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FILED PURSUANT TO RULE 424(b)(3)
REGISTRATION NO. 333-61143
PROSPECTUS
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415,689 SHARES
NICHOLS RESEARCH CORPORATION
COMMON STOCK
($.0l Par Value)
------------------
As used in this report, the term the "Company" means Nichols Research
Corporation and its majority-owned subsidiaries and joint ventures.
This Prospectus relates to 415,689 shares (the "Shares") of the $.0l par
value common stock (the "Common Stock") of Nichols Research Corporation being
offered for sale by certain stockholders who acquired restricted shares of the
Company's Common Stock in a transaction exempt from registration pursuant to
federal and state securities laws. As used herein, "Selling Stockholders"
includes donees, pledgees, transferees or other successors in interest selling
shares received from a named Selling Stockholder after the date of this
prospectus. See "OFFERING BY SELLING STOCKHOLDERS". The Shares offered by this
Prospectus may be sold from time to time by the Selling Stockholders. No
underwriting arrangements have been entered into by the Selling Stockholders.
The distribution of the Shares by the Selling Stockholders may be offered in one
or more transactions that may take place on the Nasdaq National Market (the
"Nasdaq"), including ordinary broker's transactions, privately-negotiated
transactions, through sales to one or more dealers for resale of such Shares as
principals or through a combination of such methods of sale, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices, at fixed prices that may be changed, or at negotiated prices. Usual and
customary or specifically negotiated brokerage fees or commissions may be paid
by the Selling Stockholders in connection with sales of the Shares by Selling
Stockholders. See "OFFERING BY SELLING STOCKHOLDERS".
The Company's Common Stock is traded on the Nasdaq under the symbol
NRES. On February 5, 1999, the last sale price of the Common Stock as reported
by the Nasdaq was $24.250 per share. See "RISK FACTORS".
SEE "RISK FACTORS" FOR CERTAIN CONSIDERATIONS RELEVANT TO AN INVESTMENT
IN THE COMMON STOCK OFFERED HEREBY.
The Company will receive no proceeds from the sales of the Shares by
the Selling Stockholders. The expenses of the offering described in this
Prospectus, which are payable by the Company, are estimated to be approximately
$21,336.00.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is FEBRUARY 8, 1999.
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS, OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT IN CONNECTION WITH THE OFFER CONTAINED
HEREIN. THIS PROSPECTUS OR ANY PROSPECTUS SUPPLEMENT DOES NOT CONSTITUTE AN
OFFER IN ANY JURISDICTION IN WHICH SUCH OFFER MAY NOT LAWFULLY BE MADE.
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AVAILABLE INFORMATION
This Prospectus constitutes a part of a Registration Statement on Form
S-3 (herein together with all amendments thereto referred to as the
"Registration Statement") filed by the Company with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933 (the "Securities
Act"), as amended. This Prospectus does not contain all the information set
forth in the Registration Statement and exhibits thereto, and statements
included in this Prospectus as to the content of any contract or other document
referred to are not necessarily complete. For further information, reference is
made to the Registration Statement and to the exhibits and schedules filed
therewith. All these documents may be inspected at the Commission's principal
office in Washington, D.C. without charge, and copies of them may be obtained
from the Commission upon payment of prescribed fees. Statements contained in
this Prospectus as to the contents of any contract or other document filed as an
exhibit to the Registration Statement are not necessarily complete, and in each
instance reference is hereby made to the copy of such contract or other document
filed as an exhibit to the Registration Statement, each such statement being
qualified in all respects by such reference.
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and, in accordance
therewith files reports, proxy statements and other information with the
Commission. Such reports, proxy statements and other information can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, Room 1024 and at
the following Regional Offices of the Commission: 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511, and 7 World Trade Center, 13th Floor, New
York, New York 10048. The Commission maintains a Web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. The address of the Commission's
Web site is http://www.sec.gov. Copies of such material also can be obtained at
prescribed rates by writing to the Commission, Public Reference Section, 450
Fifth Street, N.W., Washington, D.C. 20549. In addition, such material may be
inspected and copied at the offices of the Nasdaq Stock Market, Inc., National
Association of Securities Dealers, 1735 K Street, N.W., Washington, D.C. 20006.
