-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Vuqnhqe9UBI5ZdlUC4OJruhcOVy/3rwk6kDGAmFybI/Cx6aBa2me7LO6lxd2jP8F hvGtUuK+PVYmFzx0OnosRg== 0000806388-98-000010.txt : 19980414 0000806388-98-000010.hdr.sgml : 19980414 ACCESSION NUMBER: 0000806388-98-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19980228 FILED AS OF DATE: 19980413 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: NICHOLS RESEARCH CORP /AL/ CENTRAL INDEX KEY: 0000806388 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ENGINEERING SERVICES [8711] IRS NUMBER: 630713665 STATE OF INCORPORATION: DE FISCAL YEAR END: 0831 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-15295 FILM NUMBER: 98592151 BUSINESS ADDRESS: STREET 1: 4040 MEMORIAL PKWY S CITY: HUNTSVILLE STATE: AL ZIP: 35802 BUSINESS PHONE: 2058831140 10-Q 1 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 February 28, 1998 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Transition Period From _____________ To _____________ _____________________ Nichols Research Corporation Commission File Number 0-15295 (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.) 4040 Memorial Parkway, South Huntsville, Alabama 35802-1326 (205) 883-1140 (Address, including zip code, of principal offices) _____________________ NO CHANGE (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. 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 13,186,101 SHARES OUTSTANDING ON February 28, 1998 _____________________ FORM 10-Q NICHOLS RESEARCH CORPORATION QUARTERLY REPORT FOR THE PERIOD ENDED FEBRUARY 28, 1998 INDEX Part I. FINANCIAL INFORMATION Item 1. Financial Statements Statements of Income for the Three Months and Six Months Ended February 28, 1998 and February 28, 1997 (Unaudited) Balance Sheets as of February 28, 1998 and August 31, 1997 (Unaudited) Statements of Changes in Stockholders' Equity for the Six Months Ended February 28, 1998 and February 28, 1997 (Unaudited) Statements of Cash Flows for the Six Months Ended February 28, 1998 and February 28, 1997 (Unaudited) Notes to Financial Statements (Unaudited) Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Part II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders Item 6. Exhibits and Reports on Form 8-K Signatures NICHOLS RESEARCH CORPORATION PART I - FINANCIAL INFORMATION Item 1 - Financial Statements CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) For the Three Months Ended For the Six Months Ended February 28, February 28, February 28, February 28, 1998 1997 1998 1997 ------------------------------------------------------ (amounts in thousands except share data) Revenues................ $ 87,532 $ 91,974 $ 171,481 $ 174,821 Costs and expenses: Direct and allocable costs............... 72,677 81,871 142,632 154,519 General and administrative...... 8,132 5,217 15,695 10,509 Amortization of intangibles......... 1,137 509 2,176 1,019 ------------------------------------------------------ Total costs and expenses.......... 81,946 87,597 160,503 166,047 ------------------------------------------------------ Operating profit........ 5,586 4,377 10,978 8,774 Other income (expense): Interest expense...... (98) (268) (188) (336) Other income, principally interest............ 305 221 582 483 Equity in earnings of unconsolidated affiliates.......... 160 143 290 280 Minority interest in consolidated subsidiaries........ (163) (110) (494) (230) ------------------------------------------------------ Income before income taxes................. 5,790 4,363 11,168 8,971 Income taxes............ 2,195 1,583 4,244 3,256 ------------------------------------------------------ Net income $ 3,595 $ 2,780 $ 6,924 $ 5,715 ====================================================== Earnings per common share................. $ .27 $ .24 $ .53 $ .49 ====================================================== Earnings per common share-assuming dilution.............. $ .26 $ .23 $ .51 $ .47 ====================================================== Weighted average number of common shares........ 13,135,241 11,621,652 13,097,064 11,585,322 ====================================================== Weighted average number of common and common equivalent shares....... 13,609,697 12,336,505 13,595,392 12,264,837 ====================================================== NOTE: The Company has not declared or paid dividends in any of the periods presented. All references to the number of shares and per share amounts have been restated to reflect the effect of a three-for-two stock split effective October 21, 1996. NICHOLS RESEARCH CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) February 28, August 31, 1998 1997 -------------------------------- (amounts in thousands) ASSETS Current assets: Cash and temporary cash investments.... $ 24,113 $ 23,354 Accounts receivable.................... 87,491 93,425 Deferred income taxes.................. 2,102 2,102 Other.................................. 3,718 3,311 -------------------------------- Total current assets................ 117,424 122,192 Long-term investments.................... 2,679 3,738 Property and equipment: Computers and related equipment........ 26,067 21,956 Furniture, equipment and improvements.. 10,664 9,666 Equipment - contracts.................. 5,771 5,771 -------------------------------- 42,502 37,393 Less accumulated depreciation.......... 21,334 18,715 -------------------------------- Net property and equipment.......... 21,168 18,678 Goodwill and other intangibles (net of accumulated amortization).............. 46,520 48,130 Software development costs (net of accumulated amortization).............. 4,241 4,271 Investment in affiliates................. 9,606 8,363 Other assets............................. 1,167 783 -------------------------------- Total assets............................. $ 202,805 $ 206,155 ================================ NOTE: All references to the number of shares and per share amounts have been restated to reflect the effect of a three-for-two stock split effective October 21, 1996. NICHOLS RESEARCH CORPORATION CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) CONTINUED February 28, August 31, 1998 1997 ------------------------------- (amounts in thousands except per share data) LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable....................... $ 20,682 $ 28,448 Accrued compensation and benefits...... 14,856 11,388 Income taxes payable................... 999 369 Current maturities of long-term debt... 761 761 Borrowings on line of credit........... - 10,000 Deferred revenue....................... 5,224 3,114 Other.................................. 52 1,534 ------------------------------- Total current liabilities............ 42,574 55,614 Deferred income taxes.................... 1,816 1,816 Long-term debt: Industrial development bonds........... 1,335 1,558 Long-term notes........................ 2,198 2,467 ------------------------------- Total long-term debt................. 3,533 4,025 Minority interest in consolidated subsidiaries........................... 801 307 Stockholders' equity: Common stock, par value $.01 per share Authorized - 20,000,000 shares Issued - 13,354,601 and 13,137,657 shares, respectively............... 133 131 Additional paid-in capital............. 92,777 90,015 Retained earnings...................... 62,459 55,535 Less cost of treasury stock-168,500 shares............................... (1,288) (1,288) ------------------------------- Total stockholders' equity......... 154,081 144,393 ------------------------------- Total liabilities and stockholders equity................................. $ 202,805 $ 206,155 =============================== NOTE: All references to the number of shares and per share amounts have been restated to reflect the effect of a three-for-two stock split effective October 21, 1996. NICHOLS RESEARCH CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
Additional Total Common Stock Paid-In Retained Treasury Stockholder's Shares Amount Capital Earnings Stock Equity ------------------------------------------------------------------- (amounts in thousands except share data) For the Three Months Ended February 28, 1998 -------------------------------------------- Balance, August 31, 1997 13,137,657 $ 131 $ 90,015 $ 55,535 $ (1,288) $144,393 Exercise of stock options 167,523 2 1,709 - - 1,711 Employee stock purchases 49,421 - 1,053 - - 1,053 Net income - - - 6,924 - 6,924 ------------------------------------------------------------------- Balance,February 28, 1998 13,354,601 $ 133 $ 92,777 $ 62,459 $ (1,288) $154,081 =================================================================== For the Three Months Ended February 28, 1997 -------------------------------------------- Balance, August 31, 1996 11,651,018 $ 117 $ 59,071 $ 55,061 $ (1,288) $112,961 Exercise of stock options 167,594 2 1,504 - - 1,506 Employee stock purchases 34,742 - 734 - - 734 Net income - - - 5,715 - 5,715 ------------------------------------------------------------------- Balance, February 28, 1997 11,853,354 $ 119 $ 61,309 $ 60,776 $ (1,288) $120,916 ===================================================================
