-----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, Wqeb5jptimOIFSsmzBFtQZh621iZOWyRoJhbhUHx0xks/SiScLczfbM0IQuSykaj jWPQC2i0QO5dbOumYxOsfA== 0000806388-95-000026.txt : 19951201 0000806388-95-000026.hdr.sgml : 19951201 ACCESSION NUMBER: 0000806388-95-000026 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 15 CONFORMED PERIOD OF REPORT: 19950831 FILED AS OF DATE: 19951129 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-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-15295 FILM NUMBER: 95597413 BUSINESS ADDRESS: STREET 1: 4040 MEMORIAL PKWY SOUTH CITY: HUNTSVILLE STATE: AL ZIP: 35802 BUSINESS PHONE: 2058831140 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED AUGUST 31, 1995. ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO _________. Commission file number 0-15295 NICHOLS RESEARCH CORPORATION (Exact name of registrant as specified in its charter) Delaware 63-0713665 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 4040 South Memorial Parkway Huntsville, Alabama 35802-1326 (Address of principal executive offices) (Zip Code) The registrant's telephone number including area code: (205) 883-1140 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange None None Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $.01 per share (Title of Class) 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 by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] As of November 1, 1995, there were 6,343,569 shares of Nichols Research Corporation Common Stock, $.01 par value outstanding. The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $116,045,000 based on the closing price of such stock as reported by NASDAQ on November 1, 1995, assuming that all shares beneficially held by officers and members of the registrant's Board of Directors are shares owned by "affiliates," a status which each of the officers and directors individually disclaims. DOCUMENTS INCORPORATED BY REFERENCE Documents Form 10-K Reference Portions of the Proxy Statement for the Part III January 11, 1996 Annual Shareholders' Meeting PART I ITEM 1. BUSINESS General Nichols Research Corporation (the " Company") provides information and technology services (I/T) through contracts with various agencies of the United States Department of Defense (DoD), other federal agencies, state governments and commercial customers. In its first year of operation, the Company performed contracts for one DoD agency and subcontracts for six prime defense contractors, all in the area of strategic defense. The Company expanded its customer base and diversified and now offers the following services to a variety of government and commercial customers: - Sensor Systems and Technology - Missile and Air Defense Systems and Technologies - Space Surveillance and Avionics - Army Tactical Systems and Technologies - Intelligence Programs - Computer System Integration - Information Systems Support - Information System Development - Advanced I/T Applications - Healthcare Information Services - Commercial I/T Consulting The Company operates 25 offices located near its customers throughout the United States. In 1995, the Company performed services on over 225 contracts with more than 50 different federal, state government, and commercial customers. The Company was awarded contracts during the fiscal year ended August 31, 1995, having a total value of approximately $174,049,000 including options having a value of $65,522,000. A majority of the Company's contracts are competitively bid and awarded on the basis of technical merit, personnel qualifications, experience, and price. The Company also receives some contract awards involving special technical capabilities on a negotiated, noncompetitive basis due to the Company's unique technical capabilities in special areas. For the year ended August 31, 1995, the Company's contract revenues were approximately 48% from cost reimbursement contracts and 52% from time-and-materials contracts and fixed price contracts. On August 31, 1995, the Company had a backlog of $505,744,000 under existing contracts, including options having a value of $217,767,000. The Company has provided technical services related to the Strategic Defense Initiative (SDI) since 1983 when the Strategic Defense Initiative Organization (SDIO) was formed. In 1993, SDIO changed its name to the Ballistic Missile Defense Organization (BMDO). BMDO's mission continues to be Ballistic Missile Defense (BMD) with emphasis on Theater Missile Defense (TMD) and National Missile Defense (NMD). The Company's contract revenues from BMD programs were approximately $84,300,000 in 1993, $64,400,000 in 1994, and $56,358,000 in 1995. Approximately 33% of the Company's revenues in 1995 were from contracts related to BMD, compared to 44% of revenues in 1994 and 53% of revenues in 1993 from such contracts. The decrease in revenues from BMD related contracts is attributable to the Company's diversification efforts and reductions in BMD related contract awards. Strategic defense has existed for more than 26 years as a mission of DoD through activities such as the BMD program. If a decision were made to substantially reduce the scope of current BMD programs, or to eliminate the BMDO, management believes that many national and theater missile defense programs, including some research and development areas that existed prior to the creation of SDIO/BMDO, would continue to be funded by the Army, Air Force, and other DoD agencies. However, while the Company has diversified, a decision to reduce significantly or eliminate BMD and TMD funding could have an adverse affect on the Company's revenues and income. The Company has achieved success in diversifying its business by expanding its customer base for the Company's services. New customers include non-DOD federal agencies, state and local governments, and commercial businesses. Services provided to these customers include I/T, intelligence, healthcare information systems, and commercial I/T products and consulting. With the growth of the non-BMD business, the Company's revenues from non-BMD programs increased from 21% of revenues in 1987 to 67% of revenues in 1995. For the fiscal year ending August 31, 1996, the Company anticipates that approximately 70% of its revenue from contracts will be related to non-BMD programs. The Company has been actively expanding its business in I/T to provide a full range of services including the integration of high performance supercomputers, development of turnkey information systems, transaction processing, and computer facility management and operation. The expansion of the Company's business activities into I/T has been a logical progression of applying defense technical and systems engineering experience to solving the I/T needs of other customers. In fiscal year 1995, the Company enhanced its diversification effort in the I/T market by acquiring Communications and Systems Specialists, Inc. (CSSi), which provides I/T services primarily in the client/server area for federal government clients, Conway Computer Group, Inc. (CCG), which provides I/T products and services to commercial customers, and Computer Services Corporation (CSC), which provides I/T products and services to healthcare provider customers. The Company also acquired 19.9 percent of the capital stock of TXEN, Inc. (TXEN) with an option to purchase the remaining captial stock in 1998. TXEN provides I/T products and services to the managed care industries. These four companies provide the domain knowledge and client base to assist the Company in establishing itself as an I/T services provider in commercial, healthcare, and government information systems markets. Sensor Systems and Technology The cornerstone of the Company's traditional defense business is work involving the development, integration, and support of strategic and tactical sensor systems for defense applications. Sensor system capabilities cover all program aspects from developing sensor and application requirements to hardware development and testing. The Company has an experienced staff, established techniques and disciplines for design and analysis of systems and subsystems, and has developed automated tools which are necessary to the development of sophisticated electronic systems. The Company's 19 years of experience in this field cover the full spectrum of activities associated with the development of sensor systems for ground, space, and airborne applications. These capabilities have served as the foundation for broader systems engineering applications for missile, air, and other defense systems and programs. Major customers include the U.S Army, U.S. Navy, U.S. Air Force, and joint service organizations. The Company's experience includes research for detecting targets in camouflaged locations and ice on aircraft wings and control surfaces; development of models and simulations for cost-effective design and evaluation before system production; planning for space and atmospheric sensor testing; and operating a research facility for testing and developing improved techniques for identification of targets. Missile and Air Defense Systems and Technologies Under current contracts with a total award value of over $225,000,000, the Company provides systems engineering services to support the development of major missile and air defense systems, including technologies for theater and national missile defense. The Company performs work for BMDO, the U.S. Army, U.S. Air Force, and the U.S. Navy. The Company directly supports the PATRIOT management team for the PATRIOT Advanced Capability-3 (PAC-3) Hit-to-Kill missile, an upgrade to the system that was tactically and strategically successful during Desert Storm. The Company has developed a unique planning and control strategy which is allowing the government to meet design goals culminating in program preliminary design review, an essential first step to building deployable PAC-3 improvements for the U.S. Army's tactical element of TMD. Space Surveillance and Avionics The Company's expertise in optical sensor and geolocation technologies, and its ability to develop sophisticated computer simulations to evaluate the performance of candidate architectures, have resulted in successful programs involving satellite and other space applications. The Company is involved in establishing the architecture of future space surveillance and avionics systems for the U.S. Air Force, the U.S. Navy, and other customers such as the Australian Defense Force. Under an $83,000,000 contract, the Company is providing cost effectiveness studies, developmental engineering, systems engineering, and systems integration to assist the U.S. Air Force space activities with both architecture and system design solutions. Army Tactical Systems and Technologies The Company is a major contributor to state-of-the-art Army tactical systems and technologies providing technical support to Army project offices and research and development centers. The Company provides tactical systems services under active contracts valued at over $268,000,000 including awards of $54,000,000 in 1995. The Company develops high-fidelity simulations for Army weapon systems used for missile cost-effective concept definition, design, and analysis. The Company also conducts lethality and vulnerability studies of various weapons systems. The knowledge and capabilities gained from creating and executing these simulations, along with computer network integrations and high resolution scene generation skills, assisted the Company in obtaining contracts which contribute to simulation programs known as Distributive Interactive Simulation (DIS) and Virtual Prototype Simulation (VPS) efforts. Simulations provide a significant cost benefit to the Army by saving hardware, labor hours, and test range expenses. As the Army increasingly uses simulations to improve weapons, the Company is involved in developing applications using DIS and VPS to achieve cost savings. Intelligence Programs Under contracts having a value of over $85,000,000, the Company is performing hardware systems evaluation and integration, hardware-in-the-loop test and evaluation, and system signature analysis and prediction for ground missile and air defense systems. Results of its work aid U.S. weapon system developers in producing more effective products that give U.S. operational forces greater combat leverage. Additionally, the Company is applying advanced telecommunications I/T to help customers respond to rapid advances in communications intelligence. Computer System Integration Building on its technical capabilities in the traditional defense business areas, the Company has experienced success in the I/T market place in both large-scale and small-scale computer systems integration. The Company provides services in the major functional areas of high performance computing, enterprise networking, and office automation including high-end supercomputer architec- tures and applications; high-speed, highly available networking technologies; advanced visualization systems; and on-line, high-integrity data storage and archival systems. The Company is an integrator for many manufacturers and suppliers of supercomputers, workstations, personal computers, and networking equipment. The Company also offers a wide range of training services utilizing innovative techniques and tools such as computer-based training aids to promote high productivity and efficient use of installed systems. These training services include personal computer applications as well as advanced supercomputing applications. Information Systems Support The Company provides operating and support services for existing information systems and assists in the development of enhancements that allow these existing systems to meet changing business requirements. Services provided include workflow management training to improve the clients' abilities to use their existing I/T capabilities, support of video conferences, and document imaging to reduce paperwork. The Company is currently using its I/T resources to perform a $35,000,000 contract, awarded in 1995 from the Centers for Disease Control and Prevention and Agency for Toxic Substances and Disease Registry, to upgrade, maintain, and manage its microcomputer local and wide area networks for its primary facility in Atlanta, Georgia, offices in the 50 states, and a number of other locations around the world. Information Systems Development The Company has a proven track record in the design, development, and support of turnkey information systems, distributed client/server software systems and real-time software applications. The Company's services in object- oriented design offer customers component software solutions in a manner similar to modular building design. Data warehousing services provided by the Company offer customers easy and uniform access to data despite differences in platforms, systems, applications, and database structures, while maintaining data security. In developing turnkey systems, the Company provides services from the inception of each project through the delivery of the completed software system. Once the system is delivered, the Company provides training and support during the life of the system. Advanced I/T Applications Advanced I/T Applications range from large-scale simulation development and custom software systems to prototype hardware systems and low-volume custom production. The Company is responsible for the design, development, and support of large-scale simulations and high-fidelity models in a variety of computer languages and hardware platforms and has developed technologies for user-friendly interfaces and advanced simulation applications. The Company provides services in the areas of data compression, machine vision, neural networks, artificial intelligence, and image processing and analysis. Other capabilities include the development and utilization of custom workstations, test instrumentation, and other specialized hardware systems. Healthcare Information Services The Company's experience in systems engineering and integration has permitted the Company to address new business opportunities. Management believes that the healthcare industry represents an emerging and growing market. The Company's goal is to provide system integration and reengineering services and products for an integrated healthcare delivery system. The Company believes its experience in systems engineering, advanced information technologies and complex systems integration projects, will provide a signifi- cant market differential. The Company's first major contract in this new business area valued at $3,500,000 was recently awarded by The Elysium Corporation to provide an integrated healthcare delivery system. In this regard, the Company has applied its I/T experience to provide cost-effective integrated information systems and services for healthcare providers and managed care delivery systems. The Company offers computer-aided claims adjudication for worker's compensation claims, customized software development, and I/T consult- ing services to the healthcare industries. The Company also offers a practice management system that provides numerous financial and administrative services to healthcare providers, on transaction basis. The Company acquired 19.9 percent of the capital stock of TXEN with an option to purchase the remaining capital stock in 1998. TXEN provides information systems to managed care organizations and other healthcare organizations. TXEN's system handles office management and automated claims adjudication for physicians, hospitals, and carriers. It provides managed care modules to assist physician organizations and managed care organizations in pricing their services. TXEN primarily provides their services on a transaction basis. The Company coordinates marketing activities with TXEN and currently provides I/T services to TXEN. Commercial I/T Consulting As part of its diversification initiative, the Company has, through direct contract awards and corporate acquisitions, successfully established an I/T commercial consulting services business. The Company was awarded a contract valued at approximately $20,000,000 from Federal Express Corporation (FedEx) to provide interactive training workstations FedEx field offices nationwide and to provide for training FedEx personnel to use Company designed software. The Company also provides other commercial I/T consulting services in the following areas: - Networking - System integration and imaging - Application training - Local area network engineering and support - Turnkey design, development and implementation of user command and software - Reengineering studies - Client server conversions and development - Contract programming The Company provides consulting services to the telecommunications, insurance/healthcare, transportation and other commercial industries. The Company has also entered into a joint venture to provide installation and associated integration services for SAP software systems. The joint venture was awarded a $1,000,000 contract to install the SAP software at the other joint venturer's facility in Baton Rouge, Louisiana. Customers The Company