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents that previously were, or are required in the
future to be, filed with the Commission (File No. 0-15295) pursuant to the
Securities Exchange Act of 1934 (the "Exchange Act") are incorporated herein by
reference:
(i) the Company's Annual Report on Form 10-K for the year ended August 31,
1998, as amended by Form 10-K/A filed with the Commission on January
13, 1999 and the Company's Quarterly Report 10-Q for the quarter ended
November 30, 1998 filed with the Commission on January 14, 1999;
(ii) the description of the Company's Common Stock contained in the
Company's registration statement on Form 8-A filed with the Commission
on January 14, 1987, as amended by Form 8 filed with the Commission on
August 18, 1989;
(iii) the Company's Proxy Statement dated December 7, 1998, concerning the
Company's Annual Meeting of Stockholders to be held January 14, 1999;
(iv) the Company's Current Report on Form 8-K dated August 31, 1997, filed
with the Commission on September 11, 1997, as amended by Form 8-K/A
filed with the Commission on November 10, 1997 and by Form 8-K/A filed
with the Commission on January 15, 1999;
(v) the Company's Current Report on Form 8-K dated January 15, 1999, filed
with the Commission on February 5, 1999; and
(vi) all documents filed by the Company pursuant to Sections 13(a), 13(c),
14 or 15(d) of the 1934 Act subsequent to the date of this Prospectus
and prior to the termination of the offering of the Securities.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that such statement is modified or replaced by a statement contained
in this Prospectus or in any other subsequently filed document that also is or
is deemed to be incorporated by reference into this Prospectus. Any such
statement so modified or superseded shall not be deemed, except as so modified
or replaced, to constitute a part of this Prospectus. The Company will provide
without charge to each person to whom a copy of this Prospectus has been
delivered, upon the written or oral request of any such person, a copy of any or
all of the documents referred to above that have been or may be incorporated in
this Prospectus by reference, other than exhibits to such documents. Written or
oral requests for such copies should be directed to Patsy L. Hattox, Corporate
Secretary, Nichols Research Corporation, 4090 South Memorial Parkway, P.O. Box
400002, Huntsville, Alabama 35815-1502, or telephone at (256)883-1140.
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. All statements other than statements of historical facts included or
incorporated in this Prospectus, including without limitation statements
regarding the Company's financial position, business strategy, plans and
objectives of management of the Company for future operations, and capital
expenditures, are forward-looking statements. Although the Company believes that
the expectations reflected in the forward-looking statements and the assumptions
upon which such forward-looking statements are based are reasonable, it can give
no assurance that such expectations and assumptions will prove to have been
correct. Additional important factors that could cause actual results to differ
materially from the Company's expectations ('Cautionary Statements") are
disclosed in this Prospectus and the documents incorporated in this Prospectus.
All written and oral forward-looking statements attributable to the Company or
persons acting on its behalf subsequent to the date of this Prospectus are
expressly qualified in their entirety by the Cautionary Statements.
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information appearing elsewhere in this Prospectus and in the financial
statements and other documents incorporated by reference into this Prospectus.
Unless otherwise indicated, all references to annual or quarterly periods refer
to the Company's fiscal year ending August 31. Investors should carefully
consider the information set forth under the heading "RISK FACTORS".
The Selling Stockholders may sell from time-to-time an aggregate of
415,689 Shares of the Company's Common Stock at prices obtainable on the Nasdaq
or as otherwise negotiated. Each of the Selling Stockholders has informed the
Company that he or she does not have any arrangements or agreements with any
underwriters or broker/dealers to sell the Shares, and intends to contact
various broker/dealers to identify prospective purchasers. Additionally, agents,
brokers or dealers may acquire Shares or interests therein as a pledgee and may,
from time to time, effect distributions of the Shares or interests in such
capacity. Prior to this offering, the Selling Stockholders beneficially owned an
aggregate of 415,689 shares, or less than one percent, of the Company's
outstanding Common Stock, and each individual Selling Stockholder beneficially
owned less than one percent of the Company's outstanding Common Stock. If the
Selling Stockholders sell all the Shares offered hereby, the Selling
Stockholders will not own any shares of the Company's Common Stock after this
offering. See "OFFERING BY SELLING STOCKHOLDERS".