NOTE: All references to the number of shares and per share amounts have been restated to reflect the effect of a three-for-two stock split effective October 21, 1996. NICHOLS RESEARCH CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the Six Months Ended ------------------------ February 28, February 28, 1998 1997 -------------------------- (amounts in thousands) CASH FLOWS FROM OPERATING ACTIVITIES: Net income.................................. $ 6,924 $ 5,715 Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation.............................. 2,619 1,884 Amortization.............................. 2,176 1,019 Equity in earnings of unconsolidated affiliates.............................. (290) (280) Minority interest......................... 494 315 Changes in assets and liabilities net of effects of acquisitions: Accounts receivable....................... 5,934 (15,386) Other assets.............................. (883) (2,370) Accounts payable.......................... (7,766) 1,792 Accrued compensation and benefits......... 3,468 1,259 Income taxes payable...................... 630 (238) Other current liabilities................. 628 (351) -------------------------- Total adjustments......................... 7,010 (12,356) -------------------------- Net cash provided (used) by operating activities............................ 13,934 (6,641) CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment.......... (5,109) (2,047) Purchase long-term investments.............. (100) (75) Purchase capitalized software............... (355) (362) Payment for investment in affiliates........ (1,028) (4,092) Proceeds from long-term investments......... 1,145 250 -------------------------- Net cash used by investing activities..... (5,447) (6,326) CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock...... 2,764 2,240 Payments of long-term debt.................. (492) (538) Proceeds from borrowings on line of credit.. - 15,000 Payments on line of credit borrowings....... (10,000) (15,000) -------------------------- Net cash provided (used) by financing activities.............................. (7,728) 1,702 -------------------------- NICHOLS RESEARCH CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) (UNAUDITED) For the Six Months Ended -------------------------- February 28, February 28, 1998 1997 -------------------------- (amounts in thousands) Net increase (decrease) in cash and temporary cash investments................ 759 (11,265) Cash and temporary cash investments at beginning of period.................... 23,354 21,419 -------------------------- Cash and temporary cash investments at end of period............................... $ 24,113 $ 10,154 ========================== NON-CASH TRANSACTIONS: Adjustment to purchase price allocation..... $ - $ 200 NICHOLS RESEARCH CORPORATION NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) February 28, 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 - Stock Split ----------- On October 9, 1996 the Board of Directors declared a three-for- two stock split which was paid to shareholders of record on October 21, 1996. The split was effected on November 4, 1996 by a stock dividend of one share for every two shares of common stock outstanding, with cash paid in lieu of fractional shares based on the stock value on record date. All references to the number of shares and per share amounts have been restated to reflect the effect of the split for all periods presented. Note 3 - New Pronouncements ------------------ In 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, Earnings per Share. Statement 128 replaced the previously reported primary and fully diluted earnings per share with earnings per common share and earnings per common share assuming dilution. Unlike primary earnings per common share, earnings per common share excludes any dilutive effects of options, warrants, and convertible securities. Earnings per common share assuming dilution is very similar to the previously reported fully diluted earnings per share. All earnings per share amounts for all periods have been presented, and where necessary, restated to conform to the Statement 128 requirements. Note 4 - Investment in Affiliates ------------------------ The Company increased its capital investment in Intertech Management Group, Inc. by approximately $528,000. As of February 28, 1998 the Company holds a 35% interest at an aggregate cost of approximately $ 5,663,000. The Company increased its capital investment in NCCIM, LLC by $500,000. As of February 28, 1998 the Company holds a 50% interest at an aggregate cost of approximately $1,345,000. Note 5 - Line of Credit -------------- The Company renegotiated its bank line of credit in November, 1997. 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 were no outstanding borrowings on this line of credit at February 28, 1998. Note 6 - Earnings Per Share ------------------ The following table sets forth the computation of earnings per common share and earnings per common share assuming dilution:
For the Three Months Ended For the Six Months Ended February 28, February 28, February 28, February 28, 1998 1997 1998 1997 ------------------------------------------------------------ Numerator: Net income and income and income available to common stockholders and income available to common stockholders after assumed conversions............... $ 3,595,0000 $ 2,780,000 $ 6,924,000 $ 5,715,000 ========================================================== Denominator: Denominator for earnings per common share - weighted average common shares............. 13,135,241 11,621,652 13,097,064 11,585,322 Effect of dilutive securities: Employee stock options...... 474,456 714,853 498,328 679,515 Denominator for earnings per common share assuming dilution - adjusted weighted average common shares and assumed conversions..... 13,609,697 12,336,505 13,595,392 12,264,837 ======================================================= Earnings per common share..... $ .27 $ .24 $ .53 $ .49 ======================================================= Earnings per common share assuming dilution........... $ .26 $ .23 $ .51 $ .47 ========================================================
NICHOLS RESEARCH CORPORATION ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 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 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 below. The Company is organized in four strategic business units, reflecting the particular market focus of each line of business. Nichols Federal provides technical services primarily to U.S. government defense agencies. Nichols InfoFed provides information and technology services to a variety of governmental agencies. Nichols InfoTec provides information and technology services to various commercial clients, other than healthcare or insurance industry clients. Nichols TXEN provides information services to clients in the healthcare and insurance industries. For the six months ended February 28, 1998, the percentage of total revenues attributable to the four business units were approximately 60% for Nichols Federal, 20% for Nichols InfoFed, 9% for Nichols InfoTec, and 11% for Nichols TXEN. Expansion through acquisitions is an important component of the Company's overall business strategy. The Company has successfully completed eight strategic acquisitions and alliances since September 1, 1994. 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. 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. 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 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 significant system integration contracts which occur on a periodic basis depending on contract terms and modifications. 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. 