performed services on over 225 active contracts with more than 50 different customers during 1995. The majority of the Company's revenues are from contracts with DoD and other government agencies. For the fiscal year ended August 31, 1995, approximately 34% of contract revenues were from contracts with the Army Missile Command (MICOM), 19% of contract revenues were from contracts with the U.S. Army Space and Strategic Defense Command (SSDC), 7% of contract revenues were from contracts with BMDO, 6% of contract revenues were from contracts with the United States Air Force (USAF) Space and Missile Systems Center (SMC), and 5% of contract revenues were from contracts with FedEx. No other customer accounted for more than 5% of the Company's revenues from contracts. U.S. Army. The U.S. Army has been a major customer since the Company's inception. During 1995, support to the Army involved 10 organizations at 7 different locations. Under several contracts to MICOM, technical services are provided to the Research and Development Center, MICOM support directorates, the Program Executive Officer for Tactical Missiles on such missile systems as ATACMS, MLRS, E-FOG, STINGER, JAVELIN, BAT, ATEM, TOW, AVENGER, BFV, RFPI and CHAPARRAL. The Company is supporting the U.S. Army's Aviation and Troop Command in St. Louis, Missouri through the Program Executive Office - Aviation. The main services include providing system engineering analysis, assessment of the Target Acquisition Designation Sight and the Pilot Night Vision Sensor for the Apache helicopter, analytical integration of the advance aircraft survivability equipment, and engineering analysis and concurrent engineering for the aviation life support equipment. SSDC, located in Huntsville, Alabama, is the Company's longest continuous customer and remains a major customer. The Company serves a variety of project and technology directorates of SSDC. The Company provides support to the Program Executive Office-Missile Defense and major weapons systems development programs including Theater High- Altitude Air Defense (THAAD), Patriot, PAC-3, NMD, Corps Sam, and Army Enclave Integration and Interoperability. It also is instrumental in development of major system and subsystem simulations and test beds for sensor, air defense, theater missile defense, and strategic programs. The Company provides support to the U.S. Army Simulation, Training and Instrumentation Command (STRICOM) in the development of threat simulators to be used for testing and training programs. For the Corps of Engineers' Waterways Experiment Station, the Company is supporting the development of Camouflage, Concealment & Decoy (Deception) and Charge-Coupled Device (CCD) technologies for U.S. Army fixed facilities. U.S. Air Force. The Company has a broad relationship with the U.S. Air Force, principally through the Air Force's acquisition centers and laboratories and through Air Force Space Command. In 1995, the Company supported 9 organizations at many different locations. The Company provided engineering services to a number of programs of the Space and Missile Systems Center in Los Angeles, California. Many of these services were for the Space and Missile Tracking System, a space-based surveillance system. For Wright Laboratory at Wright-Patterson Air Force Base, Ohio the Company designs algorithms for infrared surface-to-air threat warning and evaluates new materials and their suitability for military space structures and re-entry vehicles. The Company has done technology assessment and mission effectiveness analysis for the Deputy for Developmental Planning at the Aeronautical Systems Center. The Company provides software quality assurance services to the Air Force Operational Test and Evaluation Center at Kirtland Air Force Base, New Mexico. The Company also supports Phillips Laboratory in Albuquerque, New Mexico, by assessing infrared focal plane array and cryogenic technologies for space applications; performing data reduction for sensors aboard test aircraft; assessing the space qualification of microelectronics; and developing technology for space structures and spaceborne radar. The Company has contracts with the Wright Laboratory's Armament Directorate at Eglin Air Force Base, Florida, to develop, maintain, and distribute the Air Force Standard Tactical Air-to-Surface Signature Prediction Code, develop real- time non-proprietary algorithms for insertion into solid state ladar seekers, develop an algorithm rapid prototyping tool, upgrade standard air-to-air engage- ment routines to include near-field electromagnetic wave propagation effects, and develop sensor modeling tools. The Company also supports the Aeronatical Systems Division at Eglin Air Force Base in the development and maintenance of the base-wide software inventory database, and the development of a simulation approach for target drones employing Inertial Navigaition System/ Global Position System (INS/GPS) guidance. For Air Force Space Command at Peterson Air Force Base, Colorado the Company develops software tools that are used by the Air Force for satellite tracking through the North American Air Defense (NORAD) Cheyenne Mountain Complex. At Falcon Air Force Base, the Company develops command decision aid software for the ALERT missile warning system within the Space Warfare Center. The Company performs research and development for Rome Laboratory elements located at Griffiss Air Force Base, New York and at Hanscom Air Force Base, Massachusetts. The Company is developing algorithms for ionospheric clutter characterization and for tracking high frequency radar targets in clutter; developing a simulation for analysis of the battle damage assessment command and control process; and developing new and innovative modeling and simulation techniques. Ballistic Missile Defense Organization (BMDO). As the prime contractor for the Sensor/Mid-Course Space Experiment (MSX) System Engineering and Technical Assistance Program, the Company provides support and research in technology development and experiments for the Advanced Sensor Technology (ASTP), the Discriminating Interceptor Technology (DITP), and the MSX Programs. Technical services are provided to perform research in the areas of passive sensors, laser radars, interactive discrimination, microwave radars, and advanced processors for signal processing. In addition, a wide variety of ground- based, atmospheric, and space-based experiments are designed and supported. Under a subcontract for the BMDO Technology Readiness and Strategic Relations Program, the Company provides system engineering and technical assistance for the development and integration of BMD systems, including program planning, NMD readiness, and battle management/command, control and communications (BMC3). This effort includes support for strategic planning activities, mission analyses to assess United States and allied BMD mission perspectives and concepts, cost and operational effectiveness analysis (COEA) development for missile defense programs, threat assessment and system threat mitigation; support to various BMD programs, including sensor tracking concepts and mission analysis; interceptor systems analysis; test and evaluation assessment; and, software engineering and maintenance. Under a subcontract for countermeasures analysis and integration, the Company provides BMDO with an objective resource to evaluate potential countermeasures to tactical and strategic defense systems, both current and planned. This support has included infrared and radar signature generation; countermeasure suite design; system-level analysis of third-world intercontinental ballistic missile design and capabilities; tactical defensive system effectiveness analysis; high fidelity analysis support; and radar effectiveness analysis. U.S. Navy. Since 1988, the Company has been expanding its business with the U.S. Navy. The Company supports 8 different Navy organizations. The Company's largest contract with the Navy, with a value of approximately $13,000,000 over a period of 5 years, is to provide engineering services at the Naval Air Warfare Center, Point Mugu, California. Under this contract, the Company has developed and demonstrated a ground based prototype no-drop Walleye missile training simulation which has been flown interactively with an F-18 aircraft flying over the training range at Fallon, Nevada. The Company also supports the Naval Aviation Depot at Cherry Point, North Carolina in designing, developing and producing ground support equipment for the Cobra helicopter's Night Targeting System and in the development and production of support equipment for foreign military sales. In 1995, the Company was awarded a contact having a value of approximately $10,000,000 from the Naval Command, Control and Ocean Surveillance Center for continued support to the Innovative Sciences Technical Experimentation Facility within the Cape Canaveral, Florida, launch complex. Support services under this contract include operations, maintenance, experiment planning and conduct, data collection, and site upgrades and expansion. For the Navy Coastal Systems Station in Panama City, Florida, the Company is performing independent algorithm scoring and data analysis for the Cobra helicopter multi-spectral mine detection system, analyzing sensor concepts for Navy Special Warfare surveillance applications, and developing a gated-laser signature prediction model and database for the purpose of assessing the applicability of such a device for battlefield obscurant penetration. National Aeronautics and Space Administration (NASA). The Company's business with NASA includes contracts to support Space Shuttle, Earth Observation System and Advanced Xray Astrophysics Facility (AXAF) programs. The Company provides NASA with weld control system technology which complements NASA's work in automated welding. Also at Marshall Space Flight Center (MSFC), Huntsville, Alabama, the Company is providing engineering support for future space technology by providing the Earth Sciences Applications Division (ESAD) with the scientific information tools needed to perform research to characterize earth systems, their interactions with each other, and man's impact upon those systems. The Company also supports NASA's AXAF Off Line Software Program through systems engineering and software development and serves as facility manager for the Global Hydrology and Climate Center (GHCC). State Governments. The Company's business with state governments includes contracts to provide both computer system integration and information systems. The Company has been providing I/T services to the State of Alabama since 1990. The Company is currently the Systems Integration and Facilities Management contractor for the Alabama Supercomputer Authority. In this role, the Company operates and manages the George S. Wallace Supercomputer Center in Huntsville, Alabama, and provides wide area networking services throughout the state as the principal provider of Internet access to Alabama's universities, colleges, and state government agencies. Since 1993, the Company has been awarded three contracts with the State of Florida to perform information system support, business process re-engineering services, and software development. For the State of Mississippi, The Company has several projects under way for the Department of Mental Health. The Company has performed requirements studies for the Intermediate Care Facilities for the Mentally Retarded (ICF/MR) and the State Hospitals. As part of those studies, The Company developed a request for proposal document for client/server software and also assisted in evaluation of proposals received by the state. The Company will continue to assist with the implementation of those software systems through 1996 and will provide the design of the wide area network to support the packages. Commercial Consulting. In 1995 the Company was awarded a $20,000,000 contract by FedEx for I/T services and for which it received the FedEx Information and Telecommunications Contracting Supplier of the Year award for 1995. Under this contract, the Company provided an integrated UNIX multimedia training solution for FedEx the domestic stations and delivered over 1,000 computer workstations. Additionally, the Company developed a graphical user interface and network protocol software. The Company's subsidiary, CCG, performs a variety of computer consulting services for a diverse customer base, with specialties in the telecommunications, insurance/healthcare, transportation, and manufacturing industries. Other clients include banking/financial, education, government, distribution, engineering and entertainment firms. CCG's software development division designed and developed proprietary software products which are used to handle claims administration and premium accounting for worker's compensation and other lines of property/casualty insurance. These packages are marketed and supported on a national basis. Healthcare Information Services. The Company's subsidiary, CSC, is a regional provider of practice management services and systems to physician practices and clinical provider organizations. CSC's products and services include a transaction-based medical practice management network, a stand alone UNIX-based medical practice management system, and, a complete billing and accounts receivable management service. Currently, CSC provides practice management solutions to providers in substantially all major specialties and in practices that range in size from one to more than 200 physicians. Competition The Company has substantial competition in all of its business areas. Some of its competitors are large, diversified firms having significantly greater financial resources than the Company. Competition in the Company's business areas is influenced by technical capability, performance, and price. Management believes that its ability to recruit and retain highly skilled and technically competent personnel has been a substantial factor in development of the Company's business and its ability to win contracts in a competitive environment. Marketing The Company's marketing activities are directed by its Corporate Development organization who coordinates the marketing activities of program development managers assigned to Company units. The program development staff as well as other Company managers, engineers, and scientists attend new business briefings sponsored by government agencies, review business publications and learn of new business opportunities through customer contacts. Potential new procurements are analyzed and evaluated within the unit of the Company that would be principally responsible for performance of the contract. The decision to submit a bid or proposal is made by the responsible unit Vice Presidents in coordination with the Corporate Development staff. Government Contracts A substantial portion of the Company's revenues are derived from contracts and subcontracts with the DoD and other federal government agencies. Future revenues and income of the Company could be materially affected by changes in procurement policies, a reduction in expenditures for the services provided by the Company, and other risks generally associated with federal government contracts. The Company performs its services under federal government contracts that usually require performance over a period of one to five years. Long-term con- tracts may be conditioned upon continued availability of Congressional appro- priations. Variances between anticipated budgets and Congressional appropria- tions may result in delay, reduction or termination of such contracts. Contrac- tors often experience revenue uncertainties with respect to available contract funding during the first quarter of the government's fiscal year beginning October 1, until differences between budget requests and appropriations are resolved. The Company's federal government contracts are performed under cost reimbursement contracts, time-and-materials contracts and fixed price contracts. Cost reimbursement contracts provide for reimbursement of costs (to the extent allowable under Federal Acquisition Regulations) and for payment of a fee. The fee may be either fixed by the contract (cost-plus- fixed fee) or variable, based upon cost, quality, delivery, and the customer's subjective evaluation of the work (cost-plus-award fee). Under time-and- materials contracts, the Company receives a fixed amount by labor category for services performed and is reimbursed (without fee) for the cost of materials purchased to perform the contract. Under a fixed price contract, the Company agrees to perform certain work for a fixed price and, accordingly, realizes the benefit or detriment to the extent that the actual cost of performing the work differs from the contract cost. Contract revenues for the year ended August 31, 1995, were approximately 48% from cost reimbursement contracts and approximately 52% from time-and-materials contracts and fixed price contracts. The Company's allowable contract costs and fees are subject to audit by the Defense Contract Audit Agency (DCAA). Audits may result in non-reimbursement of some contract costs and fees. To date, the Company has experienced no material adjustments as a result of audits by the DCAA. The DCAA has not completed audits of the Company's contracts for fiscal years 1993, 1994 and 1995. The Company's contracts may be terminated, in whole or in part, at the convenience of the government. If a termination for convenience occurs, the government generally is obligated to pay the cost incurred by the Company under the contract plus a pro rata fee based upon the work completed. When the Company participates as a subcontractor, the Company is at risk if the prime contractor does not perform its contract. Similarly, when the Company as a prime contractor employs subcontractors, the Company is at risk if a subcontractor does not perform its subcontract. Some of the Company's contracts contain options which are exercisable at the discretion of the customer. An option may extend the period of performance, for one or two years, for additional consideration on terms and conditions similar to those contained in the original contract. An option may also increase the level of effort and assign new tasks to the Company. In the Company's experience, options are usually exercised. The Company's eligibility to perform under its government contracts requires the Company to maintain adequate security measures. The Company believes its security procedures satisfy the requirements of its contracts. Backlog The Company had a backlog of $505,744,000, including options of $217,767,000, at August 31, 1995, compared to a backlog of $520,133,000, including options of $238,269,000, at August 31, 1994. Management believes that approximately 30% of the Company's backlog at August 31, 1995, will result in revenues from contracts for the year ending August 31, 1996, compared to the year ended August 31, 1995, when approximately 32% of the Company's backlog at August 31, 1994 resulted in revenues from contracts. The backlog amounts as presented are comprised of funded and unfunded components. Funded backlog represents the sum of appropriated funds specifically obligated by customers to contracts. Unfunded backlog represents future contract amounts that customers may obligate over the specified contract performance periods. The Company's customers provide funds or budget for expenditures on long-term contracts on a periodic basis. The Company is committed to provide services under its contracts to the extent funds are provided. The funded components of the Company's backlog on August 31, 1995 and 1994, were $55,988,000 and $48,618,000, respectively. The unfunded components of the Company's backlog on August 31, 1995 and 1994, were $449,755,000 and $471,515,000, respectively. The ability of the Company to realize revenues from contracts in backlog is dependent upon adequate funding for such contracts. Although funding of its contracts is not within the Company's control, historically, fundings on its contracts have approximated contract award values. Patents and Trademarks The Company does not own any patents. Management believes that the Company's success depends on the innovative skills and technical competence of its personnel rather than on the ownership of patents or trademarks. Technology developed by the Company under its federal contracts is owned by the U.S. Government. Employees As of August 31, 1995, the Company had 1,336 employees. Of the Company's professional employees, 97% hold undergraduate degrees and 43% hold advanced degrees. None of the Company's employees is covered by a collective bargaining agreement. The Company considers its relationship with its employees to be good. ITEM 2. PROPERTIES The Company currently leases approximately 195,000 square feet of office space in Huntsville, Alabama, and approximately 144,000 square feet of office space in 23 other locations throughout the United States. The Company's leases expire at varying periods from 1996 to 2005, and currently call for annual lease payments of approximately $2,724,000. Certain of the lessors under such leases may be deemed to be affiliates of the Company. ITEM 3. LEGAL PROCEEDINGS None. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. EXECUTIVE OFFICERS OF THE REGISTRANT