The offering by the Selling Stockholders involves certain risks
concerning the nature of the Company's business, and other matters. See "RISK
FACTORS". The Company will not receive any of the proceeds from the sales of the
Shares by the Selling Stockholders.
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RISK FACTORS
Prospective investors should carefully consider, together with the
other information herein, the following factors that affect the Company.
Concentration of Revenue
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Approximately 75%, 88%, and 76% of the Company's total revenues in
fiscal 1998, fiscal 1997, and fiscal 1996, respectively, were derived from
contracts or subcontracts funded by the U.S. Government. These U.S. Government
contracts include military weapons systems contracts, funded by the Department
of Defense ("DOD") that accounted for approximately 55%, 53%, and 57% of the
Company's total revenues in such years, respectively. The Company believes that
the success and development of this business will continue to be dependent upon
its ability to participate in U.S. Government contract programs. Accordingly,
the Company's financial performance may be directly affected by changing U.S.
Government procurement practices and policies. Other factors that could
materially and adversely affect the Company's government contracting business
and programs include budgetary constraints, changes in fiscal policies or
available funding, changes in government programs or requirements (including
proposals to abolish certain government agencies or departments, curtailing the
U.S. Government's use of technology service firms, the adoption of new laws or
regulations), technical developments and general economic conditions. These
factors could cause U.S. Government agencies to exercise their rights to
terminate existing contracts for convenience or not to exercise options to renew
such contracts.
In addition, certain of the Company's contracts individually contribute
a significant percentage of the Company's revenues. The Company's seven largest
contracts (by revenues) are with the U.S. Government and generated approximately
43% of the Company's total revenues for the year ended August 31, 1998.
The Company expects revenues to continue to be concentrated in a relatively
small number of large U.S. Government contracts. Termination of such contracts,
or the Company's inability to renew or replace such contracts when they expire,
could materially and adversely affect the Company's revenues and income. During
fiscal year 1999, five of these seven contracts are expected to be recompeted.
Risk of Reductions or Changes in Military Weapons Expenditures
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Historically, a majority of the Company's revenues (55% for the year
ended August 31, 1998) are related to U.S. military weapons systems. The U.S.
military weapons budget has been declining in real terms since the mid-1980's,
resulting in some cases in program delays, extensions, and cancellations. A
further significant decline in U.S. military expenditures for weapons systems,
or a reduction in the weapons systems portion of the defense budget, could
materially and adversely affect the Company. While not anticipated, the loss or
significant curtailment of the Company's U.S. military contracts would
materially and adversely affect the Company's revenues and income.
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Approximately 17% of the Company's revenues in fiscal 1998 were from
contracts related to Ballistic Missile Defense, compared to 20% of revenues in
fiscal 1997 and 26% of revenues in fiscal 1996 from such contracts. Strategic
defense has existed for more than 26 years as a mission of DOD through
activities such as the Ballistic Missile Defense ("BMD") program. If a decision
were made to reduce substantially the scope of current BMD programs, management
believes that many national and theater missile defense programs would continue
to be funded by the U.S. Army and Air Force, and other DOD agencies. While the
Company has expanded into other markets, a decision to reduce significantly or
eliminate missile defense funding would have an adverse effect on the Company's
revenues and income.
Uncertainty 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.
Contract Profit Exposure
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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.
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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 skill 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.
To compete successfully for business, the Company must satisfy client
requirements at competitive rates. Although the Company continually attempts to
lower its costs, there are other information technology and technical services
companies that may provide the same or similar services at comparable or lower
rates than the Company. Additionally, certain of the Company's clients require
that their vendors reduce rates after services have commenced. The Company's
success will also depend upon its ability to attract, retain, train, and
motivate highly skilled employees, particularly in the areas of information
technology, where such employees are in great demand.