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 31,1997,AND IN THE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS 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 OF SIMILAR IMPORT. SIMILARLY, STATEMENTS THAT DESCRIBE THE COMPANY'S FUTURE PLANS, OBJECTIVES, GOALS OR STRATEGIES ARE FORWARD-LOOKING STATEMENTS. Results of Operations - --------------------- The following tables set forth, for the periods indicated, the percentage which certain items in the consolidated statements of income bear to consolidated revenues, and the percentage change of such items for the periods indicated: For the Three Months Ended For the Six Months Ended February 28, February 28, February 28, February 28, 1998 1997 1998 1997 ----------------------------------------------------- Revenues................. 100.0% 100.0% 100.0% 100.0% Costs and expenses: Direct and allocable costs................ 83.0 89.0 83.2 88.4 General and administrative expenses............. 9.3 5.7 9.1 6.0 Amortization of intangibles......... 1.3 0.5 1.3 0.6 ----------------------------------------------------- Total costs and expenses........ 93.6 95.2 93.6 95.0 ----------------------------------------------------- Operating profit......... 6.4 4.8 6.4 5.0 Interest expense......... (0.1) (0.3) (0.1) (0.2) Other income, principally interest............... 0.3 0.2 0.3 0.3 Equity in earnings of unconsolidated affiliates............. 0.2 0.1 0.2 0.1 Minority interest in consolidated subsidiaries........... (0.2) (0.1) (0.3) (0.1) ----------------------------------------------------- Income before income taxes.................. 6.6 4.7 6.5 5.1 Income taxes............. 2.5 1.7 2.5 1.8 ----------------------------------------------------- Net income 4.1% 3.0% 4.0% 3.3% ===================================================== The table below presents contract award and backlog data for the periods indicated: February 28, February 28, 1998 1997 ---------------------------- (amounts in thousands) Contract award amount............. $ 98,041 $ 391,261 Backlog (with options)............ $ 1,155,036 $ 1,246,000 Backlog (without options)......... $ 485,103 $ 542,958 NICHOLS RESEARCH CORPORATION COMPARISON OF OPERATING RESULTS FOR FISCAL SECOND QUARTER 1998 WITH FISCAL SECOND QUARTER 1997 REVENUES. Revenues decreased $4.4 million (4.8%) for the three months and $3.3 million (1.9%) for the six months ended February 28, 1998 as compared to the three months and six months ended February 28, 1997. Nichols Federal revenue increased 10% ($10 million) for the six months ended February 28, 1998 compared to the six months ended February 28, 1997 primarily as a result of continued growth in existing contract base. Nichols InfoFed revenues decreased 50% ($33 million) for the six months ended February 28, 1998 as compared to the six months ended February 28, 1997 primarily due to the timing of significant hardware and software purchases related to systems integration contracts. An increase in contract activity on systems integration contracts is expected during the next six months. Nichols InfoTec revenues increased 90% ($7 million) for the six months ended February 28, 1998 as compared to the six months ended February 28, 1997 primarily as a result of SAP software sales and integration services. Nichols TXEN revenue more than doubled ($13 million increase) during the six months ended February 28, 1998 as compared to the six months ended February 28, 1997 primarily as a result of the TXEN, Inc. acquisition completed in August 1997. OPERATING PROFIT. Operating profit increased $1.2 million (27.6%) for the three months and $2.2 million (25.1%) for the six months ended February 28, 1998 as compared to the three months and six months ended February 28, 1997. Operating margin for the six months ended February 28, 1998 was 6.4% as compared to 5.0% for the six months ended February 28, 1997. Nichols Federal operating profit increased 20% ($0.9 million) for the six months ended February 28, 1998 both as a result of increased contract activity and because in fiscal year 1997 operating profit was adversely affected by the completion of two significant contracts. Nichols InfoFed operating profit decreased 29% ($1.0 million) for the six months ended February 28, 1998 as a result of a decrease in systems integration hardware and software purchases, while margins on existing work improved. Nichols InfoTec operating profit increased 125% ($0.6 million) primarily as a result of increased SAP software sales and integration. Nichols TXEN operating profit increased substantially ($2 million) for the six months ended February 28, 1998 primarily as a result of the contribution from the acquisition of TXEN, Inc. completed in August 1997. Costs and expenses were 93.6% of revenues for the three months and six months ended February 28, 1998 as compared to 95.2% for the three months and 95.0% for the six months ended February 28, 1997. The decrease in direct and allocable costs as a percentage of revenues was primarily the result of significant hardware and software purchases for systems integration contracts. The $5.2 million (49.3%) increase in general and administrative expenses is primarily a result of the acquisition of TXEN, Inc. completed in August 1997. Amortization of intangibles increased $1.2 million (113.5%) primarily as a result of the amortization of intangibles recorded for the acquisition of TXEN, Inc. completed in August 1997. OTHER INCOME (EXPENSE). Other income (expense) increased $218,000 for the three months and decreased $7,000 for the six months ended February 28, 1998 as compared to the three months and six months ended February 28, 1997. Other income includes equity in earnings of unconsolidated affiliates and interest income; other expense includes interest expense and minority interest. Interest income is from the investment of the Company's cash reserves. Substantially all available cash is invested in interest-bearing accounts or fixed income instruments. Interest expense is primarily from the long-term borrowings of the Company and the commitment fee on unused line of credit. Equity in earnings of unconsolidated affiliates for the six months ended February 28, 1998 primarily represents the Company's share of the earnings of NCCIM, LLC a joint venture, 50% of which is owned by the Company; while the comparable amount for the six months ended February 28, 1997 represented the Company's share of earnings of TXEN, Inc. As of August 1997, TXEN, Inc. became a wholly-owned subsidiary of the Company. Minority interest 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 increase in minority interest of $264,000 for the six months ended February 28, 1998 as compared to the six months ended February 28, 1997 is primarily the result of an increase in SAP software and implementation services in the Nichols InfoTec unit. INCOME TAXES. Income taxes as a percentage of income before taxes was 38.0% for the six months ended February 28, 1998 as compared to 36.2% for the six months ended February 28, 1997. The increase is primarily a result of the differences between financial and taxable income related to the amortization of intangibles. NET INCOME . Net income increased $0.8 million (29.3%) for the three months and $1.2 million (21.2%) for the six months ended February 28, 1998 as compared to the three months and six months ended February 28, 1997. The increase is a result of the matters discussed above. EARNINGS PER SHARE ASSUMING DILUTION. Earnings per share assuming dilution for the three months and six months ended February 28, 1998 were $0.26 and $0.51 as compared to $0.23 and $0.47 for three months and six months ended February 28, 1997, an increase of 17.2% and 9.3%, respectively. Net income increased 21.2% ($1.2 million), while weighted average common shares and common equivalent shares increased 10.8% (1,330,555 shares) for the six months ended February 28, 1998 as compared to the six months ended February 28, 1997. 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 $74.8 million and $76.0 million at February 28, 1998 and 1997, respectively. Operating activities provided cash of $13.9 million for the six months ended February 28, 1998 and used cash of $6.6 million for the six months ended February 28, 1997. Investing activities used cash of $5.4 million for the six months ended February 28, 1998 and $6.3 million for the six months ended February 28, 1997. Financing activities used cash of $7.7 million for the six months ended February 28, 1998 and provided cash of $1.7 million for the six months ended February 28, 1997. Cash provided by operating activities increased $20.6 million for the six months ended February 28, 1998 as compared to the six months ended February 28, 1997. The primary difference is the result of a temporary increase in Accounts Receivable at February 28, 1997 due to systems integration contract invoices. Cash used for investing activities was $5.4 million for the six months ended February 28, 1998. Purchases of property and equipment were $5.1 million and $2.0 million for the six months ended February 28, 1998 and 1997, respectively. The Company realized net proceeds of $1.1 million from the maturity of long- term investments. An additional $0.5 million capital contribution was made to Intertech Management Group, Inc. in the second fiscal quarter and $0.5 million to NCCIM, LLC in the first fiscal quarter. Cash used for financing activities was $7.7 million for the six months ended February 28, 1998. The primary use of cash for financing activities was during the first fiscal quarter of 1998 for the repayment of $10 million indebtedness under the bank line of credit. The Company realized proceeds from the sale of common stock of $2.8 million and $2.2 million for the six months ended February 28, 1998 and 1997, respectively. The Company renegotiated its bank line of credit in November, 1997. 