OFFICER NAME AGE POSITION SINCE - ---- ---- -------- ------- Chris H. Horgen 49 Chief Executive Officer and Chairman 1976 Michael J. Mruz 50 President and Chief Operating Officer 1994 Roy J. Nichols 57 Senior Vice President, Chief Technical Officer, 1976 and Vice Chairman Patsy L. Hattox 46 Corporate Vice President, Chief Administrative 1980 Officer, Secretary and Director Allen E. Dillard 35 Chief Financial Officer and Treasurer 1994 James W. Apple 67 Vice President 1986 Billy G. Barnes 61 Corporate Vice President 1986 Jerry T. Bosley 52 Corporate Vice President 1988 John A. Conway, Jr. 51 President of CCG and Corporate Vice President 1995 J. Daniel Jones 47 Corporate Vice President 1985 Earl Madden 63 Chief Procurment Officer 1994 Darrell B. McIndoe 42 President of CSSi and Corporate Vice President 1994 Donald Y. Menendez 39 President of CSC and Corporate Vice President 1995 James C. Moule 59 Corporate Vice President 1988 Glenn Priddy 52 Corporate Vice President 1990 Louis B. Rau 46 President of Nichols Research Corporation Technical Services Corporation and Corporate Vice President 1992 William H. Schoendorf 59 Corporate Vice President 1984 Michael W. Solley 37 Corporate Vice President 1992 David M. Wilcox 49 Corporate Vice President 1986 Thomas M. Zakrewski 51 Vice President 1984
Chris H. Horgen is a co-founder of the Company, Chairman of the Board, and Chief Executive Officer. Mr. Horgen has previously served as Co- Chairman of the Board and Executive Vice President. From 1975 to 1976, Mr. Horgen was Branch Chief of Optical Analysis at McDonnell Douglas Astronautics Company, an aerospace and defense contractor. From 1972 to 1975, he was a Project Manager for Optical Programs for the U.S. Army, and from 1969 to 1972, he was an officer in the U.S. Air Force. He holds bachelor's and master's degrees in Aerospace Engineering from Iowa State University and a master's degree in System Management from the University of Southern California. Michael J. Mruz became President of the Company on August 16, 1994, and its Chief Operating Officer and a director on September 1, 1994. From 1989 to 1994, Mr. Mruz served as Executive Vice President, Chief Financial and Administrative Officer, and a member of the Board of Directors of BDM International, Inc., a defense contractor. While at BDM, Mr. Mruz held the positions of Corporate Vice President from 1988 to 1989, Vice President/General Manager of BDM's Huntsville Technology Center from 1983 to 1988, Vice President, Systems Design and Analysis from 1979 to 1983, and various management and technical positions from 1974 to 1979. Mr. Mruz served in the U.S. Air Force from 1968 through 1974 in research and development assignments involving state-of-the-art communications systems. Mr. Mruz holds a bachelor's degree in Mathematics from Villanova University, and a master's degree in Systems Analysis from the Air Force Institute of Technology. Roy J. Nichols is a co-founder of the Company, Vice Chairman of the Board, Senior Vice President and Chief Technical Officer. Mr. Nichols has previously served as Co-Chairman of the Board. From 1969 to 1976, Mr. Nichols was Chief Engineer at McDonnell Douglas Astronautics Company and from 1958 to 1969, he was Program Manager for the University of Michigan's Willow Run Laboratories. Mr. Nichols holds bachelor's and master's degrees in Aeronautical and Astronautical Engineering from the University of Michigan. Patsy L. Hattox joined the Company in 1977 as an Administrative Assistant. Since 1980, she has served as a Director and Corporate Secretary. From 1985 to 1988, she held the position of Division Director for Administration. Ms. Hattox was promoted to Vice President of Administration and Investor Relations in 1988, and to Chief Administrative Officer in 1991. Ms. Hattox holds a bachelor's degree in Business Administration from Athens State College. Allen E. Dillard joined the Company in 1992 as Staff Manager of Finance and Accounting. He became Chief Financial Officer and Corporate Treasurer in 1994. From 1983 to 1992, Mr. Dillard was employed with Ernst & Young, LLP, where he served as Senior Manager from 1991 to 1992, as Manager from 1988 to 1991, and as Staff Accountant from 1983 to 1988. Mr. Dillard is a certified public accountant and holds a bachelor's degree in Accounting from the University of Alabama at Birmingham. James W. Apple joined the Company in 1986 as Vice President for Corporate Development. From 1955 to 1986, he was employed by McDonnell Douglas Astronautics Company, an aerospace and defense contractor. From January 1986 to August 1986, he served as Director of Program Development, International and U.S. Field Office Operations, from 1984 to 1986, he served as Director of Program Development for the Southeastern Region and from 1982 to 1984, he served as Director of Program Development of Ballistic Missile Defense. He holds a bachelor's degree in Business Administration from Lees McRae College. Billy G. Barnes joined the Company in 1986 as a Division Director and was later promoted to Group Vice President for Threat and Discrimination. From 1958 to 1986, he was employed by Teledyne Brown Engineering, a defense contractor, where he served as Director of System Development for the Strategic Systems Division from 1983 to 1986 and Program Manager from 1980 to 1983. Mr. Barnes holds a bachelor's degree in Electrical Engineering from Auburn University. Jerry T. Bosley, who has over 28 years of experience in tactical missile system and simulation technologies, joined the Company in 1986 and was promoted to Vice President as Deputy for Tactical Systems in 1988. He holds bachelor of science degrees in Mechanical Engineering from the University of Alabama in Huntsville and Mathematics and Physics from Western Kentucky University, and a masters degree in Mathematics from the University of Kentucky. Mr. Bosley is currently responsible for the Company's Army Tactical Systems and Technologies business base. John A. Conway, Jr. is President of Conway Computer Group, Inc. (CCG), a wholly owned subsidiary of the Company. Mr. Conway has served as President of CCG and its predecessor since 1978. Mr. Conway holds a bachelor's degree in Civil Engineering from Mississippi State University and has 27 years experience in information/technology businesses. J. Daniel Jones joined the Company in 1981 as manager of the Sensors Directorate. Dr. Jones was promoted to Vice President of the Systems Group in 1985. From 1980 to 1981, Dr. Jones was Director of the Sensor Systems Department at General Research Corporation, a defense contractor. He holds a bachelor's degree in Physics from North Georgia College and master's and doctorate degrees in Physics from the University of Missouri-Rolla. Earl Madden joined the Company in 1983 as a Manger of Contract Administration after twenty four years experience with the U.S. Government in the contracts and logistics field. He became Chief Pronouncement Officer in 1994. Mr. Madden has a masters degree in Contract Management from Florida Institute of Technology. D. Bruce McIndoe is President of Communications and Systems Specialists, Inc. (CSSi), a wholly owned subsidiary of the Company. Mr. McIndoe has served as President of CSSi since 1983. Mr. McIndoe holds a bachleor's degree in Physics from Allegheny College, as well as a master's degree in Computer Science from John Hopkins University. Donald Y. Menendez currently serves as President and Chief Operating Officer of Computer Services Corporation (CSC), a wholly owned subsidiary of the Company. Mr. Menendez joined CSC in 1989 as its Executive Vice President and was named President and Chief Operations Officer in January 1994. Mr. Menendez graduated from Vanderbilt University. James C. Moule joined the Company in 1988 as Vice President of the Southwest Region. From 1987 to 1988, he was employed by McDonnell Douglas Astronautics Company as a Program Director. Prior to joining McDonnell Douglas, Mr. Moule was employed by the Northrop Corporation where he served as Program manager from 1981 to 1982; Vice President, Engineering from 1982 to 1984; and Director of Advanced Programs from 1985 to 1987. Mr. Moule holds a bachelor's degree in Physics from the University of California in Los Angeles. Glenn Priddy joined the Company in 1990 as Division Vice President for Special Programs. In 1992, he was promoted to Group Vice President for Special Programs. From 1985 to 1990, he was Director at the U.S. Army Missile and Space Intelligence Center in Huntsville, Alabama. Dr. Priddy holds a bachelor's degree in Electrical Engineering from the University of Alabama in Huntsville, a master's degree in Management from Alabama A & M University and a Doctor of Management degree from Southeastern Institute of Technology. Louis B. Rau joined the Company in May of 1992 as Vice President of Information Systems. In 1995, he was promoted to Corporate Vice President for Information Systems Support and is the President of NRC Technical Services Corporation (NRCTSC), a wholly owned subsidiary of the Company. From 1983 to 1992, Mr. Rau was the Senior Vice President and Manager of US Operations for COLSA Corporation. Mr. Rau holds a bachelor's degree in Industrial and Systems Engineering from the Georgia Institute of Technology, an MSBA in Business from Boston University, and a MSE in Systems Engineering from the University of Alabama in Huntsville. William H. Schoendorf joined the Company in 1984 as Vice President. From 1970 to 1984, Dr. Schoendorf was employed by Lincoln Laboratory, a research laboratory of the Massachusetts Institute of Technology, where he served as a Group Leader in discrimination activities from 1982 to 1984 and as Associate Group Leader in discrimination activities from 1981 to 1982. He holds a bachelor's degree in Electrical Engineering from Massachusetts Institute of Technology, a master's degree in Electrical Engineering from the University of Pennsylvania, and a doctorate degree in Electrical Engineering from Purdue University. Michael W. Solley joined the Company in 1983 and has managed several large contracts in the computer systems integration business. He was promoted to Vice President in 1992 and is currently responsible for Computer Systems Integration business activities. Mr. Solley holds a bachelor's degree in Electrical Engineering from the University of Alabama in Huntsville. David M. Wilcox joined the Company in 1977 in a technical position as an Optical Scientist. Dr. Wilcox was promoted to Vice President of the Advanced Processing Group in 1986. He holds bachelor's, master's and doctorate degrees in Physics from the University of Missouri-Rolla. Thomas M. Zakrewski joined the Company in 1983 as Director of Washington Operations and was promoted to Vice President of the Mid- Atlantic Region in 1984. From 1980 to 1983, he held the position of Director, Eastern Operations, Technology Applications Group at Flow General, Inc./General Research Corporation, a defense contractor. Mr. Zakrzewski holds a bachelor's degree in Chemistry from the University of Michigan. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Dividend Policy The Company has never declared or paid cash dividends on its common stock. The Company presently intends to retain its earnings for use in its business and, therefore, does not anticipate paying any cash dividends. Future cash dividends, if any, will be determined by the Board of Directors in light of the Company's earnings, financial condition, capital requirements and such other factors as the Board may deem relevant. Market and Stockholder Information The Company's common stock is traded on the NASDAQ National Market System under the symbol NRES. As of August 31, 1995, there were 6,254,850 shares of common stock outstanding, held by 652 shareholders of record, with the total number of shareholders estimated to be 2,800. The following table sets forth, for the periods indicated, the high and low closing sale prices of the Company's common stock as reported on the NASDAQ National Market System. 1994 1995 High Low High Low First Quarter 13 3/4 12 1/8 12 1/2 10 3/4 Second Quarter 16 1/4 12 3/4 14 3/4 12 Third Quarter 14 1/2 10 3/4 15 1/2 14 Fourth Quarter 12 9 1/4 19 1/2 15 3/4 ITEM 6. SELECTED FINANCIAL DATA
FIVE-YEAR FINANCIAL SUMMARY 1991 1992 1993 1994 1995 ------------------------------------------------------------------------- Revenues $90,932,000 $117,205,000 $159,112,000 $143,153,000 $170,331,000 ------------------------------------------------------------------------- Net Income $ 4,657,000 $ 5,906,000 $ 7,049,000 $ 6,506,000 $ 7,202,000 ------------------------------------------------------------------------- Net Income Per Common Share $0.90 $0.98 $1.13 $1.05 $1.15 ------------------------------------------------------------------------- Stockholders' Equity $36,949,000 $ 43,937,000 $ 52,700,000 $ 57,308,000 $ 67,848,000 ------------------------------------------------------------------------- Long-term Debt - - - $ 4,328,000 $ 5,366,000 ------------------------------------------------------------------------- Total Assets $48,048,000 $ 62,180,000 $ 71,990,000 $ 80,761,000 $100,879,000
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATION General The Company provides information systems and technology services to agencies of the Department of Defense, non-defense federal agencies, state governments and commercial entities. The major portion of the Company's revenues result from services performed under U.S. government contracts, either directly or through subcontracts. The Company performs its services under a variety of cost reimbursement and fixed price contract types. The percent of total revenue from fixed price contracts is increasing both because of a move by the government to more fixed price contracts and the entry into commercial markets where fixed price contracts are more common. The Company's fixed price type contracts generally have shorter terms than cost reimbursement type contracts. The Company's business is directly related to its ability to obtain new contract awards, the funding levels of awarded contracts and the Company's contract performance. The following tables set forth, for the periods indicated, the percentages which certain items in the consolidated statements of income bear to consolidated revenues and the percentage change of such items for the periods indicated: Percentage of Revenues Percentage Increase Years ended August 31, (Decrease) 1993- 1994- 1993 1994 1995 1994 1995 ------------------------------------------ Revenues 100.0% 100.0% 100.0% (10.0)% 19.0% Costs and expenses: Direct and allocable costs 87.1 86.8 86.6 (10.3) 18.8 General and administrative expenses 6.4 6.6 7.6 (7.0) 36.1 ---------------------- Total costs and expenses 93.5 93.4 94.2 (10.1) 20.1 ---------------------- Operating profit 6.5 6.6 5.8 (8.8) 3.9 Other income (expense), net .5 .6 .8 9.8 62.3 ---------------------- Income before taxes 7.0 7.2 6.6 (7.4) 9.1 Income taxes 2.6 2.7 2.4 (7.0) 6.4 ---------------------- Net income 4.4 4.5 4.2 (7.7) 10.7 ====================== The following table summarizes the percentage of revenue by contract type for the periods indicated: Years ended August 31, 1993 1994 1995 ------------------------ Cost reimbursement 60% 56% 48% Fixed price 40% 44% 52% ------------------------ Total 100% 100% 100% ======================== The table below presents contract award and backlog data for the periods indicated: Years ended August 31, 1993 1994 1995 ----------------------------------------- Contract award value $218,497,000 $182,747,000 $174,049,000 Backlog (with options) $501,491,000 $520,133,000 $505,744,000 Backlog (without options) $260,313,000 $260,312,000 $287,977,000 Backlog percentage by contract type: Cost reimbursement 72% 73% 64% Fixed price 28% 27% 36% 1995 Compared with 1994 Revenues. Revenues increased $27,178,000 (19%) in 1995. The increase was due to increases in funding for existing tactical and theater missile programs, two large contract awards for information technology services and the revenues contributed by three acquisitions during 1995. Operating Profit. Operating profit increased $371,000 (4%) in 1995. Direct and allocable costs were consistent as a percentage of revenues. General and administrative expenses increased $3,425,000 (36%) in 1995. This increase reflects the Company's aggressive bid and proposal activities for U.S. government information systems and technology contracts and the significant emphasis on marketing the Company's information technology services to healthcare and commercial entities. As a result, the operating profit margin decreased to 5.8% from 6.6% in 1994. Other Income (Expense). Other income increased $685,000 in 1995 due primarily to increased rates of return on the Company's invested cash balances. Substantially all of the Company's available cash is invested in short-term or variable interest bearing accounts. The Company recorded $114,000 in interest expense related to industrial development borrowings in 1995. As discussed below, significant increases in computer hardware integration contracts or additional strategic acquisitions could reduce cash balances available for investment and reduce investment income and/or require the Company to incur additional borrowings with a resulting increase in interest expense. Income Taxes. Income taxes as a percentage of income before taxes was 36.4% in 1995 as compared to 37.3% in 1994. The decrease in the effective tax rate was due to a decrease in state income taxes. 