Acquisition Strategy
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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 information technology (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.
Competition
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The information services industry in which the Company operates is
highly fragmented with no single company or small group of companies in a
dominant position. The Company's competitors include large, diversified firms
with substantially greater financial resources and larger technical staffs than
those of the Company. Some of the large competitors offer services in a number
of markets which overlap many of the same areas in which the Company offers
services, while certain companies are focused on only one or a few of these
markets. The firms which compete with the Company are consulting firms, computer
services firms, applications software companies and accounting firms, as well as
the computer service arms of computer manufacturing companies and defense and
aerospace firms.
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As part of the Company's business strategy to enter new markets, the
Company intends 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.
Attraction and Retention of Professional Staff
- -----------------------------------------------
The Company's success will depend in part upon its ability to attract,
retain, train and motivate highly skilled employees, particularly in the area of
information technology. There is significant competition for employees with the
information technology skills required to perform the services the Company
offers. Qualified information technology professionals are in great demand and
are likely to remain a limited resource for the foreseeable future. There can be
no assurance that the Company will be successful in attracting a sufficient
number of highly skilled employees in the future or that it will be successful
in retaining, training and motivating the employees it is able to attract and
any inability to do so could impair the Company's ability to perform adequately
its existing contracts and to bid for or obtain new contracts.
Variability of Quarterly 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.
THE COMPANY
General
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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 DOD, other federal agencies, state and local governments,
healthcare and insurance organizations, and commercial enterprises. The Company
was founded in 1976 to develop specialized optical sensing capabilities for
military weapons and ballistic defense programs. Until fiscal year 1991,
virtually all of the Company's revenues were derived under contracts with the
federal government relating to high technology weapons systems, strategic
missile defense and other related
8
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aerospace technologies. Areas of particular strength have included tactical
technology, smart sensing systems, simulations, data processing, systems
engineering and systems integration (including software development, networking,
hardware acquisition and installation, user training and system operation and
maintenance). Beginning in fiscal year 1991, in response to increasing budget
pressure on military procurements, the Company strategically began to develop
applications for its technical capabilities outside its traditional core
military business. Although the Company's core military business has continued
to grow, the Company has successfully entered the markets for other government
information technology solutions, as well as information technology solutions in
the healthcare industry and other commercial markets. 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 form alliances to expand the
business of the Company and gain industry knowledge. The Company's business and
financial performance are subject to risks and uncertainties, including those
discussed above. See "RISK FACTORS."
The Company is organized in four strategic business units, reflecting
the particular market focus of each line of business. The Defense and
Intelligence unit (formerly referred to as Nichols Federal) provides technical
services primarily to U.S. Government defense agencies. The Government
Information Technology unit (formerly referred to as Nichols InfoFed) provides
information and technology solutions and services to a variety of governmental
agencies. The Commercial Information Technology unit (formerly referred to as
Nichols Infotec) provides information and technology services to various
commercial clients, other than healthcare clients. The Healthcare Information
Technology unit (formerly referred to as Nichols TXEN) provides information
services to clients in the healthcare and insurance industries. The Company is
currently evaluating whether the services and products provided to the insurance
industry should continue to be included with Nichols TXEN or reorganized into
Nichols InfoTec. For the year ended August 31, 1998, the percentage of total
revenues attributable to the four business units was approximately 55% for
Defense and Intelligence, 24% for Government Information Technology, 10% for
Commercial Information Technology, and 11% for Healthcare Information
Technology.
The Company's executive offices are located at 4090 South Memorial
Parkway, Huntsville, Alabama 35815-1502, and its telephone number is (256)
883-1140.
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Year 2000
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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.
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.
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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 United States 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.