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 were no outstanding borrowings on this line of credit at February 28, 1998. The Company is regularly evaluating potential acquisition candidates and expects to complete other transactions this fiscal year. The purchase price allocation for TXEN, Inc. was finalized during the first fiscal quarter of 1998. The $29.9 million was allocated as follows; $15.4 million to goodwill, $12.7 million to other intangibles and $1.8 million to capitalized software development. Goodwill and other intangibles of $27.4 million are being amortized using the straight-line method over an estimated useful life of twenty years. Other intangibles of $0.7 million are being amortized using the straight-line method over an estimated useful life of seven years. The amount allocated to capitalized software development is being amortized using the straight-line method over an estimated useful life of five years. 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 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. Recent 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 has reported using the new EPS basis in the second quarter ending February 28, 1998 and has restated all prior period EPS amounts to conform to the provisions of Statement No. 128. 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. PART II - OTHER INFORMATION Item 4 - Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ On January 8, 1998, the annual meeting of the Company's stockholders was held at the Corporate Headquarters in Huntsville, Alabama. Proxies were solicited and cast by the Company's transfer agent, ChaseMellon Shareholder Services, New York, New York. Matters put to vote and acted upon were the proposal to elect Directors to the Board of Directors, adoption of the Nichols Research Corporation 1997 Stock Option Plan, amendment to the Company's Certification of Incorporation to increase authorized shares of stock, adoption of the Nichols Research Corporation 1997 Stock Bonus Plan, ratify appointment of Ernst & Young LLP. All directors were elected for a term of one year and will serve until the next annual meeting. Directors elected were as follows: For Withheld ---------- -------- Chris H. Horgen 11,368,098 298,067 Michael J. Mruz 11,363,320 302,845 Roy J. Nichols 11,371,633 294,532 Patsy L. Hattox 11,368,741 297,424 Roger P. Heinisch 11,403,074 263,091 John R. Wynn 11,363,525 302,640 William E. Odom 11,402,085 264,080 James R. Thompson, Jr. 11,403,064 263,101 Phil E. DePoy 11,403,074 263,091 Thomas L. Patterson 11,369,564 296,601 David Friend 11,403,074 263,091 Daniel W. McGlaughlin 11,177,415 488,750 The Nichols Research Corporation 1997 Stock Option Plan was approved. Voting for approval were 8,144,440 shares, voting against were 2,302,580 shares, and 48,302 shares abstained. The Amendment to the Company's Certificate of Incorporation was amended to increase the authorized shares of common stock. Voting for amendment were 11,549,345 shares, voting against 101,037 shares, and 15,783 shares abstained. The Nichols Research Corporation 1997 Stock Bonus Plan was approved. Voting for approval were 9,531,127 shares, voting against 888,578 shares, and 75,617 shares abstained. Ernst & Young, LLP was ratified to serve as the Company's independent auditors for the fiscal year ending August 31, 1998. Voting for ratification were 11,541,031 shares, voting against were 32,336 shares and 92,798 shares abstained. Item 6 - Exhibits and Reports on Form 8-K - ----------------------------------------- (a) Exhibits. Exhibit No. Description 3.1 Certificate of Amendment to the Certificate of Incorporation of Nichols Research Corporation 10.1 Nichols Research Corporation 1997 Stock Option Plan 10.2 Nichols Research Corporation 1997 Stock Bonus Plan 10.3 Nichols Research Corporation Supplemental Retirement Benefit Plan between Nichols Research Corporation and Michael J. Mruz 10.4 Nichols Research Corporation Supplemental Retirement Benefit Plan between Nichols Research Corporation and Chris H. Horgen 27 Financial Data Schedule (b) The Company has not filed any reports on Form 8-K for the three months ended February 28, 1998. NICHOLS RESEARCH CORPORATION SIGNATURES MANAGEMENT REPRESENTATION ------------------------- The accompanying unaudited Consolidated Balance Sheets at February 28, 1998, and August 31, 1997 as well as the Consolidated Statements of Income, Consolidated Statements of Changes in Stockholders' Equity and Consolidated Statements of Cash Flows for the six months ended February 28, 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. April 13, 1998 /s/ Allen E. Dillard - -------------------- --------------------- Date Allen E. Dillard Vice President and Chief Financial Officer (Principal Finance 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 April 13, 1998 By: /s/ Allen E. Dillard - -------------------- --------------------- Date Allen E. Dillard Vice President and Chief Financial Officer (Principal Finance and Accounting Officer) EX-3.1 2 CERTIFICATE OF AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF NICHOLS RESEARCH CORPORATION Nichols Research Corporation, a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware, does hereby certify as follows: FIRST: That the Board of Directors of said Corporation, at a meeting duly held, adopted a resolution proposing and declaring advisable the following amendment to Article IV of the Certificate of Incorporation of said Corporation: ARTICLE IV Capital ------- The aggregate number of shares which the corporation is authorized to issue is 30,000,000 shares of $.01 par value voting common stock all of the same class and none preferred. SECOND: That thereafter, pursuant to resolution of its Board of Directors, the annual meeting of the stockholders of said Corporation was duly called and held, upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware at which meeting the necessary number of shares as required by statute were voted in favor of the aforesaid amendment. THIRD: That the aforesaid amendment was duly adopted in accordance with the applicable provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, said Nichols Research Corporation, has caused this Certificate to be signed by Michael J. Mruz, Its Chief Executive Officer, attested by Patsy L. Hattox, its Secretary, and its corporate seal hereunto affixed, on this the 4th day of February, 1998. NICHOLS RESEARCH CORPORATION By: /s/ Michael J. Mruz --------------------------- Its Chief Executive Officer ATTEST: /s/ Patsy L. Hattox - ------------------------ Its Secretary STATE OF ALABAMA COUNTY OF MADISON I, the undersigned, a Notary Public in and for said county and state, do hereby certify that Michael J. Mruz, whose name as Chief Executive Officer of Nichols Research Corporation, a Delaware corporation, is signed to the foregoing, and Patsy L. Hattox, whose name as Secretary of Nichols Research Corporation, a Delaware corporation, is signed to the foregoing, are known to me, acknowledged before me on this day, that the facts stated therein are true, and that being informed of the contents of the foregoing, they, as such officers and with full authority, executed the same voluntarily for and as the act and deed of said Corporation. Given under my hand this the 4th day of February, 1998. /s/ Patty R. Baugher ----------------------------- Notary Public My commission expires: 8/2/98 -------- EX-10.1 3 NICHOLS RESEARCH CORPORATION 1997 STOCK OPTION PLAN 1. PURPOSE The 1997 Stock Option Plan ("Plan") of Nichols Research Corporation ("Corporation") is intended as an incentive for key employees which will foster increased productivity, encourage them to remain in the employ of the Corporation, and enable them to acquire or increase their proprietary interest in the Corporation. At the discretion of the Committee, as defined below, options issued pursuant to this Plan may be either incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended ("Incentive Options"), or options which are not Incentive Options ("Non-Statutory Options"). 