1994 Compared with 1993 Revenues. Revenues decreased $15,959,000 (10%) in 1994. Revenues in 1993 included a significant nonrecurring computer hardware integration contract of approximately $15,000,000. Revenues in 1994 were also impacted by decreases in funding on the Company's Department of Defense contracts and an increasingly competitive business environment. Operating Profit. Operating profit decreased $915,000 in 1994 (9%). This decrease was due to the decrease in revenues in 1994 as direct and allocable costs and general and administrative expenses as a percentage of revenues were approximately the same as in 1993. The operating profit margin was 6.6% compared to 6.5% in 1993. Other Income (Expense). Other income increased $82,000 in 1994 due primarily to an increase in cash balances available for investment. Substantially all of the Company's available cash is invested in short-term or variable interest bearing accounts. Income Taxes. Income taxes as a percentage of income before taxes was 37.3% in 1994 as compared to 37.1% in 1993. Liquidity and Capital Resources Cash provided by operations was $5,992,000, $7,510,000 and $6,832,000 for the years ended August 31, 1993, 1994 and 1995, respectively, and is the Company's primary source of liquidity. The Company realized proceeds from the sale of common stock and reissue of treasury stock of $1,714,000, $1,852,000 and $2,252,000 for the years ended August 31, 1993, 1994 and 1995, respectively. Working capital was $46,874,000, $44,092,000 and $46,773,000 at August 31, 1993, 1994 and 1995, respectively. The Company has a bank line of credit of $73,500,000 which expires in March 1997, unless renewed. The credit agreement provides for interest at the London Interbank Offered Rate (LIBOR) plus 1.25% and a commitment fee on the unused portion of the line of credit. Outstanding borrowings are secured primarily by accounts receivable; however, there have been no borrowings under this agreement. In 1995, the Company borrowed $2,225,000 under an Alabama State Industrial Development Bond program offering certain incentives which effectively reduce the cost of borrowing. The proceeds are being utilized to expand acquistions of property and equipment for information technology programs. In 1994, the Company borrowed $5,771,000 under a term loan agreement. The proceeds were used to purchase computer hardware for lease to a customer over a period of 6 years under a system integration contract. Purchases of property and equipment (including those financed under the term loan agreement) were $1,704,000, $7,301,000 and $2,213,000 for the years ended August 31, 1993, 1994 and 1995, respectively. In 1995, the Company acquired a 100% interest in three separate information system development and technology companies. The companies provide services primarily to commercial and healthcare clients. The aggregate cash consideration for these transactions was approximately $11,350,000. In 1995, the Company also acquired a 19.9% interest in a managed care information services company for approximately $1,500,000, with an option to purchase the remaining interests in 1998. The Company is actively pursuing new 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 Company will also take advantage of opportunities to make strategic acquisitions, should they arise. The Company believes that its existing capital resources, together with available borrowing capacity are sufficient to fund operating needs, expand information system development and computer system integration activities, purchase property and equipment and make strategic acquisitions, if appropriate. Effects of Inflation Substantially all contracts awarded to the Company have been based on proposals which reflect estimated cost increases due to inflation. Inflation has not had a significant impact on the Company. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CONSOLIDATED BALANCE SHEETS August 31, 1993 1994 1995 (ammounts in thousands except share data) ------------------------------ [S] [C] [C] ASSETS Current assets: Cash and temporary cash investments (Note 1) $22,616 $19,355 $ 17,196 Accounts receivable (Note 2) 40,785 39,260 53,103 Deferred income taxes (Note 1 and 4) 1,460 1,283 1,351 Other 825 2,010 1,593 ------------------------------ Total current assets 65,686 62,268 73,243 Long-term investments (Note 1 and 3) 1,000 7,894 4,530 Property and equipment (Note 1): Computers and related equipment 8,397 9,742 11,973 Furniture, equipment and improvements 3,838 3,919 5,149 Equipment-contracts - 5,771 5,771 ------------------------------ 12,235 19,432 22,893 Less accumulated depreciation 7,153 8,924 11,434 ------------------------------ Net property and equipment 5,082 10,508 11,459 Goodwill (net of accumulated amortization of $171) (Note 1 and 9) - - 8,803 Other assets(Note 10) 222 91 2,844 ------------------------------ Total assets $71,990 $80,761 $100,879 ============================== CONSOLIDATED BALANCE SHEETS (CONTINUED) LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $12,590 $12,483 $ 16,886 Accrued compensation and benefits (Note 7) 5,978 4,731 6,897 Income taxes payable (Note 4) 240 - 969 Current maturities of long-term debt (Note 5) - 962 1,187 Other 4 - 531 ----------------------------- Total Current liabilities 18,812 18,176 26,470 Deferred income taxes (Note 4) 478 949 1,195 Long-term debt (Note 5): Industrial development bonds - - 2,000 Long-term notes - 4,328 3,366 ----------------------------- Total long-term debt - 4,328 5,366 Commitments (Note 6) Stockholders' equity (Note 8): Common stock, par value $.01 per share Authorized - 10,000,000 shares Issued - 6,030,997, 6,262,137 and 6,439,227 shares respectively 60 63 64 Additional paid-in capital 20,679 22,528 24,258 Retained earnings 31,961 38,467 45,669 Less cost of 322,500 and 184,377 shares treasury stock respectively - (3,750) (2,143) ----------------------------- Total stockholders' equity 52,700 57,308 67,848 ----------------------------- Total liabilities and stockholders' equity $71,990 $80,761 $100,879 ============================= CONSOLIDATED STATEMENTS OF INCOME Years ended August 31, 1993 1994 1995 (amounts in thousands except share data) ------------------------------ Revenues (Note 1) $159,112 $143,153 $170,331 Costs and expenses: Direct and allocable costs 138,535 124,202 147,584 General and administrative expenses 10,203 9,492 12,917 ------------------------------ Total costs and expenses 148,738 133,694 160,501 ------------------------------ Operating profit 10,374 9,459 9,830 Other income (expense): Interest expense (Note 5) - - (114) Other income, principally interest 835 917 1,602 ------------------------------ Income before income taxes 11,209 10,376 11,318 Income taxes (Note 4) 4,160 3,870 4,116 ------------------------------ Net income $ 7,049 $ 6,506 $ 7,202 ============================== Net income per common share (Note 1) $ 1.13 $ 1.05 $ 1.15 ============================== Weighted average number of common and common equivalent shares outstanding 6,253,129 6,205,309 6,279,109 ================================== CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Additional Total Common Stock Paid-In Retained Treasury Stockholders' Shares Amount Capital Earnings Stock Equity (amounts in thousands except share data) ------------------------------------------------------------ Balance, August 31, 1992 5,806,954 $58 $18,967 $24,912 $ - $ 43,937 Sale of common stock 224,043 2 1,712 - - 1,714 Net income - - - 7,049 - 7,049 ------------------------------------------------------------ Balance, August 31, 1993 6,030,997 60 20,679 31,961 - 52,700 Sale of common stock 231,140 3 1,849 - - 1,852 Purchase of 322,500 shares of treasury stock - - - - (3,750) (3,750) Net income - - - 6,506 - 6,506 ------------------------------------------------------------ Balance, August 31, 1994 6,262,137 63 22,528 38,467 (3,750) 57,308 Sale of common stock 177,090 1 1,517 - - 1,518 Net income - - - 7,202 - 7,202 Reissue of 138,123 shares of treasury stock - - 213 - 1,607 1,820 ------------------------------------------------------------ Balance, August 31, 1995 6,439,227 $64 $24,258 $45,669 $(2,143) $ 67,848 ============================================================
CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended August 31, 1993 1994 1995 (amounts in thousands) ----------------------------- Cash flows from operating activities: Net income $ 7,049 $ 6,506 $ 7,202 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 1,314 1,858 2,907 Gain on sale of furniture, fixtures and equipment (10) (14) - Loss on the sale of investments - - 34 Deferred income taxes (30) 647 178 Changes in assets and liabilities (net of effects of acquisitions): Accounts receivable (3,206) 1,165 (10,919) Other assets (55) (1,053) 846 Accounts payable 1,132 (107) 3,497 Accrued compensation and benefits (95) (1,248) 1,921 Income taxes payable 84 (240) 840 Other current liabilities (191) (4) 326 ------------------------------ Total adjustments (1,057) 1,004 (370) ------------------------------ Net cash provided by operating activities 5,992 7,510 6,832 Cash flows from investing activities: Purchase of property and equipment (1,704) (7,301) (2,213) Purchase of long-term investments - (7,894) - Payment for non-compete agreement - - (900) Payments for acquisitions, net of cash acquired - - (10,547) Payment for investment in TXEN - - (1,535) Proceeds from sale of long-term investments 2,500 1,000 3,284 Proceeds from the sale of property and equipment 43 32 - ------------------------------ Net cash provided (used) by investing activities 839 (14,163) (11,911) Cash flows from financing activities: Proceeds from sale of common stock 1,714 1,852 1,518 Proceeds from long-term notes - 5,771 - Proceeds from industrial development bonds - - 2,225 Proceeds from sale of treasury stock - - 734 Payments of long-term debt - (481) (1,557) Purchase of treasury stock - (3,750) - ------------------------------ Net cash provided by financing activities 1,714 3,392 2,920 ------------------------------ Net increase (decrease) in cash and temporary cash investments 8,545 (3,261) (2,159) CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED) Cash and temporary cash investments at beginning of year 14,071 22,616 19,355 ------------------------------ Cash and temporary cash investments at end of year $22,616 $19,355 $17,196 ============================== Supplemental disclosure of non-cash transactions: Deferred compensation resulting from the exercise of restricted stock options and issuance of treasury stock - - $ 81 Issuance of treasury stock as consider- ation in acquisition - - 1,005 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Basis of presentation Nichols Research Corporation (NRC) provides information systems and technology services to agencies of the Department of Defense, non-defense federal agencies, state governments and commercial entities. The consolidated financial statements include the accounts of Nichols Research Corporation and its wholly-owned subsidiaries (the "Company"). Wholly-owned subsidiaries as of August 31, 1995 are Communications & Systems Specialists, Inc. (CSSi), NRC Technical Services Corporation (NRCTSC), Conway Computer Group, Inc. (CCG), and Computer Services Corporation (CSC). All significant intercompany balances and transactions have been eliminated in consolidation. Revenue recognition The major portion of the Company's revenues result from services performed under U.S. government contracts, either directly or through subcontracts. Revenue on cost-plus-fee (including award fee) contracts is recognized based on reimbursable costs incurred plus estimated fees earned thereon. Revenue on fixed price contracts is recognized using the percentage of completion method based on costs incurred in relation to total estimated costs. Revenue on time-and-materials contracts is recognized to the extent of fixed billable rates for hours delivered plus reimbursable costs. Provisions for losses on contracts are recognized in the period in which the loss is first determinable. Unbilled accounts receivable are stated at estimated realizable value. Property and equipment Property and equipment are recorded at cost and depreciated using the straight-line method over estimated useful lives of three to ten years for equipment and furniture and over the terms of the related leases for leasehold improvements. Income taxes Deferred income taxes are provided for temporary differences between financial and taxable income, primarily related to accrued liabilities and use of accelerated depreciation methods for income tax purposes. Net income per common share Net income per common share is based upon the weighted average number of common shares and the dilutive common equivalent shares, related to stock options outstanding during the period, less treasury shares assumed to have been purchased with the option proceeds. Dilution in net income per common share on a fully diluted basis is less than 3% in all periods. Cash and temporary cash investments The Company considers as cash equivalents those securities that are available upon demand or have maturities of three months or less at the time of purchase. At August 31, 1995, temporary cash investments consisted of various money market accounts, primarily with an Alabama bank. Long-term investments Investments are classified at the time of purchase and are evaluated as of each balance sheet date. Debt securities, which include municipal obligations and preferred stock, are classified as held-to-maturity and are stated at amortized cost. Equity securities, which consist of mutual funds, are classified as available-for-sale and are stated at average cost which approximates fair value. Interest, dividends and amortization of premiums are included in investment income. Goodwill Goodwill is amortized using the straight-line method over periods ranging from ten to twelve years. The carrying amount of goodwill is evaluated if facts and circumstances suggest that it may not be recoverable over the remaining amortization period. The carrying amount is reduced by the amount estimated not to be recoverable. Reclassification Certain prior period amounts have been reclassified to conform with the current year's presentation. NOTE 2 - ACCOUNTS RECEIVABLE Accounts receivable consist of the following:
August 31, 1993 1994 1995 (amounts in thousands) --------------------------------------------------------------------- Billed $ 17,058 $ 15,955 $ 25,201 Unbilled 23,727 23,665 27,902 --------------------------------------------------------------------- $ 40,785 $ 39,620 $ 53,103 =====================================================================
Accounts receivable include $32,700,000, $32,900,000 and $36,717,000 due from the U.S. Government at August 31, 1993, 1994 and 1995, respectively. Unbilled accounts receivable include retainages of $2,124,000, $2,745,000 and $3,373,000 at August 31, 1993, 1994 and 1995, respectively. Unbilled amounts are classified as current assets since substantially all amounts will be realized within one year. Costs related to certain contracts are subject to adjustment from negotiations and audit between the Company and its customers, including representatives of the U.S. Government. Revenues for such contracts and the related unbilled receivables have been recorded in amounts that are expected to be realized. NOTE 3 - LONG-TERM INVESTMENTS The following is a summary of long-term investments as of:
Gross Gross Estimated Unrealized Unrealized Fair Cost Gains Losses Value (amounts in thousands) ----------------------------------------------------------------------- August 31, 1994 Available for sale: Mutual funds $ 3,318 $ -- $ -- $ 3,318 Held to maturity: Municipal obligations 3,572 (123) 3,449 Preferred stocks 1,004 -- (86) 918 ----------------------------------------------------------------------- 4,576 -- (209) 4,367 ----------------------------------------------------------------------- $ 7,894 $ -- $ (209) $ 7,685 ======================================================================= August 31, 1995 Held to maturity: Municipal obligations $ 3,526 $ -- $ (40) $ 3,486 Preferred stocks 1,004 -- (26) 978 ----------------------------------------------------------------------- $ 4,530 $ -- $ (66) $ 4,464 =======================================================================
Contractual maturities of debt securities held to maturity occur ratably over the next four years. Proceeds from the sale of investments classified as available for sale were $3,284,000 for the year ended August 31, 1995. Gross realized losses as a result of these sales were $34,000 and are included as other income. NOTE 4 - INCOME TAXES Effective September 1, 1993, the Company changes its method of accounting for income taxes from the deferred method to the liability method in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". The cumulative effect of this change was not significant and prior years' financial statements were not restated. The provisions for income taxes consist of the following:
Years Ended August 31, 1993 1994 1995 Deferred Method Liability Method Liability Method (amounts in thousands) ----------------------------------------------------------------------------- Current: Federal $ 3,505 $ 2,688 $ 3,439 State 685 535 499 ----------------------------------------------------------------------------- 4,190 3,223 3,938 Deferred: Federal 42 540 156 State (72) 107 22 ----------------------------------------------------------------------------- (30) 647 178 ----------------------------------------------------------------------------- $ 4,160 $ 3,870 $ 4,116 =============================================================================
The significant components of deferred tax assets and liabilities as of August 31, 1994 and 1995 are as follows:
August 31, 1994 August 31, 1995 (amounts in thousands) ------------------------------------- Current deferred tax assets: Accrued liabilities not currently deductible $ 1,283 $ 1,351 Non-current deferred tax liabilities: Basis difference for property and equipment (949) (1,195) ------------------------------------- $ 334 $ 156 =====================================