The Company does not believe it will be liable for augmenting services or
upgrading products with regard to completed transactions, including but not
necessarily limited to, services or products under warranty. The Company, in
general, does not warrant or guaranty the Year 2000 compliance of its products
or services. However, in certain contracts the Company includes performance
guaranties which provide for various penalties if the Company is unable to meet
the performance standards specified in those contracts. For those contracts that
include performance guaranties, and those certain contracts that include Year
2000 guaranties or warranties, the Company has committed to upgrade its services
or products as previously disclosed. If the Company fails to upgrade these
products or services successfully it may face liability.
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Status and Timetable for Year 2000 Compliance
The Company has developed a master timetable for its year 2000
compliance program. The status of each major category of mission essential
systems is as follows:
<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.
As part of its Year 2000 Compliance plan, the Company has identified those
third party suppliers with which it has material relationships. These third
parties supply both goods and services to the Company and are dependent upon
their own systems to maintain these business relationships. The Company has had
communications with these suppliers regarding their Year 2000 readiness and has
requested that they provide details of their Year 2000 compliance programs.
Based upon these communications, the Company believes that as a group, its major
suppliers are in the final testing stages of their Year 2000 compliance
programs. The Company, however, cannot estimate the time for completion of these
programs. The Company has tested the products and services offered by these
third party suppliers as part of its own Year 2000 compliance program and
believes that those products and services that are material to its business will
be Year 2000 compliant by April, 1999. The Company has not independently
confirmed the estimated costs of Year 2000 compliance or scheduled completion
dates supplied by these third parties and does not believe that it is cost
effective to do so.
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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 the
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,
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 Nichols Research
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 operation.
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<TABLE>
<CAPTION>
SELECTED FIVE-YEAR FINANCIAL SUMMARY
Pro forma Pro forma
1998 1998 1997 1997 1996 1995 1994
Restated Restated Restated Restated
-------- -------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 427,043,000 $427,043,000 $ 398,142,000 $ 398,142,000 $256,605,000 $ 180,698,000 $149,874,000
Net income $16,733,000*** $ 14,198,000 13,199,000** $ 4,699,000 $ 10,063,000 $ 7,651,000 $ 6,858,000
Earnings per
common share * $ 1.23 $ 1.04 $ 1.09 $ 0.39 $ 1.00 $ 0.80 $ 0.72
Earnings per
common share
assuming
dilution* $ 1.18 $ 1.01 $ 1.04 $ 0.37 $ 0.94 $ 0.77 $ 0.70
Stockholders'
equity $ 169,747,000 $169,747,000 $ 150,468,000 $ 150,468,000 $115,052,000 $ 69,358,000 $ 58,365,000
Long-term debt $ 2,948,000 $ 2,948,000 $ 4,025,000 $ 4,025,000 $ 4,784,000 $ 5,366,000 $ 4,328,000
Goodwill and
other intangibles,
net $ 57,262,000 $ 57,262,000 $ 51,346,000 $ 51,346,000 $21,004,000 $ 8,803,000 $ -
Total assets $ 227,336,000 $227,336,000 $ 213,632,000 $ 213,632,000 $165,321,000 $ 103,283,000 $82,318,000
</TABLE>
* As adjusted for a three-for-two stock split effective October 21, 1996.
** Excludes a $8.5 million write off of purchased in-process research and
development.
*** Excludes $4.1 million of pretax special charges.
NOTE: All prior periods have been restated to reflect the fiscal year 1998
merger with Welkin, which was accounted for as a pooling of interests.
14
<PAGE>
OFFERING BY SELLING STOCKHOLDERS
The Company is registering the sale of an aggregate of 415,689 Shares
of Common Stock by the Selling Stockholders. The Selling Stockholders may sell
their Common Stock at such prices as they are able to obtain in the market or as
otherwise negotiated. The Company will receive no proceeds from the sale of
Common Stock by the Selling Stockholders. Additionally, agents, brokers or
dealers may acquire Shares or interests therein as a pledgee and may, from time
to time, effect distributions of the Shares or interests in such capacity.