2. ADMINISTRATION The Plan shall be administered by a committee (the "Committee") composed of either the entire Board of Directors or a committee of the Board of Directors that is composed solely of two or more Non-Employee Directors. For this purpose, the term "Non-Employee Director" shall mean a person who is a member of the Company's Board of Directors who (a) is not currently an officer or employee of the Company or any parent or subsidiary of the Company, (b) does not directly or indirectly receive compensation for serving as a consultant or in any other non- director capacity from the Company or any parent or subsidiary of the Company that exceeds the dollar amount for which disclosure would be required pursuant to Item 404(a) of Regulation S-K promulgated under the Securities Act of 1933 and the Securities Exchange Act of 1934 ("Regulation S-K"), (c) does not possess an interest in any other transaction with the Company or any parent or subsidiary of the Company for which disclosure would be required pursuant to Item 404(a) of Regulation S-K, and (d) is not engaged in a business relationship with the Company or any parent or subsidiary of the Company which would be disclosable under Item 404(b) of Regulation S-K. In the event the Committee is a committee composed of two or more Non-Employee Directors, the Board of Directors may from time to time remove members from, add members to, and fill vacancies, on the Committee. A member of the Committee shall be eligible to participate in the Plan and receive options under the Plan. The Committee shall select one of its members as Chairman, and shall hold meetings at such times and places as it may determine. Action taken by a majority of the Committee at which a quorum is present, or action reduced to writing or approved in writing by a majority of the members of the Committee, shall be valid acts of the Committee. The Committee may, from time to time and at its discretion, grant options to eligible employees. Subject to the terms of this Plan, the Committee shall exercise its sole discretion in determining which eligible employees shall receive options, and the number of shares subject to each option granted. The Committee's interpretation and construction of any provision of the Plan, or any option granted under it, shall be final. No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any option granted under the Plan. 3. ELIGIBILITY Persons eligible to receive options shall be such key employees (including officers) of the Corporation and its subsidiaries as the Committee shall from time to time select. The determination of whether a company is a subsidiary of the Corporation shall be made in accordance with Section 425(f) of the Internal Revenue Code, as amended. No person shall be eligible to receive an option for a larger number of shares than is recommended for him by the Committee. In selecting the individuals to whom options shall be granted, as well as determining the number of shares subject to each option, the Committee shall weigh the position and the responsibility of the individual being considered, the nature of his or her services, his or her present and potential contributions to the Corporation, and such other factors as the Committee deems relevant to accomplish the purposes of the Plan. No Incentive Option shall be granted to an employee who, immediately after such Incentive Option is granted, owns or has rights to stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Corporation, unless such Incentive Option is granted at a price which is at least 110% of the fair market value of the stock subject to the Incentive Option and such Incentive Option by its terms is not exercisable after the expiration of five (5) years from the date such Incentive Option is granted. 4. STOCK The stock subject to options issued under the Plan shall be shares of the Corporation's authorized but unissued, or reacquired, one cent ($.01) par value common stock (hereafter sometimes called "Capital Stock" or "Common Stock"). The aggregate number of shares which may be issued pursuant to option exercises shall not exceed 1,300,000 shares of Capital Stock. The limitations established by each of the preceding sentences shall be subject to adjustment as provided in Article 5(g) of the Plan. In the event that any outstanding option under the Plan for any reason expires or is terminated, the shares of Capital Stock allocable to the unexercised portion of such option may again be subjected to an option under the Plan. 5. TERMS AND CONDITIONS OF OPTIONS No obligation to retain an option recipient as an employee of the Corporation or its subsidiaries, or to provide or continue providing the option recipient with, or to permit the option recipient to retain, any incident associated with or arising out of employment with the Corporation or its subsidiaries, including but not limited to tenure, salary, benefits, title, or position, shall be imposed on the Corporation or its subsidiaries by virtue of the adoption of the Plan, the grant or acceptance of an option granted pursuant to the Plan, or the exercise of an option under the Plan. Stock options granted under the Plan shall be authorized by the Committee and shall be evidenced by agreements in such form as the Committee shall from time to time approve. Such agreements shall conform with, and be subject to, the following terms and conditions: (a) Number of Shares and Form of Option ----------------------------------- Each option agreement shall state the number of shares to which it pertains and whether the option granted is an Incentive Option or a Non-Statutory Option. (b) Exercise Price -------------- Each option agreement shall state the exercise price. The per share exercise price for shares obtainable pursuant to an Incentive Option shall not be less than 100% of the Fair Market Value, as defined below, of the shares of Capital Stock of the Corporation on the date the option is granted. The per share exercise price for shares obtainable pursuant to a Non-Statutory Option shall not be less than the par value of the shares. For all purposes under the Plan, Fair Market Value shall be deemed to be the closing sale price of the Common Stock as reported on the Nasdaq National Market (or the mean between the highest and lowest per share sales price should the Common Stock be listed on an exchange) on a given day, or if such stock is not traded on that day, then on the next preceding day on which such stock was traded ("Fair Market Value"). Subject to the foregoing, the Committee shall have full authority and discretion, and shall be fully protected, with respect to the price fixed for shares obtainable pursuant to the exercise of options. The aggregate Fair Market Value (determined at the time the Incentive Option is granted) of the Common Stock with respect to which Incentive Options are exercisable for the first time by the option recipient during any calendar year (under all such plans of the Corporation and its subsidiary corporations) shall not exceed $100,000. If an option recipient is granted an Incentive Option which exceeds this limitation, the Incentive Option shall be treated as Non-Statutory Options to the extent such limitation is exceeded. (c) Medium and Time of Payment -------------------------- The option recipient may pay the exercise price in cash, by means of unrestricted shares of the Corporation's Common Stock, or in any combination thereof. Notwithstanding the foregoing, shares of the Corporation's Common Stock may be used to exercise an option only if the number of shares for which the option is then being exercised is at least five hundred (500) shares. The option recipient must pay for shares received pursuant to an option exercise on or before the date of such exercise. Payment in currency or by check, bank draft, cashier's check, or postal money order shall be considered payment in cash. In the event of payment in the Corporation's Common Stock, the shares used in payment of the exercise price shall be taken at the Fair Market Value of such shares on the date they are tendered to the Corporation. The shares purchased upon exercise of an option with shares of the Corporation's Common Stock owned by the option