The provision for deferred income taxes for the year ended August 31, 1993 resulted from the following: Year ended August 31, 1993 (amounts in thousands) ---------------------- Accrued liabilities not currently deductible $ (103) Use of cash basis accounting for state income tax purposes (79) Use of accelerated depreciation for income tax purposes 117 Deferred compensation not currently deductible 35 ---------------------- $ (30) ====================== Income tax expense as a percentage of income before income taxes varies from the federal statutory rate due to the following: Years Ended August 31, 1993 1994 1995 --------------------- Statutory federal income tax rate 34.0% 34.0% 34.0% State income taxes, net of federal benefit 3.6 4.1 3.0 Other (0.5) (0.8) (0.6) --------------------- 37.1% 37.3% 36.4% ===================== The Company made income tax payments of approximately $4,106,000, $4,259,000 and $2,283,000 in 1993, 1994 and 1995, respectively. NOTE 5 - LINE OF CREDIT AND LONG-TERM DEBT In August 1995, the Company renegotiated its line of credit which now provides for borrowing up to $73,500,000. Borrowings are secured primarily by accounts receivable. A commitment fee of .125% of the unused portion is payable quarterly under this agreement. The agreement expires March 1997 and is renewable annually. Borrowings under this agreement bear interest at the London Interbank Offered Rate (LIBOR) plus 1.25%. There are no outstanding borrowings on this facility at August 31, 1995. In 1993 and 1994, the Company had a $22,000,000 bank line of credit, consisting of $12,000,000 secured by accounts receivable and $10,000,000 unsecured, with interest at the bank's commercial base rate. In January 1995, the Company received $2,225,000 in bond proceeds from the Alabama State Industrial Development Authority. The proceeds are restricted for use in acquiring certain capital assets. At August 31, 1995, approximately $1,769,000 of such restricted amounts are included on the consolidated balance sheet as cash and temporary cash investments. The bonds are payable in equal annual principal installments of $225,000 through January 2005. The bonds bear a variable rate of interest computed weekly but contain an option for a fixed rate for a specified length of time. The bonds are secured by a letter of credit. Interest payments of $114,000 were made in fiscal year 1995. The Company borrowed $5,771,000 in fiscal year 1994 under a term loan agreement. The proceeds were used to purchase computer hardware. The agreement requires equal monthly principal installments of $80,153 until February 2000. The loan bears interest at LIBOR plus 0.75% and is secured by the computer hardware which has a carrying value of $4,328,000. Interest payments of $134,000 and $298,000 were made in fiscal years 1994 and 1995, respectively. Interest expense is included in the consolidated statements of income as a direct and allocable cost. NOTE 6 - RELATED PARTY TRANSACTIONS AND COMMITMENTS The Company leases office facilities under various operating leases, including leases with companies in which certain officers and stockholders have ownership interests. The leases generally have terms of one to ten years. Rent expense for all operating leases was as follows: Years Ended August 31, 1993 1994 1995 (amounts in thousands) -------------------------------- Total rent expense $ 4,065 $ 3,684 $ 3,561 Amounts to related parties 1,088 1,038 1,002 Future minimum lease payments under operating leases with remaining terms of one year or more are: Years Ended August 31, 1996 1997 1998 1999 2000 (amounts in thousands) ------------------------------------- Total $2,724 $2,281 $1,754 $1,229 $ 946 Amounts to related parties 850 635 420 420 420 NOTE 7 - DEFINED CONTRIBUTION BENEFIT PLANS Substantially all full-time employees are covered by one of several defined contribution plans offered by the Company. Employees are permitted to defer from 0% to 15% of their salary depending on the plan in which they participate. A Company matching contribution is determined based on employee deferral percentage and ranges from 0% to a maximum of 2.5%. Discretionary contributions may also be made to plans as determined annually by the Board of Directors. Total provisions for employee retirement plans were approximately $4,050,000, $3,475,000 and $4,130,000 for 1993, 1994 and 1995, respectively. NOTE 8 - EMPLOYEE STOCK OPTIONS AND STOCK PURCHASE PLANS The Company has employee stock option plans that provide for the issuance of incentive stock options (as defined by the Internal Revenue Code) and nonstatutory stock options to key employees, including officers of the Company and its subsidiaries, except those officers who are members of the Stock Option Committee. Options are nontransferable and exercisable only during employment, with certain exceptions. Options expire five years from the date of grant. At August 31, 1995, 315,807 shares were available for grant under these plans. The Company also has a stock option plan for non-employee members of the Board of Directors. At August 31, 1995, 50,995 shares were available for grant under this plan. A summary of activity relating to stock options is as follows:
Incentive Non-employee Nonstatutory Stock Options Stock Options Stock Options Total --------------------------------------------------------------------- Options outstanding at August 31, 1992 680,062 8,338 43,000 731,400 Granted ($12.50-$18.00 per share) 271,094 4,000 -- 275,094 Exercised ($4.32-$8.64 per share) (163,676) -- (15,000) (178,676) Expired (28,437) -- -- (28,437) --------------------------------------------------------------------- Options outstanding at August 31, 1993 759,043 12,338 28,000 799,381 Granted ($10.00-$15.50 per share) 151,942 4,000 70,000 225,942 Exercised ($4.50-$10.75 per share) (154,224) (1,333) (28,000) (183,557) Expired (49,608) -- -- (49,608) --------------------------------------------------------------------- Options outstanding at August 31, 1994 707,153 15,005 70,000 792,158 Granted ($11.00-$18.50 per share) 304,349 6,000 -- 310,349 Exercised ($5.82-$15.13 per share) (130,593) (1,333) -- (131,926) Expired (72,453) -- -- (72,453) --------------------------------------------------------------------- Options outstanding at August 31, 1995 808,456 19,672 70,000 898,128 ===================================================================== Options exercisable August 31, 1995 ($5.82-$18.00 per share) 200,687 19,672 17,500 237,859 =====================================================================
The Company has an employee stock purchase plan that allows eligible employees to purchase common stock at less than fair market value. Effective March 1, 1994, the plan was amended to reduce the purchase price from 90% to 85% of fair market value on each quarterly purchase date. Purchases are limited to the lesser of 10% of an employee's annual compensation or $25,000. Shares of common stock issued under this plan were 45,367, 47,583 and 45,164 in 1993, 1994 and 1995, respectively. On September 1, 1994, a Restricted Stock Option for 70,000 shares of common stock was granted to and exercised by an officer of the Company. The exercise price was 90% of fair market value on the date of exercise. The issued shares were restricted treasury stock. NOTE 9 - BUSINESS COMBINATIONS On September 1, 1994, NRC acquired all of the outstanding stock of Communications & Systems Specialists, Inc. (CSSi), an information systems development company. Aggregate cash consideration of approximately $1,800,000 was paid. The acquisition was accounted for using the purchase method of accounting, resulting in goodwill of approximately $340,000 and allocation of $900,000 to a non-compete agreement between the predecessor's president and NRC. The intangible assets are being amortized using the straight-line method; goodwill over an estimated useful life of ten years and the non-compete over the five year term of the agreement. The consolidated financial statements include the results of operations for the acquired company for the entire 1995 fiscal year. On May 16, 1995, NRC acquired a 100% interest in Conway Computer Group (CCG), a group of three commercial information service companies. Aggregate consideration of approximately $3,000,000 was paid at closing; $2,000,000 in cash and 68,123 shares of restricted treasury stock with an approximate value of $1,000,000. An additional $900,000 of cash consideration is payable contingent upon achieving specified future operating results as defined in the agreement. The acquisition was accounted for using the purchase method of accounting, resulting in goodwill of approximately $2,445,000, which is being amortized using the straight-line method over an estimated useful life of twelve years. The consolidated financial statements include the results of operations for the acquired company from the date of acquisition. On June 30, 1995, NRC acquired substantially all of the assets and liabilities of Computer Services Corporation (CSC), a healthcare information system and services company in the practice management area. Aggregate cash consideration of approximately $7,550,000 was paid. The acquisition was accounted for using the purchase method of accounting, resulting in goodwill of approximately $6,189,000, which is being amortized using the straight-line method over an estimated useful life of twelve years. The consolidated financial statements include the results of operations for the acquired company from the date of acquisition. The following unaudited pro forma summary presents information as if all the acquisitions had occurred at the beginning of each fiscal year presented. The pro forma information is presented for informational purposes only. It is based on historical information and does not necessarily reflect the actual results that would have occurred nor is it necessarily indicative of future results of operations of the combined companies.
Unaudited years ended August 31, 1994 1995 (amounts in thousands, except per share data) --------------------------------------------- Revenues $ 163,885 $ 181,737 Net income 6,443 7,292 Net income per share $ 1.02 $ 1.15
NOTE 10 - INVESTMENT IN AFFILIATE In December 1994, the Company acquired a 19.9% interest in TXEN, Inc., an information systems and services company in the managed care industry. The Company paid approximately $1,500,000 and holds an option to acquire all outstanding shares in the future. The investment is accounted for using the equity method due to the purchase option agreement and is included in noncurrent other assets on the consolidated balance sheet at August 31, 1995. An officer of the Company holds a 4.5% interest in TXEN, Inc. and would be beneficially impacted if the Company exercises its option. NOTE 11 - SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
Operating Net Income Revenues Profit Net Income Per Share (amounts in thousands, except per share data) ---------------------------------------------------------- Year ended August 31, 1994 First Quarter $ 34,079 $ 2,464 $ 1,693 $ .27 Second Quarter 32,787 2,348 1,632 .26 Third Quarter 35,561 2,319 1,600 .26 Fourth Quarter 40,726 2,328 1,581 .26 Year ended August 31, 1995 First Quarter $ 36,231 $ 2,270 $ 1,628 $ .27 Second Quarter 36,174 2,296 1,676 .27 Third Quarter 44,444 2,470 1,829 .29 Fourth Quarter 53,482 2,794 2,069 .32
Second and third quarter operating profit for the year ended August 31, 1995 were adjusted from the amounts reported in Form 10-Q by $8,000 and $57,000, respectively, to reflect the effect of reporting interest expense as other expense. REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS The Board of Directors Nichols Research Corporation We have audited the accompanying consolidated balance sheets of Nichols Research Corporation as of August 31, 1993, 1994 and 1995, and the related consolidated statements of income, stockholders' equity and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Nichols Research Corporation at August 31, 1993, 1994 and 1995, and the consolidated results of its operations and its cash flows for the years then ended in conformity with generally accepted accounting principles. Ernst & Young LLP Birmingham, Alabama October 12, 1995 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information appearing under "Election of Directors" on pages 3 through 5 of Nichols Research Corporation Proxy Statement relative to the Annual Meeting of Shareholders to be held January 11, 1996, is incorporated by reference in this Form 10-K Annual Report. Information regarding delinquent Form 3, 4 or 5 filers appearing under "Compliance with Section 16(a) of the Securities Exchange Act of 1934" on page 12 of the Nichols Research Corporation Proxy Statement relative to the Annual Meeting of Shareholders to be held January 11, 1996, is incorporated by reference in this From 10-K Annual Report. Information relating to the executive officers of the Company as of August 31, 1995, is set forth on pages 12 through 14 of this From 10-K Annual Report. Officers serve at the discretion of the Board of Directors. ITEM 11. EXECUTIVE COMPENSATION The information appearing under "Executive Compensation" on pages 6 through 12 of the Nichols Research Corporation Proxy Statement relative to the Annual Meeting of Shareholders to be held January 11, 1996, is incorporated by reference in this Form 10-K Annual Report. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information appearing under "Common Stock Outstanding and Principal Shareholder" on pages 1 through 3 of the Nichols Research Corporation Proxy Statement relative to the Annual Meeting of Shareholders to be held January 11, 1996, is incorporated by reference in this Form 10-K Annual Report. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information appearing under "Certain Relationships and Related Transactions" on page 13 of the Nichols Research Corporation Proxy Statement relative to the Annual Meeting of Shareholders to be held January 11, 1996, is incorporated by reference in this Form 10-K Annual Report. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)(1) The financial statements and other financial information of Nichols Research Corporation set forth below and the Report of Independent Auditors thereon are incorporated by reference from pages 12 through 27 of this Form 10-K Annual Report: Balance Sheets at August 31, 1993, 1994, and 1995 Statements of Income for the three years ended August 31, 1995 Statements of Stockholder's Equity for the three years ended August 31, 1995 Statements of Cash Flows for the three years ended August 31, 1995 Notes to Financial Statements Report of Ernst & Young LLP, Independent Auditors Selected Quarterly Financial Data (2) All financial statement schedules are omitted because they are not applicable or the required information is shown on the financial statements or notes thereto. (3) Exhibits: EXHIBIT NUMBER AND METHOD OF FILING REFERENCE DESCRIPTION 3.1 D Certificate of Incorporation. 3.2 A By-laws and Amendments thereto. 4.0 D Specimen Stock Certificate. 10.1 K Lease Agreement dated August 26, 1993, between Registrant, as Lessee, and Parkway Properties I, as Lessor, for office space on Nichols Drive in Huntsville, Alabama. 10.2 B&C Employee Incentive Stock Option Plan of Registrant, together with amendments thereto.* 10.3 B Performance Bonus Plan of Registrant dated July 1, 1986.* 10.4 D&F Non-Employee Officer and Director Stock Option Plan of Registrant.* 10.5 D&J 1988 Employees' Stock Purchase Plan of Registrant and Amendments Number One and Two thereto.* 10.6 K Lease dated February 18, 1992, between Parkway Properties II, as Lessor, and Registrant, as Lessee, for office space located at 4035 Chris Drive, Huntsville, Alabama, together with exhibits. 10.7 I Lease dated February 1, 1992, between High Tech Properties, as Lessor, and Registrant, as Lessee, for office space located at 1900 Golf Road, Huntsville, Alabama, together with exhibits. 10.8 E Nichols Research Corporation 1989 Incentive Stock Option Plan.* 10.9 K Credit Agreement dated February 9, 1994, between the Registrant and SouthTrust Bank relating to a $22,000,000 revolving line of credit and a $5,771,000 term loan. 10.10 H Nichols Research Corporation 1991 Stock Option Plan.* 10.11 I Amendments Three and Four to the 1988 Employees' Stock Purchase Plan of Registrant.* 10.12 I Amendment to Non-Employee Officer and Director Stock Option Plan of Registrant.* 10.13 I Amendment to 1989 Incentive Stock Option Plan of Registrant.* 10.14 K Amendment Number Five to the 1988 Employees' Stock Purchase Plan of Registrant.* 10.15 K Amendment Number Two to the Non-Employee Officer and Director Stock Option Plan of Registrant.* 10.16 K Amendment Number One to the 1991 Stock Option Plan of Registrant.* 10.17 A Amendments Two & Three to the 1991 Stock Option Plan of Registrant.* 10.18 A Credit Agreement dated August 16, 1995, between the Registrant, SouthTrust Bank of Alabama, NA, First Alabama Bank, and Corestates Bank, NA. 10.19 A Lease dated July 31, 1995, between Parkway Properties, as Lessor, and Registrant, as Lessee, for office space located at 1910 Nichols Drive, Huntsville, Alabama. 10.20 A Employment Agreement dated May 16, 1995, between Registrant and John A. Conway, Jr.* 10.21 A Employment Agreement dated June 30, 1995, between Registrant and Donald Y. Menendez.* 10.22 A Employment Agreement dated August 24, 1995, and Amendment thereto between Registrant and D. Bruce McIndoe.* 10.23 A Convertible Preferred Stock Purchase Agreement dated December 16, 1994, between Registrant and TXEN, Inc. 10.24 A Stock Purchase Option Agreement dated December 16, 1994, among Registrant, TXEN, Inc. and shareholders of TXEN, Inc. 10.25 A Restricted Stock Purchase Agreement dated September 1, 1994 between Registrant and Michael J. Mruz.* 11 A Computation of Earnings Per Share. 21 A Subsidiaries of Registrant. 23 A Consent of Ernst & Young LLP, Independent Auditors. 27 A Financial Data Schedule. __________________ A Filed herewith. B Incorporated by reference to exhibits filed with the Company's registration statement on Form S-1 under the Securities Act of 1933, File No. 33-10323. C Incorporated by reference to exhibits filed with the Company's registration statement on Form S-8 under the Securities Act of 1933, File No. 33-13464. D Incorporated by reference to exhibits filed with the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1989, under the Securities Exchange Act of 1934. E Incorporated by reference to exhibits filed with the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1990, under the Securities Exchange Act of 1934. F Incorporated by reference to exhibits filed with the Company's registration statement on Form S-8 under the Securities Act of 1933, File No. 33-38568. G Incorporated by reference to exhibits filed with the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1991, under the Securities Exchange Act of 1934, as amended by Form 8. H Incorporated by reference to exhibits filed with the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1992, under the Securities Exchange Act of 1934. I Incorporated by reference to exhibits filed with the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1993, under the Securities Exchange Act of 1934. J Incorporated by reference to exhibits filed with the Company's registration statement on Form S-8 under the Securities Act of 1933, File No. 33-26909. K Incorporated by reference to exhibits filed with the Company's Annual Report on Form 10-K for the fiscal year ended August 31, 1994, under the Securities Exchange Act of 1934. * Denotes management contract or compensatory plan or arrangement required to be filed as an exhibit to this report. (b) Form 8-K. No reports on Form 8-K were filed during the fourth quarter of the fiscal year ended August 31, 1995. (c) Exhibits. The response to this portion of Item 14 is submitted as a separate section of this report. (d) Financial Statement Schedules. The response to this portion of Item 14 is submitted as a separate section of this report. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed by the undersigned, thereunto duly authorized. NICHOLS RESEARCH CORPORATION Chris H. Horgen NOVEMBER 28, 1995 ____________________________ Chris H. Horgen Chief Executive Officer and Chairman of the Board Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. SIGNATURES TITLE DATE Chris H. Horgen - ------------------------ Chief Executive November 28, 1995 Chris H. Horgen Officer and Chair- man of the Board (Principal Execu- tive Officer) Michael J. Mruz - ------------------------ President, Chief November 28, 1995 Michael J. Mruz Operating Officer and Director Patsy L. Hattox - ------------------------ Vice President, November 28, 1995 Patsy L. Hattox Chief Adminis- trative Officer, Secretary and Director Roy J. Nichols - ------------------------ Senior Vice November 28, 1995 Roy J. Nichols President, Chief Technical Officer and Director - ------------------------ Director Roger P. Heinisch John R. Wynn - ------------------------ Director November 28, 1995 John R. Wynn - ------------------------ Director William E. Odom James R. Thompson, Jr. - ------------------------ Director November 28, 1995 James R. Thompson, Jr. - ------------------------ Director Phil E. Depoy - ------------------------ Director Robert W. Hager Allen E. Dillard - ------------------------ Chief Financial November 28, 1995 Allen E. Dillard Officer and Cor- porate Treasurer (Principal Financial and Accounting Officer) EX-3.2 2 BYLAWS OF NICHOLS RESEARCH CORPORATION BY LAWS OF NICHOLS RESEARCH CORPORATION I N D E X ARTICLE ONE - OFFICES Section 1.1 Registered Office 1 Section 1.2 Principal Business Office 1 ARTICLE TWO - SHAREHOLDERS MEETINGS Section 2.1 Annual Meeting 1 Section 2.2 Special Meetings 1 Section 2.3 Place 2 Section 2.4 Notice 2 Section 2.5 Quorum 2 Section 2.6 Proxies; Required Vote 3 Section 2.7 Presiding Officer and Secretary 3 Section 2.8 Shareholder List 3 Section 2.9 Action in Lieu of Meeting 4 ARTICLE THREE - DIRECTORS Section 3.1 Management 4 Section 3.2 Number of Directors; Quorum 4 Section 3.3 Vacancies 5 Section 3.4 Election of Directors 5 Section 3.5 Removal 5 Section 3.6 Resignation 5 Section 3.7 Compensation 6 Section 3.8 Co-Chairmen 6 ARTICLE FOUR - COMMITTEES Section 4.1 Executive Committee 6 Section 4.2 Other Committees 8 Section 4.3 Removal 9 ARTICLE FIVE- MEETINGS OF THE BOARD OF DIRECTORS Section 5.1 Time and Place 9 Section 5.2 Regular Meetings 9 Section 5.3 Special Meetings; Notice 9 Section 5.4 Waiver of Notice 10 Section 5.5 Quorum 10 Section 5.6 Action in Lieu of Meeting 11 Section 5.7 Interested Directors and Officers 11 ARTICLE SIX - OFFICERS, AGENTS AND EMPLOYEES Section 6.1 General Provisions 12 Section 6.2 Powers and Duties of the Chief Executive Officer and the President 13 Section 6.3 Powers and Duties of Executive Vice Presidents, Senior Vice Presidents and Vice Presidents 14 Section 6.4 Powers and Duties of the Secretary 15 Section 6.5 Powers and Duties of the Treasurer 15 Section 6.6 Appointment, Powers and Duties of Assistant Secretaries 16 Section 6.7 Appointment, Powers and Duties of Assistant Treasurers 16 Section 6.8 Delegation of Duties 16 ARTICLE SEVEN - CAPITAL STOCK Section 7.1 Certificates 17 Section 7.2 Shareholder List 18 Section 7.3 Transfer of Shares 19 Section 7.4 Record Dates 19 Section 7.5 Registered Owner 19 Section 7.6 Transfer Agent and Registrars 20 Section 7.7 Lost Certificates 20 Section 7.8 Fractional Shares or Scrip 20 ARTICLE EIGHT - BOOKS AND RECORDS; SEAL; ANNUAL STATEMENTS Section 8.1 Inspection of Books and Records 21 Section 8.2 Seal 22 Section 8.3 Annual Statements 22 ARTICLE NINE - INDEMNIFICATION Section 9.1 Third Party Claims 23 Section 9.2 Corporate Claims 24 Section 9.3 Indemnification of Expenses Where Successful 25 Section 9.4 Authorization of Indemnification 25 Section 9.5 Advancement of Expenses 25 Section 9.6 Nonexclusive Method of Indemnification 26 Section 9.7 Insurance 26 Section 9.8 Notification to Shareholders of Indemnification 27 ARTICLE TEN - NOTICES, WAIVERS OF NOTICE Section 10.1 Notices 27 Section 10.2 Waivers of Notice 27 ARTICLE ELEVEN - EMERGENCY POWERS Section 11.1 By-Laws 28 Section 11.2 Lines of Succession 28 Section 11.3 Head Office 28 Section 11.4 Period of Effectiveness 29 Section 11.5 Notices 29 Section 11.6 Officers as Directors Pro Tempore 29 Section 11.7 Liability of Officers, Directors and Agents 29 ARTICLE TWELVE - CONTRACTS; CHECKS Section 12.1 Contracts 30 Section 12.2 Checks 30 ARTICLE THIRTEEN - DIVIDENDS AND DISTRIBUTIONS 30 ARTICLE FOURTEEN - AMENDMENTS 31 BY-LAWS OF NICHOLS RESEARCH CORPORATION ARTICLE ONE OFFICES 1.1 Registered Office. The corporation shall at all times maintain a registered office in the State of Delaware and a registered agent at that address but may have other offices located within or outside the State of Delaware as the Board of Directors may determine. 1.2 Principal Business Office. The corporation shall maintain its principal place of business in Madison County, Alabama, and may have other places of business within or without the State of Alabama as the Board of Directors may determine. ARTICLE TWO SHAREHOLDERS MEETINGS 2.1 Annual Meeting. The annual meeting of shareholders of the corporation shall be held within 180 days after the end of each fiscal year of the corporation. The annual meeting shall be held at such time and place as the Directors shall determine from time to time and as shall be specified in the notice of the meeting. 2.2 Special Meetings. Special meetings of the shareholders may be called at any time by the Chief Executive Officer, President, or a majority of the board of directors. Special meetings shall be held at such a time and place and on such date as shall be specified in the notice of the meeting. 2.3 Place. Annual or special meetings of shareholders may be held within or without the State of Delaware as may be specified in the notice of meeting. 2.4 Notice. Notice of annual or special shareholders meetings stating place, day and hour of the meeting shall be given in writing not less than ten nor more than sixty days before the date of the meeting, either mailed to the last known address of or personally given to each shareholder. Notice of any special meeting of shareholders shall state the purpose or purposes for which the meeting is called. The notice of any meeting at which amendments to or restatements of the certificate of incorporation, merger or consolidation of the corporation, or the disposition of corporate assets requiring shareholder approval are to be considered shall state such purpose, be given at least twenty days before such meeting and further comply with all requirements of law. Notice of a meeting may be waived by an instrument in writing executed before or after the meeting. The waiver need not specify the purpose of the meeting or the business transacted, unless one of the purposes of the meeting concerns a plan of merger or consolidation, in which event the waiver shall comply with the further requirements of law concerning such waiver. Attendance at such meeting in person or by proxy shall constitute a waiver of notice thereof. 2.5 Quorum. At all meetings of shareholders a majority of the outstanding shares of stock shall constitute a quorum for the transaction of business, and no resolution or business shall be transacted without the favorable vote of the holders of a majority of the shares represented at the meeting and entitled to vote. A lesser number may adjourn from day to day, and shall announce the time and place to which the meeting is adjourned. 2.6 Proxies; Required Vote. At every meeting of the shareholders, including meetings of shareholders for the election of Directors, any shareholder having the right to vote shall be entitled to vote in person or by proxy, but no proxy shall be voted after eleven months from its date, unless said proxy provides for a longer period. Each shareholder shall have one vote for each share of stock having voting power, registered in his name on the books of the corporation. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on the subject matter shall be the act of the shareholders, except as otherwise provided by law, by the certificate of incorporation or by these by-laws. 2.7 Presiding Officer and Secretary. At every meeting of shareholders, a Co-Chairman of the Board, or in the absence of a Co-Chairman or if there be none, the Chief Executive Officer, or in his absence the President, or in his absence a Vice President or, if none be present, the appointee of the presiding officer of the meeting, shall preside. The Secretary, or in his absence an Assistant Secretary, or if none be present, the appointee of the Presiding officer of the meeting, shall act as secretary of the meeting. 2.8 Shareholder List. The officer or agent having charge of the stock transfer books of the corporation shall produce for the inspection of any shareholder a complete alphabetical list of shareholders entitled to vote showing the address and share holdings of each shareholder. Such a list shall be kept on file in the principal office of the corporation for at least ten days prior to all meetings of shareholders and shall be subject to inspection by any shareholder making written request therefor at any time during usual business hours; such list shall also be available for inspection by any shareholder at, and continuously during, every meeting of the shareholders. 2.9 Action in Lieu of Meeting. Any action to be taken at a meeting of the shareholders of the corporation, or any action that may be taken at a meeting of the shareholders, may be taken without a meeting if a consent in writing setting forth the action so taken shall be signed by all of the shareholders entitled to vote with respect to the subject matter thereof and any further requirements of law pertaining to such consents have been complied with. ARTICLE THREE DIRECTORS 3.1 Management. Subject to these by-laws, the certificate of incorporation and any lawful agreement among the shareholders, the full and entire management of the affairs and business of the corporation shall be vested in the Board of Directors, which shall have and may exercise all of the powers that may be exercised or performed by the corporation. 3.2 Number of Directors; Quorum. The Board of Directors shall consist of not less than five (5) and not more than nine (9) members, the precise number to be fixed by resolution of the Board of Directors from time to time. A majority of said Directors shall constitute a quorum for the transaction of business. All resolutions adopted and all business transacted by the Board of Directors shall require the affirmative vote of a majority of the Directors present at a meeting at which a quorum is present. 3.3 Vacancies. The Directors may fill the place of any Director which may become vacant prior to the expiration of his term by a vote of the majority of remaining Directors though the remaining Directors may be less than a quorum of the Board of Directors; such appointment by the Directors shall continue until the expiration of the term of the Director whose place has become vacant. Any vacancy which occurs by reason of any increase in the number of Directors shall be filled by election at an annual meeting or special meeting of shareholders called for such a purpose. 3.4 Election of Directors. Directors shall be elected annually, at the annual meeting of shareholders and shall serve until the next annual meeting of shareholders and until their successors have been elected and qualified. 3.5 Removal. A Director may be removed from office, with or without cause, upon the majority vote of the shareholders entitled to vote at an election of Directors, at a meeting with respect to which notice of such purpose is given. The shareholders, upon the majority vote of the shareholders, may then forthwith proceed to elect a successor for the unexpired term of the Director who was removed from office. 3.6 Resignation. Any Director may resign at any time either orally at any meeting of the Board of Directors or by so advising to a Co-Chairman of the Board, if any, or the Chief Executive Officer or President or by giving written notice to the corporation. A Director who resigns may postpone the effectiveness of his resignation to a future date or upon the occurrence of a future event specified in a written tender of resignation. If no time of effectiveness is specified therein, a resignation shall be effective upon tender. A vacancy shall be deemed to exist at the time a resignation is tendered, and the Board of Directors or the shareholders may, then or thereafter, elect a successor to take office when the resignation by its terms becomes effective. 3.7 Compensation. Directors may be allowed such compensation for attendance at regular or special meetings of the Board of Directors and of any special or standing committees thereof as may be determined from time to time by resolution of the Board of Directors. 3.8 Co-Chairmen. The Board of Directors shall elect from its members two persons who shall serve as Co-Chairmen of the Board of Directors. In the absence of an agreement to the contrary, each Co-Chairman of the Board of Directors shall preside at every other meeting of the shareholders and every other meeting of the directors. If the Co-Chairman who is to preside at a meeting of the shareholders or directors is absent, the other Co- Chairman shall preside at such meeting. ARTICLE FOUR COMMITTEES 4.1 Executive Committee. (a) The Board of Directors may by resolution adopted by a majority of the entire Board designate an Executive Committee of the Board of Directors consisting of two or more Directors. Each member of the Executive Committee shall hold office until the first meeting of the Board of Directors after the annual meeting of shareholders next following his election and until his successor is elected and qualified, or until his death, resignation or removal, or until he shall cease to be a Director. (b) During the intervals between the meetings of the Board of Directors, the Executive Committee may exercise all the authority of the Board of Directors; provided, however, that the Executive Committee shall not have the power to amend or repeal any resolution of the Board of Directors that by its terms shall not be subject to amendment or repeal by the Executive Committee, and the Executive Committee shall not have the authority of the Board of Directors in reference to (1) amending the certificate of incorporation or by-laws of the corporation; (2) adopting a plan of merger or consolidation; (3) the sale, lease, mortgage, exchange or other disposition of all or substantially all the property and assets of the corporation otherwise than in the usual and regular course of its business; (4) a voluntary dissolution of the corporation or a revocation of any such voluntary dissolution; (5) filling a vacancy in the Board of Directors; (6) declaring a dividend or distribution from surplus; or (7) issuing capital stock. (c) The Executive Committee shall meet from time to time on call of a Co-Chairman of the Board, the Chief Executive Officer or the President or of any two or more members of the Executive Committee. Meetings of the Executive Committee may be held at such place or places, within or without the State of Delaware as the Executive Committee shall determine or as may be specified or fixed in the respective notices or waivers of such meetings. The Executive Committee may fix its own rules of procedures, including provision for notice of its meetings. It shall keep a record of its proceedings and shall report these proceedings to the Board of Directors at the meeting thereof held next after they have been taken, and all such proceedings shall be subject to revision or alteration by the Board of Directors except to the extent that action shall have been taken pursuant to or in reliance upon such proceedings prior to any such revision or alteration. (d) The Executive Committee shall act by majority vote of its members; provided, that contracts or transactions of and by the corporation in which officers or Directors of the corporation are interested shall require the affirmative vote of a majority of the disinterested members of the Executive Committee, at a meeting of the Executive Committee at which the material facts as to the interest and as to the contract or transaction are disclosed or known to the members of the Executive Committee prior to the vote. (e) Members of the Executive Committee may participate in committee proceedings by means of conference telephone or similar communications equipment by means of which all persons participating in the proceedings can hear each other, and such participation shall constitute presence in person at such proceedings. (f) The Board of Directors, by resolution adopted in accordance with paragraph (a) of this section, may designate one or more Directors as alternate members of the Executive Committee who may act in the place and stead of any absent member or members at any meeting of said committee. 4.2 Other Committees. The Board of Directors, by resolution adopted by a majority of the entire Board, may designate one or more additional committees, each committee to consist of two or more of the Directors of the corporation, which shall have such name or names and shall have and may exercise such powers of the Board of Directors, except the powers denied to the Executive Committee, as may be determined from time to time by the Board of Directors. Such committees shall provide for its own rules of procedure, subject to the same restrictions thereon as provided above for the Executive Committee. 4.3 Removal. The Board of Directors shall have power at any time to remove any member of any committee, with or without cause, and to fill vacancies in and to dissolve any such committee. ARTICLE FIVE MEETINGS OF THE BOARD OF DIRECTORS 5.1 Time and Place. Meetings of the Board of Directors may be held at any place either within or without the State of Alabama. Each newly elected Board of Directors shall meet immediately following the close of the annual meeting of shareholders and at the place thereof, or such newly elected Board of Directors may hold such meeting at such place and time as shall be fixed by the consent in writing of all the Directors. In any such case no notice of such meeting to the newly elected Directors shall be necessary in order legally to constitute the meeting, provided a quorum be present. 