The Shares offered by the Selling Stockholders were acquired from the
Company in connection with the merger of a wholly-owned subsidiary of the
Company with and into Welkin Associates, Ltd. (the "Welkin Acquisition'). The
Welkin Acquisition was completed pursuant to the terms of an Agreement and Plan
of Merger dated June 26, 1998 (the "Merger Agreement"). As a result of the
consummation of the merger, all issued and outstanding shares of Welkin
Associates, Ltd. were exchanged for 415,689 shares of the Company's Common
Stock. As part of the Merger Agreement, the Company agreed to effect a
registration of all shares of the Company's Common Stock received by the Selling
Stockholders in the Welkin Acquisition in order to permit the Selling
Stockholders to effect sales of such Shares from time to time in the market or
in privately negotiated transactions. Accordingly, the Company has filed with
the Commission, under the Securities Act, a Registration Statement on Form S-3,
of which this Prospectus is a part, with respect to the resale of the Shares
from time to time on the Nasdaq National Market or in privately negotiated
transactions. The Company has agreed to use reasonable efforts to keep such
Registration Statement in effect for up to two years from the date of its
effectiveness or, if earlier, until the distribution contemplated in this
Prospectus is completed.
Each of Carl W. Monk, Jr., David Thomas, and Alan A. Ross was a
director of Welkin Associates, Ltd. ("Welkin") at the time that Welkin became a
wholly-owned subsidiary of the Company on July 28, 1998. In addition, Carl W.
Monk was President, Treasurer, as well as a stockholder. Each of Alan A. Ross
and Jose Jimenez was a Vice President and stockholder, and Patricia Toomey was
Secretary and a stockholder at that time.
The following table sets forth the name of each Selling Stockholder,
the number of shares of Common Stock owned by each Selling Stockholder before
the offering, the number of shares of Common Stock to be sold by each Selling
Stockholder, the number of shares owned by each Selling Stockholder after the
offering, and the percentage of shares of Common Stock owned after the offering.
For purposes of this table, the Company has assumed the sale of all Shares
registered hereby, although the Company is not aware of any present intention of
any Selling Shareholder to sell such Shares.
15
<PAGE>
<TABLE>
<CAPTION>
Number of
Shares Number of Percentage of
Owned Number of Shares Owned Shares
Before Shares to After Owned After
Name Offering Be Sold Offering Offering
- ----------- ------------ --------- ------------ ---------------
<S> <C> <C> <C> <C>
Carl W. Monk, Jr. 133,172 133,172 -0- *
Zeta Associates, Inc. 119,245 119,245 -0- *
Alan A. Ross 56,783 56,783 -0- *
Frederick W. Raymond 39,350 39,350 -0- *
Donald E. Snoddy 8,517 8,517 -0- *
David S. Stafford 8,517 8,517 -0- *
Lawrence E. Earl 7,381 7,381 -0- *
Arthur T. Larson, Jr. 6,814 6,814 -0- *
Jose S. Jimenez 6,478 6,478 -0- *
Kent B. Pelot 4,542 4,542 -0- *
David L. Shickle 4,542 4,542 -0- *
James A. Flanagan 2,839 2,839 -0- *
Robert J. Heim 2,839 2,839 -0- *
Royal G.C. Collette 2,271 2,271 -0- *
Carl E. Josefson 1,260 1,260 -0- *
Linas A. Roe 1,135 1,135 -0- *
William H. Skipper 1,135 1,135 -0- *
Paul S. Vick 1,135 1,135 -0- *
David H. Bryant 851 851 -0- *
Neil A. Costanzo 851 851 -0- *
Marya K. Pickering 851 851 -0- *
William J. Comstock 794 794 -0- *
Trent A. Trapp 567 567 -0- *
Robert L. Forcier 567 567 -0- *
Jack V. Brendmoen 272 272 -0- *
James R. Sowers 136 136 -0- *
Patricia A. Toomey 890 890 -0- *
Conrad J. Wigge 136 136 -0- *
Leila M. Moyer 113 113 -0- *
James F. Spaulding 68 68 -0- *
James A. Cheek 22 22 -0- *
Dana L. Heisey 22 22 -0- *
Gary D. Wells 22 22 -0- *
Joan D. Jimenez 1,554 1,554 -0- *
- ------------------------
*Less than 1% of the Common Stock outstanding.