recipient may not be sold, exchanged, pledged or otherwise transferred during the one (1) year period following such purchase and shall bear the following restrictive legend: The shares represented by this certificate were acquired with shares of Nichols Research Corporation common stock and, therefore, pursuant to the terms of Section 5(c) of the Nichols Research Corporation 1997 Stock Option Plan, may not be sold, exchanged, pledged or otherwise transferred during the one (1) year period commencing on the date shown on the face of this certificate. (d) Term and Exercise of Options ---------------------------- No Non-Statutory Option shall be exercisable either in whole or in part prior to (a) the earlier of the date specified in the Non-Statutory Option, or (b) six (6) months from the date the Non- Statutory Option is granted. During the option recipient's lifetime, the Non-Statutory Option shall be exercisable only by the option recipient or the option recipient's guardian or legal representative if one has been appointed, and shall not be assignable or transferable other than by will or the laws of descent and distribution. No Non-Statutory Option shall be exercisable after the earlier of (1) the date specified in the Non-Statutory Option, or (2) the expiration of ten (10) years from the date the Non-Statutory Option is granted. No Incentive Option shall be exercisable either in whole or in part prior to twenty-four (24) months from the date it is granted. Subject to the right of accretion provided in the next to last sentence of this Article 5 (d), each Incentive Option shall be exercisable in three (3) installments as follows: (1) up to one-third of the total shares covered by the Incentive Option may be purchased after twenty-four (24) months from the date the Incentive Option is granted; (2) up to one-third of the total shares covered by the Incentive Option may be purchased after thirty-six (36) months from the date the Incentive Option is granted; and (3) up to one-third of the total shares covered by the Incentive Option may be purchased after forty-eight (48) months from the date the Incentive Option is granted. The Committee may provide, however, for the exercise of an Incentive Option after the initial twenty-four month period, either as an increased percentage of shares per year or as to all remaining shares, if the option recipient dies, is or becomes disabled, or, with the permission of the Committee, retires. During the option recipient's lifetime, the Incentive Option shall be exercisable only by the option recipient, or the option recipient's guardian or legal representative if one has been appointed, and shall not be assignable or transferable other than by will or the laws of descent and distribution. To the extent not exercised, Incentive Option installments shall accumulate and be exercisable, in whole or in part, in any subsequent period but not later than five (5) years from the date the Incentive Option is granted. No Incentive Option shall be exercisable after the expiration of five (5) years from the date it is granted. (e) Termination of Employment Except Death -------------------------------------- If an option recipient's employment with the Corporation or its subsidiaries ceases for any reason other than the option recipient's death, all options held by him pursuant to the Plan and not previously exercised as of the date of such termination shall terminate immediately and become void and of no effect; provided, however, that the Committee shall have the right to extend the exercise period by up to three (3) months from the date the option recipient's employment is terminated. If termination occurs because of disability, or as a result of the option recipient's retirement with the consent of the Corporation, such disabled or retiring option recipient shall have the right to exercise any options which were exercisable but unexercised as of the date of such termination at any time within three (3) months after such termination, subject to the condition that no Non-Statutory Option shall be exercisable after the date specified in the Non-Statutory Option and no Incentive Option shall be exercisable after the expiration of five (5) years from the date it is granted. The term "disability" shall mean a mental or physical condition resulting from an injury or illness (other than substantial dependence on or addiction to alcohol or any drug) which renders an option recipient incapable of performing his normal duties as an employee of the Corporation or its subsidiaries. The option recipient shall not be considered to be disabled until the Committee shall have been furnished the opinion of two licensed physicians that the option recipient is prevented from performing his duties and that his condition is likely to continue for a period in excess of twelve (12) months or for an indefinite period. Whether termination of employment is due to disability or is to be considered a retirement with the consent of the Committee shall be determined by the Committee in its sole and absolute discretion, and such determination shall be final and conclusive. Authorized leaves of absence or absence for military service shall not constitute termination of employment for the purposes of the Plan. (f) Death of Option Recipient and Transfer of Option ------------------------------------------------ If an option recipient dies while employed by the Corporation or its subsidiaries or within three (3) months after being terminated due to disability or retirement with the consent of the Committee, and has not fully exercised all of his exercisable options, such options may be exercised, at any time within three (3) months after such termination, by the option recipient's executors or administrators, or by any person or persons who shall have acquired the option directly from the option recipient by bequest or inheritance. In no event, however, shall a Non-Statutory Option be exercisable after the date specified in the Non-Statutory Option and no Incentive Option shall be exercisable more than five (5) years after the date such Incentive Option is granted. In the event an option is transferred to an option recipient's estate, or to a person to whom such right devolves by reason of the option recipient's death, then the option shall be nontransferable by the option recipient's executor or administrator or by such person, except that the option may be distributed by the option recipient's executors or administrators to the distributees of the option recipient's estate entitled thereto. (g) Recapitalization ---------------- Subject to any required action by the shareholders, the aggregate number of shares which may be issued pursuant to option exercises, the number of shares of Capital Stock covered by each outstanding option, and the price per share applicable to shares under such option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Capital Stock of the Corporation resulting from a subdivision or consolidation of shares or the payment of a stock dividend (but only on the Capital Stock), or any other increase or decrease in the number of such shares effected without receipt of consideration by the Corporation. If the Corporation is merged with or consolidated into any other corporation, or if an or substantially all of the business or property of the Corporation is sold, or if the Corporation is liquidated or dissolved, or if a tender or exchange offer is made for all or any part of the Corporation's voting securities, or if any other actual or threatened change in control of the Corporation occurs, the Committee, with or without the consent of the option recipient, may (but shall not be obligated to), either at the time of or in anticipation of any such transaction, take any of the following actions that the Committee may deem appropriate in its sole and absolute discretion: (i) cancel any option by providing for the payment to the option recipient of the excess of the Fair Market Value of the shares subject to the option over the exercise price of the option, (ii) substitute a new option of substantially equivalent value for any option, (iii) accelerate the exercise terms of any option, or (iv) make such other adjustments in the terms and conditions of any option as it deems appropriate. In the event of a change in Capital Stock of the Corporation as presently constituted, which is limited to a change of all of its authorized shares with par value into the same number of shares with a different par value or without par value, the shares resulting from any change shall be deemed to be the Capital