreement, Nichols shall
be subrogated to the extent thereof to all rights to indemnification or
reimbursement against any insurer or other entity or person vested in the
Indemnitee, who shall execute all instruments and take all other actions as
shall be reasonably necessary for Nichols to enforce such rights.
14. GOVERNING LAW. The parties hereto agree that this Agreement shall be
construed and enforced in accordance with and governed by the laws of the State
of Alabama.
15. NOTICES. All notices, billings, requests, demands, approvals, consents, and
other communications which are required or may be given under this Agreement
shall be in writing and will be deemed to have been duly given if delivered
personally or sent by registered or certified mail, return receipt requested,
postage prepaid to the parties at their respective addresses set forth below:
IF TO NICHOLS: IF TO INDEMNITEE:
Patsy L. Hattox {{Director}}
Nichols Research Corporation Nichols Research Corporation
4090 South Memorial Parkway 4090 South Memorial Parkway
Huntsville, AL 35801 Huntsville, AL 35801
or to such other or further address as shall be designated from time to time by
the Indemnitee or Nichols to the other.
16. TERMINATION. This Agreement may be terminated by either party upon not less
than ninety (90) days prior written notice delivered to the other party, but
termination shall not in any way diminish the obligations of Nichols hereunder
with respect to Indemnitee's activities prior to the effective date of
termination.
17. AMENDMENTS AND BINDING EFFECT. This Agreement and the rights and duties of
Indemnitee and Nichols hereunder may not be amended, modified or terminated
except by written instrument signed and delivered by the parties hereto. This
Agreement is and shall be binding upon and shall inure to the benefits of the
parties thereto and their respective heirs, executors, administrators,
successors and assigns.
IN WITNESS WHEREOF, the undersigned have executed this Agreement in
triplicate as of the date first above written.
Nichols Research Corporation
By: ___________________
Michael J. Mruz
Chief Executive Officer
Indemnitee
By: _________________________
Title: Director
<PAGE>
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