</TABLE>
16
<PAGE>
USE OF PROCEEDS
The Company will not receive any of the proceeds from the sale of the
Shares by the Selling Stockholders. See "OFFERING BY SELLING STOCKHOLDERS."
PLAN OF DISTRIBUTION
All or a portion of the Shares offered hereby by the Selling
Stockholders may be delivered and/or sold from time to time in transactions on
the Nasdaq National Market, in privately negotiated transactions, or by a
combination of both (which compensation to a particular broker-dealer might be
in excess of customary commissions). There is no assurance that any of the
Selling Stockholders will sell any or all of the Shares offered by them.
Any Selling Stockholder and any broker-dealer that participates in the
distribution may under certain circumstances be deemed to be "underwriters"
within the meaning of the Securities Act, and any commissions received by such
broker-dealers and any profits realized on the resale of Shares may be deemed to
be underwriting discounts and commissions under the Securities Act. Each Selling
Stockholder may agree to indemnify such broker-dealers against certain
liabilities, including liabilities under the Securities Act. In addition, the
Company has agreed to indemnify in certain circumstances the Selling
Stockholders against certain liabilities including liabilities arising under the
Securities Act. The Selling Stockholders have agreed to indemnify in certain
circumstances the Company against certain liabilities.
Selling Stockholders also may resell all or a portion of the Shares in open
market transactions in reliance upon Rule 144 under the Securities Act,
provided they meet the criteria and conform to the requirements of such Rule.
Upon the Company being notified by a Selling Stockholder that any material
arrangement has been entered into with a broker-dealer for the sale of Shares
through a block trade, special offering, exchange distribution or secondary
distribution or a purchase by a broker or dealer, a supplement to this
Prospectus will be filed, if required, pursuant to Rule 424(b) under the
Securities Act, disclosing (i) the name of each such Selling Stockholder and of
the participating broker-dealer(s), (ii) the number of Shares involved, (iii)
the price at which such Shares were sold, (iv) the commissions paid or discounts
or concessions allowed to such broker-dealer(s), where applicable, (v) that such
broker-dealer(s) did not conduct any investigation to verify the information set
out or incorporated by reference in the Prospectus and (vi) other facts material
to the transaction. In addition, upon the Company being notified by a Selling
Stockholder that a donee or pledgee intends to sell more than 500 shares, a
supplement to this Prospectus will be filed.
EXPERTS
The consolidated financial statements of Nichols Research Corporation
appearing in Nichols Research Corporation's Annual Report (Form 10-K/A Amendment
No. 1) for the year ended August 31, 1998, have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon included therein
and incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
17
<PAGE>
LEGAL MATTERS AND INTERESTS OF NAMED EXPERTS
The validity of the shares of Common Stock being offered hereby will be
passed upon the Company and the Selling Stockholders by Lanier Ford Shaver &
Payne, P.C., Huntsville, Alabama. John R. Wynn, a member of the law firm of
Lanier Ford Shaver & Payne P.C., is a director of the Company. As of January
22, 1999, six (6) attorneys of Lanier Ford Shaver & Payne, P.C., including Mr.
Wynn, beneficially owned an aggregate of 31,321 shares of Common Stock.
18
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN
THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE.
------------------
TABLE OF CONTENTS
PAGE
----
Available Information .............................................. 2
Incorporation Of Certain Documents By Reference .................... 3
Disclosure Regarding Forward-Looking Statements .................... 4
Prospectus Summary ................................................. 4
Risk Factors ....................................................... 5
The Company ........................................................ 8
Selected Five Year Financial Data .................................. 14
Offering By Selling Stockholders ................................... 15
Use of Proceeds .................................................... 17
Plan of Distribution ............................................... 17
Experts ............................................................ 17
Legal Matters and Interests of Named Experts ....................... 18
19