Stock within the meaning of the Plan. To the extent that the foregoing adjustments relate to stock or securities of the Corporation, such adjustments shall be made by the Committee, whose determination in that respect shall be final, provided that each Incentive Option granted pursuant to this Plan shall not be adjusted in a manner that causes the Incentive Option to fail to continue to qualify as an incentive stock option within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended. Except as otherwise expressly provided in this Article 5(g), the option recipient shall have no rights by reason of any subdivision or consolidation of shares of stock of any class, or the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class, or by reason of any dissolution, liquidation, merger or consolidation or spin-off of assets or stock of another corporation. Any issue by the Corporation of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Capital Stock subject to the option. The grant of an option pursuant to the Plan shall not affect in any way the right or power of the Corporation to make adjustments, reclassifications, reorganizations, or changes of its capital or business structure, or to merge, consolidate, dissolve, liquidate, sell, or transfer all or any part of its business or assets. (h) Rights as a Stockholder ----------------------- An option recipient or a transferee of an option shall have no rights as a stockholder with respect to any shares subject to his option until a stock certificate is issued to him for such shares. No adjustment shall be made for dividends (ordinary or extraordinary, whether in cash, securities, or other property), distributions, or other rights for which the record date is prior to the date such stock certificate is issued, except as provided in Article 5 (g) of the Plan. (i) Modification, Extension, and Renewal of Options ----------------------------------------------- Subject to the terms of the Plan, the Committee may modify, extend or renew outstanding options granted under the Plan, or accept the surrender of outstanding options (to the extent not theretofore exercised) and authorize the granting of new options in substitution therefore (to the extent not theretofore exercised). The Committee shall not, however, modify any outstanding Incentive Options so as to specify a lower price, or accept the surrender of outstanding Incentive Options and authorize the granting of new options in substitution therefore specifying a lower price. Notwithstanding the foregoing, however, no modification of an option shall, without the consent of the option recipient, alter or impair any rights or obligations under any option theretofore granted under the Plan. (j) Withholding ----------- Whenever the Corporation proposes or is required to issue or transfer shares of Capital Stock under the Plan, the Corporation shall have the right to require the option recipient, prior to the issuance or delivery of any certificates for such shares, to remit to the Corporation, or provide indemnification satisfactory to the Corporation for, an amount sufficient to satisfy any federal, state, local, and foreign withholding tax requirements incurred as a result of an option exercise under the Plan by such option recipient. (k) Other Provisions ---------------- The option agreements authorized under the Plan shall contain such other provisions, including, without limitation, restrictions upon the exercise of the option, as the Committee shall deem advisable. Limitations and restrictions shall be placed upon the exercise of Incentive Options, in the Incentive Option agreement, so that such option will be an "incentive stock option" as defined in Section 422 of the Internal Revenue Code of 1986. 6. TERM OF PLAN Incentive Options and Non-Statutory Options may be granted pursuant to the Plan from time to time within a period of ten (10) years commencing on November 14, 1997 and continuing through November 14, 2007. 7. INDEMNIFICATION OF COMMITTEE In addition to such other rights of indemnification as they may have as directors or as members of the Committee, the members of the Committee shall be indemnified by the Corporation against the reasonable expenses, including attorney's fees, actually and necessarily incurred in connection with the defense of any action, suit, or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan or any option granted thereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Corporation) or paid by them in satisfaction of a judgment in any such action or suit, or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit, or proceeding that such Committee member is liable for negligence or misconduct in the performance of his duties; provided, that within sixty (60) days after institution of any such action, suit, or proceeding a Committee member shall in writing offer the Corporation the opportunity, at its own expense, to handle and defend the same. 8. AMENDMENT OF THE PLAN The Board of Directors, insofar as permitted by law, shall have the right from time to time with respect to any shares at the time not subject to options, to suspend or discontinue the Plan or revise or amend it in any respect whatsoever, except that without approval of the shareholders of the Company, no such revision or amendment shall: (a) change the number of shares for which options may be granted under the Plan either in the aggregate or to any individual employee, (b) change the provisions relating to the determination of employees to whom options shall be granted, (c) remove the administration of the Plan from the Committee, or (d) decrease the price at which Incentive Options may be granted. 9. APPLICATION OF FUNDS The proceeds received by the Corporation from the sale of Capital Stock pursuant to the exercise of options will be used for general corporate purposes. 10. NO OBLIGATION TO EXERCISE OPTION The granting of an option shall impose no obligation upon the option recipient to exercise such option. 11. APPROVAL OF STOCKHOLDERS This Plan shall take effect as of November 14, 1997, subject to approval by the affirmative vote of the holders of a majority of the outstanding shares of Capital Stock of the Corporation present, or represented, and entitled to vote at a meeting of the shareholders, which approval must occur within the period beginning twelve (12) months before and ending twelve (12) months after the date the Plan is adopted by the Board of Directors. EX-10.2 4 NICHOLS RESEARCH CORPORATION 1997 STOCK BONUS PLAN ARTICLE I: GENERAL PROVISIONS AND PURPOSES OF THE PLAN 1.1 TITLE. The title of the stock bonus plan which is described herein is "Nichols Research Corporation 1997 Stock Bonus Plan" (the "Plan"). 1.2 ISSUER. The issuer of the stock which is the subject of the Plan is Nichols Research Corporation, a Delaware corporation, having its principal place of business at 4040 Memorial Parkway South, Huntsville, Alabama 35802 (the "Company"). 1.3. GENERAL PURPOSES OF THE PLAN. The Company desires to establish the Plan to provide key employees, as hereinafter defined, with an opportunity to acquire Nichols Research Corporation Common Stock with a view toward rewarding those key employees for past services and providing an incentive to remain in the employ of the Company. 1.4. EFFECTIVE DATE. The Plan, as set forth herein, shall become effective upon adoption by the Company's Board of Directors and approval by the Company's stockholders at its annual meeting. The Plan shall remain in effect until it is terminated under Section 1.6. 1.5 TERM OF THE PLAN. The Plan shall commence with the Company's fiscal year beginning September 1, 1997 and continue for each subsequent fiscal year until it is terminated under Section 1.6. 1.6 AMENDMENT OR TERMINATION. The Board of Directors may, at any time and for any reason, amend or terminate the Plan. However, any amendment of the Plan shall be subject to the approval of the Company's stockholders to the extent required by applicable laws, regulations or rules. 1.7 ELIGIBLE EMPLOYEES. A person shall be eligible to receive a stock bonus award for a given fiscal year if he or she: a. was a full-time salaried employee of the Company or any of its subsidiaries during the entire fiscal year; and b. is an executive officer of the Company ("key employee"). 