5.2 Regular Meetings. Regular meetings of the Board of Directors may be held without notice at such time and place, within or without the State of Delaware, as shall be determined by the Board of Directors from time to time. 5.3 Special Meetings; Notice. Special meetings of the Board of Directors may be called by a Co-Chairman of the Board, the Chief Executive Officer, or the President on not less than two days' written notice by mail, telegram or cablegram, or by personal delivery to each Director and shall be called by a Co-Chairman of the Board, the Chief Executive Officer, the President or the Secretary in like manner and on like notice on the written request of any two or more Directors. Any such special meeting shall be held at such time and place, within or without the State of Delaware, as shall be stated in the notice of meeting. No notice of any meeting of the Board of Directors need state the purposes thereof. 5.4 Waiver of Notice. Notice of any meeting may be waived by an instrument in writing executed before or after the meeting. Attendance in person at any such meeting shall constitute a waiver of notice thereof except where a Director attends a meeting for the express purpose of objecting because the meeting is not lawfully called or convened. 5.5 Quorum. At all meetings of the Board of Directors, the presence of one-third of the Directors, but not less than two Directors, shall be necessary and sufficient to constitute a quorum for the transaction of business. Directors may participate in any meeting by means of conference telephone or similar communications equipment by which all persons participating in the meeting can hear each other, and participation in a meeting by means of such communications equipment shall constitute the presence in person at such meeting. The act of a majority of the Directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by- law, the certificate of incorporation or these by-laws. In the absence of a quorum a majority of the Directors present at any meeting may adjourn the meeting from time to time until a quorum is present. Notice of any adjourned meeting need only be given by announcement at the meeting at which the adjournment is taken. 5.6 Action in Lieu of Meeting. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if a written consent thereto is signed by all members of the Board of Directors or of such committee, as the case may be, and such written consent is filed with the minutes of the proceedings of the Board of Directors and any further requirements of law pertaining to such consents have been complied with. 5.7 Interested Directors and Officers. An interested Director or officer is one who is a party to a contract or transaction with the corporation or who is an officer or Director of, or has a financial interest in, another corporation, partnership or association which is a party to a contract or transaction with the corporation. Contracts and transactions between the corporation and one or more interested Directors or officers shall not be void or voidable solely because of such relationship or interest or because such a Director is present at a meeting of the Board of Directors or a committee thereof which authorizes, approves or ratifies such contract or transaction, if either: (1) the contract or transaction is approved in good faith by the Board of Directors or appropriate committee by the affirmative votes or consent of a majority of disinterested Directors at a meeting of the Board or committee at which the material facts as to the interested person or persons and the contract or transaction are disclosed or known to the Board or committee prior to the vote; or (2) the contract or transaction is approved in good faith by the shareholders after the material facts as to the interested person or persons and the contract or transaction have been disclosed to them; or (3) the contract or transaction is fair as to the corporation as of the time it is authorized, approved or ratified by the Board of Directors or the appropriate committee, or the shareholders. Interested Directors may not be counted in determining the presence of a quorum at a meeting of the Board or committee which authorizes the contract or transaction. ARTICLE SIX OFFICERS, AGENTS AND EMPLOYEES 6.1 General Provisions. The officers of the corporation shall be a Chief Executive Officer, a President, a Secretary, and a Treasurer, one or more Executive Vice Presidents, Senior Vice Presidents and Vice Presidents, one or more Assistant Secretaries, and one or more Assistant Treasurers. The officers shall be elected by the Board of Directors at the first meeting of the Board of Directors after the annual meeting of the shareholders in each year or shall be appointed as provided in these by- laws. The executive officers of the corporation shall consist of the Chief Executive Officer, the President, all Executive Vice Presidents, all Senior Vice Presidents, the Secretary and the Treasurer. The board of Directors may elect other officers, agents and employees, who shall have such authority and perform such duties as may be prescribed by the Board of Directors. All officers shall hold office until the meeting of the Board of Directors following the next annual meeting of the shareholders after their election or appointment and until their successors shall have been elected or appointed and shall have qualified. Any two or more offices may be held by the same person. Any officer, agent or employee of the corporation may be removed by the Board of Directors whenever in its judgment the best interests of the corporation will be served thereby. Such removal shall be without prejudice to such person's contract rights, if any, but the election or appointment of any person as an officer, agent or employee of the corporation shall not of itself create contract rights. The compensation of officers, agents, and employees elected by the Board of Directors shall be fixed by the Board of Directors, but this power may be delegated to any officer, agent or employee as to persons under his direction or control. The Board of Directors may require any officer, agent or employee to give security for the faithful performance of his duties. 6.2 Powers and Duties of the Chief Executive Officer and the President. The powers and duties of the Chief Executive Officer and the President, subject to the supervision and control of the Board of Directors, shall be those usually appertaining to their respective offices and whatever other powers and duties are prescribed by these by-laws or by the Board of Directors. (a) The Chief Executive Officer of the corporation shall be the highest executive officer of the corporation and shall have overall responsibility for the management of the business of the corporation, including responsibility for execution of all orders and resolutions adopted by the Board of Directors, execution of authorized conveyances, contracts and other documents in the name of the corporation, except where the signing and execution thereof may be delegated by the Board of Directors or these by-laws to another officer or agent of the corporation. (b) The President shall be the second highest executive officer of the corporation and shall report to the Chief Executive Officer of the corporation. The President shall have such responsibilities for the management of the business of the corporation as may be assigned to him by the Chief Executive Officer or the Board of Directors. The President, in the absence of the Chief Executive Officer, shall have the authority to execute on behalf of the corporation conveyances, contracts and other documents. 6.3 Powers and Duties of Executive Vice Presidents, Senior Vice Presidents and Vice Presidents. Each Executive Vice President, Senior Vice President and Vice President shall have such powers and perform such duties as the Board of Directors, the Chief Executive Officer or the President may prescribe and shall perform such other duties as may be prescribed by these by-laws. In the absence or inability to act of the Chief Executive Officer or President, unless the Board of Directors shall otherwise provide, the Executive Vice President who has served in that capacity for the longest time and who shall be present and able to act, shall perform all duties and may exercise any of the powers of the Chief Executive Officer. The performance of any such duty by an Executive Vice President, Senior Vice President or Vice President shall be conclusive evidence of his power to act. Without limiting the generality of the foregoing, an Executive Vice President appointed by the Board of Directors shall be designated as the Executive Vice President for a major operation or division of the corporation and as such shall have responsibility and authority to conduct the business of such operation or division. Each Executive Vice President shall report to the Chief Executive Officer and the President and shall have such other duties as may be assigned to him by the Board of Directors. Each Executive Vice President shall have the authority to execute on behalf of the corporation all conveyances, contracts and other documents which pertain to the operation or division of the corporation for which he has responsibility. 6.4 Powers and Duties of the Secretary. The Secretary shall have charge of the minutes of all proceedings of the shareholders and of the Board of Directors and shall keep the minutes of all their meetings at which he is present. Except as otherwise provided by these by-laws he shall attend to the giving of all notices to shareholders and Directors. He shall have charge of the seal of the corporation, shall attend to its use on all documents the execution of which on behalf of the corporation under its seal is duly authorized and shall attest the same by his signature whenever required. He shall have charge of the record of shareholders of the corporation, of all written requests by shareholders that notices be mailed to them at an address other than their addresses on the record of shareholders, and of such other books and papers as the Board of Directors may direct. Subject to the control of the Board of Directors, he shall have all such powers and duties as generally are incident to the position of Secretary or as may be assigned to him by the Chief Executive Officer, President or the Board. 6.5 Powers and Duties of the Treasurer. The Treasurer shall have charge of all funds and securities of the corporation, shall endorse the same for deposit or collection when necessary and deposit the same to the credit of the corporation in such banks or depositaries as the Board of Directors may authorize. He may endorse all commercial documents requiring endorsements for or on behalf of the corporation and may sign all receipts and all commercial documents requiring endorsements for or on behalf of the corporation and may sign all receipts and vouchers for payments made to the corporation. He shall have all such powers and duties as generally are incident to the position of Treasurer or as may be assigned to him by the Chief Executive Officer, President or by the Board of Directors. 6.6 Appointment, Powers and Duties of Assistant Secretaries. Assistant Secretaries may be appointed by the Chief Executive Officer, President or elected by the Board of Directors. In the absence or inability of the Secretary to act, any Assistant Secretary may perform all the duties and exercise all the powers of the Secretary. The performance of any such duty shall be conclusive evidence of his power to act. An Assistant Secretary shall also perform such other duties as the Secretary or the Board of Directors may assign to him. 6.7 Appointment, Powers and Duties of Assistant Treasurers. Assistant Treasurers may be appointed by the Chief Executive Officer, President or elected by the Board of Directors. In the absence or inability of the Treasurer to act, an Assistant Treasurer may perform all the duties and exercise all the powers of the Treasurer. The performance of any such duty shall be conclusive evidence of his power to act. An Assistant Treasurer shall also perform such other duties as the Treasurer or the Board of Directors may assign to him. 6.8 Delegation of Duties. In case of the absence of any officer of the corporation, or for any other reason that the Board of Directors may deem sufficient, the Board of Directors (or in the case of Assistant Secretaries or Assistant Treasurers only, the Chief Executive Officer or President) may confer for the time being the powers and duties, or any of them of such officer upon any other officer (provided that the powers and duties of the Chief Executive Officer or President may not be conferred upon the Secretary, and vice versa), or elect or appoint any new officer to fill a vacancy created by death, resignation, retirement or termination of any officer. In such latter event such new officer shall serve until the next annual election of officers. ARTICLE SEVEN CAPITAL STOCK 7.1 Certificates. The interest of each shareholder shall be evidenced by a certificate or certificates representing shares of the corporation which shall be in such form as the Board of Directors may from time to time adopt and shall be numbered and shall be entered in the books of the corporation as they are issued. Each certificate representing shares shall set forth upon the face thereof the following: (a) the name of this corporation; (b) that the corporation is organized under the laws of the State of Delaware; (c) the name or names of the person or persons to whom the certificate is issued; (d) the number and class of shares, and the designation of the series, if any, which the certificate represents; (e) the par value of each share represented by such certificate, or a statement that the shares are without par value; and (f) if any shares represented by the certificate are non-voting shares, a statement or notation to that effect; and if the shares represented by the certificate are subordinate to shares of any other class or series with respect to dividends or amounts payable on liquidation, shall further set forth on either the face or back of the certificate a clear and concise statement to that effect. Each certificate shall be signed by the Chief Executive Officer, President or any Executive or Senior dice President and the Secretary or an Assistant Secretary and may be sealed with the seal of the corporation or a facsimile thereof. If a certificate is countersigned by a transfer agent or registered by a registrar, other than the corporation itself or an employee of the corporation, the signature of any such officer of the corporation may be a facsimile. In case any officer or officers who shall have signed, or whose facsimile signature or signatures shall have been used on, any such certificate or certificates shall cease to be such officer or officers of the corporation, whether because of death, resignation or otherwise, before such certificate or certificates shall have been delivered by the corporation, such certificate or certificates may nevertheless be delivered as though the person or persons who signed such certificate or certificates or whose facsimile signatures shall have been used thereon had not ceased to be such officer or officers. 7.2 Shareholder List. The corporation shall keep or cause to be kept a record of the shareholders of the corporation which readily shows, in alphabetical order or by alphabetical index, and by classes or series of stock, if any, the names of the shareholders entitled to vote, with the address of and the number of shares held by each. Said record shall be presented and kept open for ten days prior to and during all meetings of the shareholders in accordance with the provisions of Section 2.8 of these by-laws. 7.3 Transfer of Shares. Transfers of stock shall be made on the books of the corporation only by the person named in the certificate, or by power of attorney lawfully constituted in writing, and upon surrender of the certificate thereof, or in the case of a certificate alleged to have been lost, stolen or destroyed, upon compliance with the provisions of Section 7.7 of these by-laws. 7.4 Record Dates. (a) For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors may provide that the stock transfer books shall be closed for a stated period but not to exceed sixty days. If the stock transfer books shall be closed for the purpose of determining shareholders entitled to notice of or to vote at a meeting of shareholders, such books shall be closed for at least ten days immediately preceding such meeting. (b) In lieu of closing the stock transfer books, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date to be not more than sixty days and, in case of a meeting of shareholders, not less than ten days, prior to the date on which the particular action requiring such determination of shareholders is to be taken. 7.5 Registered Owner. The corporation shall be entitled to treat the holder of record of any share of stock of the corporation as the person entitled to vote such share, to receive any dividend or other distribution with respect to such share, and for all other purposes and accordingly shall not be bound to recognize any equitable or other claim or interest in such share on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law. 7.6 Transfer Agent and Registrars. The Board of Directors may appoint one or more transfer agents and one or more registrars and may require each stock certificate to bear the signature or signatures of a transfer agent or a registrar or both. 7.7 Lost Certificates. Any person claiming a certificate of stock to be lost, stolen or destroyed shall make an affidavit or affirmation of the fact in such manner as the Board of Directors may require and shall, if the Directors so require, give the corporation a bond of indemnity in form and amount and with one or more sureties satisfactory to the Board of Directors, whereupon an appropriate new certificate may be issued in lieu of the certificate alleged to have been lost, stolen or destroyed. 