1.8 SECURITIES TO BE OFFERED. The shares reserved for award under the Plan shall consist of 150,000 shares of Nichols Research Corporation Common Stock, $0.01 par value (the "Stock Bonus") and, in accordance with Article V hereof, may be increased by action of the Board of Directors. The Stock Bonus shall be issued from either authorized but unissued shares or treasury shares as the Board of Directors, in its judgment, deems advisable. Upon the receipt of a stock certificate under the Plan, an employee shall have all the rights normally associated with stock ownership including the right to vote and receive any dividends declared by the Company's Board of Directors. 1.9. SECURITIES REGULATION AND RESTRICTIONS ON RESALE. The Company shall not be obligated to issue any Stock Bonus unless and until the shares of the Stock Bonus are effectively registered or exempt from registration under the Securities Act of 1933 and from any other federal or state law governing the distribution and issuance of such shares or any securities exchange regulation to which the Company might be subject. In the event the shares are not effectively registered, but can be issued by virtue of an exemption, the Company may issue shares of the Stock Bonus to an employee if the employee represents that he is acquiring such shares received under the Plan as an investment and not with the view to, or for sale in connection with, the distribution of any such shares. Certificates for shares of the Stock Bonus thus issued shall bear an appropriate legend or legends reciting such representation and the restriction on transfer of the shares. ARTICLE II: ADMINISTRATION OF THE PLAN 2.1. THE COMMITTEE. The Plan shall be administered by committee (the "Committee")composed of either the entire Board of Directors or a committee of the Board of Directors that is composed solely of two or more Non-Employee Directors. For this purpose, the term "Non-Employee Director" shall mean a person who is a member of the Company's Board of Directors who (a) is not currently an officer or employee of the Company or any parent or subsidiary of the Company, (b) does not directly or indirectly receive compensation for serving as a consultant or in any other non-director capacity from the Company or any parent or subsidiary of the Company that exceeds the dollar amount for which disclosure would be required pursuant to Item 404(a) of Regulation S-K promulgated under the Securities Act of 1933 and the Securities Exchange Act of 1934 ("Regulation S-K"), (c) does not possess an interest in any other transaction with the Company or any parent or subsidiary of the Company for which disclosure would be required pursuant pursuant to Item 404(a) of Regulation S-K, and (d) is not engaged in a business relationship with the Company or any parent or subsidiary of the Company which would be disclosable under Item 404(b) of Regulation S-K. In the event the Committee is a committee composed of two or more Non- Employee Directors, the Board of Directors may from time to time remove members from, add members to, and fill vacancies, on the Committee. The Committee shall select one of its members a Chairman, and shall hold meetings at such times and places as it may determine. Action taken by a majority of the Committee at which a quorum is present, or action reduced to writing or approved in writing by a majority of the members of the Committee, shall be valid acts of the Committee. The Committee's interpretation and construction of any provision of the Plan, or any award granted under it, shall be final. No member of the Committee shall be liable for any action or determination made in good faith with respect to the Plan or any award granted under the Plan. 2.2 POWERS OF THE COMMITTEE. In addition to the awarding of the Stock Bonus as set forth in Paragraph 3.1 hereof, the Committee, subject to the express provisions of the Plan, shall have complete authority to interpret the Plan, to prescribe,amend and rescind rules and regulations relating to it, and to make all other determinations necessary or advisable for the administration of the Plan. ARTICLE III: STOCK BONUS AWARD 3.1. AWARDING THE STOCK BONUS. The Board has the complete authority, in its sole discretion, to determine the eligible key employees to whom a Stock Bonus shall be awarded and the number of shares comprising each such Stock Bonus. 3.2. CONSIDERATION. Inasmuch as the Stock Bonus awarded pursuant to this Plan is a bonus, no monetary consideration shall pass from an employee to the Company. 3.3. ADJUSTMENT OF THE NUMBER OF SHARES. The number of shares of the Stock Bonus subject to any award under the Plan but not yet distributed and the number of shares reserved for issuance pursuant to the Plan but not yet covered by a bonus shall be adjusted to reflect any stock dividend, stock split or any other capital stock change. Any other adjustments shall be equitably made by the Board in its sole discretion. However, no adjustment shall require the Company to award a fractional share. ARTICLE IV: DISTRIBUTION OF STOCK BONUSES 4.1. TIME OF DISTRIBUTION. Any Stock Bonus awarded under the Plan for a given fiscal year shall be distributed to the employee at such time or times as the Committee shall determine. 4.2. ELIGIBILITY FOR DISTRIBUTION. In order to be eligible to receive a Stock Bonus,the employee must be employed by the Company or any of its subsidiaries on the date on which the bonus is payable. If the employee is not so employed on the date on which the bonus is payable, that bonus shall be forfeited. ARTICLE V: ADOPTION AND MODIFICATION 5.1. ADOPTION. After the Board of Directors approves the Plan or any amendment thereto which requires shareholder approval in accordance with Paragraph 5.2, below, the Plan or amendment shall be approved by a majority of the shareholders present and entitled to vote at the next regular Annual Shareholders' Meeting. 5.2. MODIFICATIONS. The Board of Directors of the Company may amend or modify any part of the Plan without shareholder approval except for the amount of shares reserved for the Plan set forth in Paragraph 1.8. EX-10.3 5 NICHOLS RESEARCH CORPORATION SUPPLEMENTAL RETIREMENT BENEFIT PLAN Between NICHOLS RESEARCH CORPORATION and MICHAEL J. MRUZ Dated: December 16, 1997 SUPPLEMENTAL RETIREMENT BENEFIT PLAN THIS SUPPLEMENTAL RETIREMENT BENEFIT PLAN (the "Plan") is made and entered into this 16th day of December, 1997, 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 MICHAEL J. MRUZ, residing in the City of Huntsville, Alabama (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 401(k) 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 $150,000, 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 September 1, 1997, 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 employ ment and for the next 120 months thereafter, the Company shall pay or cause to be paid to Employee an amount equal to the quo tient 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, trans fer, assignment, pledge, encumbrance, attachment or the garnish ment 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 confer ring 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 bene fit 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 /s/ Patsy L. Hattox ----------------------- Its Corporate Secretary /s/ Michael J. Mruz ------------------------ MICHAEL J. MRUZ, Employee EX-10.4 6 NICHOLS RESEARCH CORPORATION SUPPLEMENTAL RETIREMENT BENEFIT PLAN Between NICHOLS RESEARCH CORPORATION and CHRIS H. HORGEN Dated: December 16, 1997 SUPPLEMENTAL RETIREMENT BENEFIT PLAN THIS SUPPLEMENTAL RETIREMENT BENEFIT PLAN (the "Plan") is made and entered into this 16th day of December, 1997, 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 CHRIS H. HORGEN, residing in the City of Huntsville, Alabama (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 401(k) 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 $150,000, 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 September 1, 1997, 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 employ ment and for the next 120 months thereafter, the Company shall pay or cause to be paid to Employee an amount equal to the quo tient 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, trans fer, assignment, pledge, encumbrance, attachment or the garnish ment 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 confer ring 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 bene fit 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 /s/ Patsy L. Hattox ---------------------------- Its Corporate Secretary /s/ Chris H. Horgen ---------------------------- CHRIS H. HORGEN, Employee EX-27 7
5 1,000 6-MOS AUG-31-1998 FEB-28-1998 24,113 0 87,491 0 0 117,424 42,502 21,334 202,805 42,574 3,533 0 0 133 153,948 202,805 171,481 171,481 160,503 160,503 0 0 188 11,168 4,244 6,924 0 0 0 6,924 .53 .51
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