7.8 Fractional Shares or Scrip. The corporation may, when and if authorized so to do by its Board of Directors, issue certificates for fractional shares or scrip in order to effect share transfers, share distributions or reclassifications, mergers, consolidations or reorganizations. Holders of fractional shares shall be entitled, in proportion to their fractional holdings, to exercise voting rights, receive dividends and participate in any of the assets of the corporation in the event of liquidation. Holders of scrip shall not, unless expressly authorized by the Board of Directors, be entitled to exercise any rights of a shareholder of the corporation, including voting rights, dividend rights or the right to participate in any assets of the corporation in the event of liquidation. In lieu of issuing fractional shares or scrip, the corporation may pay in cash the fair value of fractional interest as determined by the Board of Directors; and the Board of Directors may adopt resolutions regarding rights with respect to fractional shares or scrip as it may deem appropriate, including without limitation the right for persons entitled to receive fractional shares to sell such fractional shares or purchase such additional fractional shares as may be needed to acquire one full share, or sell such fractional shares or scrip for the account of such persons. ARTICLE EIGHT BOOKS AND RECORDS; SEAL; ANNUAL STATEMENTS 8.1 Inspection of Books and Records. Any shareholder of record, including a holder of record of voting trust certificates, upon written demand under oath stating the purpose thereof, shall have the right to examine in person or by agent or attorney, at any reasonable time or times, for any proper purpose, the books and records of account, minutes and record of shareholders and to make copies thereof or extracts therefrom. Such demand shall be sent to the attention of the Secretary of the corporation at its principal place of business. If the demand is made by an agent or attorney, such demand shall be accompanied by a power of attorney or other authorization to act on behalf of the shareholder. If the Secretary or a majority of the Board of Directors or members of the Executive Committee of the corporation find the request proper, the Secretary shall notify the shareholder within a reasonable time after receipt of said request of the time, which shall in no event be more than thirty days after such notification, and place at which the inspection may be conducted. If said request is found by the Secretary, the Board of Directors or the Executive Committee not to be proper, the Secretary shall so notify the requesting shareholder within a reasonable time after receipt of the request. The Secretary shall specify in said notice the basis for the rejection of the shareholder's request. The Secretary, the Board of Directors and the Executive Committee shall at all times be entitled to rely in good faith on the corporate records in making any determination hereunder. 8.2 Seal. The corporate seal shall be in such form as the Board of Directors may from time to time determine. In the event it is inconvenient to use such a seal at any time, the signature of the corporation followed by the word "Seal" enclosed in parentheses or scroll shall be deemed the seal of the corporation. 8.3 Annual Statements. Not later than 180 days after the close of each fiscal year, and in any case prior to the next annual meeting of shareholders, the corporation shall prepare and mail to each shareholder and holder of voting trust certificates: (a) A balance sheet showing in reasonable detail the financial condition of the corporation as of the close of its fiscal year, and (b) A statement of income (expenses and retained earnings) showing the results of its operations during its fiscal year; and (c) A report of the Chief Executive Officer, officer in charge of financial records or a certified public accountant stating whether, in his opinion, the financial statements present fairly the financial position of the corporation and the results of its operations in accordance with generally accepted accounting principles and, if not, describing the basis for their preparation of the data in accordance with accounting procedures generally used in the industry in which the corporation conducts its business. ARTICLE NINE INDEMNIFICATION 9.1 Third Party Claims. Under the circumstances prescribed in Sections 9.3 and 9.4, the corporation shall indemnify and hold harmless any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, including appeals, (other than an action by or in the right of the corporation) by reason of the fact that he is or was a Director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a Director, officer, partner, employee, or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amount paid in settlement actually and reasonably incurred by him in connection with such claim, action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interest of the corporation, and with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. The termination of any claim, action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. 9.2 Corporate Claims . Under the circumstances prescribed in Sections 9.3 and 9.4, the corporation shall indemnify and hold harmless any person who was or is a party or is threatened to be made a party to any threatened, pending or completed claim, action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact he is or was a Director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a Director, officer, partner, employee or agent, of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation; except that no indemnification shall be made in respect to any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation, unless and only to the extent that the Chancery Court or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Chancery Court or such other court shall deem proper. 9.3 Indemnification of Expenses Where Successful. To the extent that a Director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Sections 9.1 and 9.2, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. 9.4 Authorization of Indemnification. Except as provided in Section 9.3 and except as may be ordered by a court, any indemnification under Sections 9.1 and 9.2 shall be made by the corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in Sections 9.1 and 9.2. Such a determination shall be made (1) by the Board of Directors by a majority vote of a quorum consisting of Directors who were not parties to or have been wholly successful on the merits or otherwise with respect to such action, suit or proceeding, or (2) if such a quorum is not obtainable or, even if obtainable, a quorum of disinterested Directors so directs, by independent legal counsel in a written opinion, or (3) by the affirmative vote of a majority of the shares entitled to vote thereon. 9.5 Advancement of Expenses. Expenses (including attorneys' fees) incurred in defending a civil or criminal action, suit or proceeding may be paid by the corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors in the specific case upon receipt of an undertaking by or on behalf of the Director, officer, employee or agent to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation as authorized in this Article Nine. 9.6 Nonexclusive Method of Indemnification. The indemnification and advancement of expenses provided by this Article Nine shall not be deemed exclusive of any other rights, in respect of indemnification or otherwise, to which those seeking indemnification or advancement of expenses may be entitled under any agreement, by-law or resolution approved by the affirmative vote of the holders of a majority of the shares entitled to vote thereon taken at a meeting the notice of which specified that such by- law or resolution would be placed before the shareholders, both as to action by a Director, officer, employee or agent in his official capacity and as to action in another capacity while holding such office or position, and shall continue as to a person who has ceased to be a Director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. 9.7 Insurance. The corporation may purchase and maintain insurance on behalf of any person who is or was a Director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a Director, officer, partner, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the corporation would have the power to indemnify him against such liability under the provisions of this Article Nine. 9.8 Notification to Shareholders of Indemnification. If any expenses or other amounts are paid by way of indemnification, otherwise than by court order or action by the shareholders or by an insurance carrier pursuant to insurance maintained by the corporation, the corporation shall, not later than the next annual meeting of shareholders unless such meeting is held within three months from the date of such payment, and, in any event, within I5 months from the date of such payment, send by first class mail to its shareholders of record at the time entitled to vote for the election of Directors a statement specifying the persons paid, the amounts paid, and the nature and status at the time of such payment of the litigation or threatened litigation. ARTICLE TEN NOTICES; WAIVERS OF NOTICE 10.1 Notices. Except as otherwise specifically provided in these by- laws, whenever under the provisions of these by-laws notice is required to be given to any shareholder, Director or officer, it shall not be construed to mean personal notice, but such notice may be given by personal notice or by cable or telegraph, or by mail by depositing the same in the post office or letter box in a postpaid sealed wrapper, addressed to such shareholder, officer or Director at such address as appears on the books of the corporation, and such notice shall be deemed to be given at the time when the same shall be thus sent or mailed. 10.2 Waivers of Notice. Except as otherwise provided in these by-laws, when any notice whatever is required to be given by law, by the certificate of incorporation or by these by-laws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. In the case of a shareholder, such waiver of notice may be signed by the shareholder's attorney or proxy duly appointed in writing. ARTICLE ELEVEN EMERGENCY POWERS 11.1 By-Laws. The Board of Directors may adopt emergency by-laws, subject to repeal or change by action of the shareholders, which shall, notwithstanding any provision of law, the certificate of incorporation or these by-laws, be operative during any emergency in the conduct of the business of the corporation resulting from an attack on the United States or on a locality in which the corporation conducts its business or customarily holds meetings of its Board of Directors or its shareholders, or during any nuclear or atomic disaster, or during the existence of any catastrophe, or other similar emergency condition, as a result of which a quorum of the Board of Directors or a standing committee thereof cannot readily be convened for action. The emergency by-laws may make any provision that may be practical and necessary for the circumstances of the emergency. 11.2 Lines of Succession. The Board of Directors, either before or during any such emergency, may provide, and from time to time modify, lines of succession in the event that during such an emergency any or all officers or agents of the corporation shall for any reason be rendered incapable of discharging their duties. 11.3 Head Office. The Board of Directors, either before or during any such emergency, may effective in the emergency, change the head office or designate several alternative head offices or regional offices, or authorize the officers to do so. 11.4 Period of Effectiveness. To the extent not inconsistent with any emergency by-laws so adopted, these by-laws shall remain in effect during any such emergency and upon its termination the emergency by-laws shall cease to be operative. 11.5 Notices. Unless otherwise provided in emergency by-laws, notice of any meeting of the Board of Directors during any such emergency may be given only to such of the Directors as it may be feasible to reach at the time, and by such means as may be feasible at the time, including publication, radio or television. 11.6 Officers as Directors Pro Tempore. To the extent required to constitute a quorum at any meeting of the Board of Directors during any such emergency, the officers of the corporation who are present shall, unless otherwise provided in emergency by-laws, be deemed, in order of rank and within the same rank in order of seniority, Directors for such meeting, provided, that the emergency by-laws may declare that the Director or Directors in attendance at a meeting shall constitute a quorum. 11.7 Liability of Officers, Directors and Agents. No officer, Director, agent or employee acting in accordance with any emergency by-laws shall be liable except for willful misconduct. No officer, Director, agent or employee shall be liable for any action taken by him in good faith in such an emergency in furtherance of the ordinary business affairs of the corporation even though not authorized by the by-laws then in effect. ARTICLE TWELVE CONTRACTS; CHECKS 12.1 Contracts. The Board of Directors may authorize any officer, employee or agent to enter into any contract or execute and deliver any instrument in the name of and on behalf of the corporation, and such authority may be general or confined to specific instances. 12.2 Checks. Checks, notes, drafts, acceptances, bills of exchange and other orders or obligations for the payment of money shall be signed by such officer or officers or person or persons as the Board of Directors by resolution shall from time to time designate. ARTICLE THIRTEEN DIVIDENDS AND DISTRIBUTIONS The Board of Directors may declare dividends on its outstanding shares out of either (I) the surplus of the corporation, as defined in and computed in accordance with Sections 154 and 244 of the General Corporation Law of Delaware, or (2] in case there shall be no such surplus, out of its net profits for the fiscal year in which the dividend is declared and/or the preceding fiscal year. Dividends may be declared and paid in cash, property, or treasury shares of the corporation or may be paid in authorized but unissued shares of the corporation. If a dividend is paid in authorized but unissued shares of the corporation, the Board of Directors shall, by resolution, direct that there be designated as capital in respect of such shares an amount which is not less than the aggregate par value of par value shares being declared as a dividend and, in the case of shares without par value being declared as a dividend, such amount shall be determined by the Board of Directors. No such designation as capital shall be necessary if shares are being distributed by the corporation pursuant to a split-up or division of its stock rather than as payment of a dividend declared payable in stock of the corporation. ARTICLE FOURTEEN AMENDMENTS The by-laws of the corporation may be altered or amended and new by-laws may be adopted by the shareholders at any annual or special meeting of the shareholders or by the Board of Directors at any regular or special meeting of the Board of Directors; provided, however, that, if such action is to be taken at a meeting of the shareholders, notice of the general nature of the proposed change in the by-laws shall be given in the notice of meeting. The shareholders may provide by resolution that any by-law provision repealed, amended, adopted, or altered by them may not be repealed, amended, adopted, or altered by the Board of Directors. Action by the shareholders with respect to by-laws shall be taken by an affirmative vote of a majority of all shares entitled to elect Directors, and action by the Board of Directors with respect to by-laws shall be taken by an affirmative vote of a majority of all Directors then holding office. FIRST AMENDMENT TO THE BYLAWS OF NICHOLS RESEARCH CORPORATION Pursuant to Article Fourteen of the Bylaws of Nichols Research Corporation (the "Bylaws"), the Bylaws of Nichols Research Corporation (the "Company") are hereby amended effective November 15, 1990, as follows: 1. The first sentence of Section 2.7 of the Bylaws is hereby deleted in its entirety and the following new sentence is substituted in its place: At every meeting of shareholders, the Chairman of the Board, or in the absence of the Chairman or if there is none, the Vice Chairman of the Board or if there is none, the Chief Executive Officer, or in his absence the President, or in his absence a Vice President or, if none be present, the appointee of the presiding officer of the meeting, shall preside. 2. The first sentence of Section 3.6 of the Bylaws is hereby deleted in its entirety and the following new sentence is substituted in its place: Any Director may resign at any time either orally at any meeting of the Board of Directors or by so advising the Chairman of the Board, if any, the Vice Chairman of the Board, if any, the Chief Executive Officer or the President or by giving written notice to the corporation. 3. Section 3.8 of the Bylaws is hereby deleted in its entirety and the following new Section is substituted in its place: 3.8 CHAIRMAN OF THE BOARD; VICE CHAIRMAN OF THE BOARD. The Board of Directors may elect from its members a Chairman of the Board of Directors. In the absence of an agreement to the contrary, the Chairman of the Board of Directors shall preside at every meeting of the shareholders and at every meeting of the Directors. The Board of Directors may elect from its members a Vice Chairman of the Board of Directors. The Vice Chairman of the Board shall serve in the absence of the Chairman of the Board. 4. The first sentence of Section 4.1(c) of the Bylaws is hereby deleted in its entirety and the following new sentence is substituted in its place: The Executive Committee shall meet from time to time on the call of the Chairman of the Board, the Vice Chairman of the Board, the Chief Executive Officer, or the President or of any two or more members of the Executive Committee. 5. The first sentence of Section 5.3 of the Bylaws is hereby deleted in its entirety and the following new sentence is substituted in its place: Special meetings of the Board of Directors may be called by the Chairman of the Board, the Vice Chairman of the Board, the Chief Executive Officer, or the President on not less than two days' written notice by mail, telegram or cablegram, or by personal delivery to each Director and shall be called by the Chairman of the Board, the Vice Chairman of the Board, the Chief Executive Officer, the President or the Secretary in a like manner and on like notice on the written request of any two or more Directors. In all other respects the Bylaws shall remain in full force and effect according to their terms and provisions. IN WITNESS WHEREOF, the undersigned hereby certifies that the foregoing First Amendment to the Bylaws of Nichols Research Corporation was duly adopted by the Board of Directors on November 15, 1990. /s/ Patsy L. Hattox ------------------------------------------- Secretary SECOND AMENDMENT TO THE BYLAWS OF NICHOLS RESEARCH CORPORATION Pursuant to Article Fourteen of the Bylaws of Nichols Research Corporation (the "Bylaws"), the Bylaws of Nichols Research Corporation (the "Company") are hereby amended effective September 15, 1993, as follows: The first sentence of Section 3.2 is hereby deleted in its entirety and the following new sentence is substituted in its place: The Board of Directors shall consist of not less than five (5) and not more than eleven (11) members, the precise number to be fixed by resolution of the Board of Directors from time to time. In all other respects the Bylaws shall remain in full force and effect according to their terms and provisions. IN WITNESS WHEREOF, the undersigned hereby certifies that the foregoing Second Amendment to the Bylaws of Nichols Research Corporation was duly adopted by the Board of Directors on September 15, 1993. /s/ Patsy L. Hattox ------------------------------------------- Secretary THIRD AMENDMENT TO THE BYLAWS OF NICHOLS RESEARCH CORPORATION Pursuant to Article Fourteen of the Bylaws of Nichols Research Corporation (the "Bylaws"), the Bylaws of Nichols Research Corporation (the "Company") are hereby amended effective August 24, 1995, as follows: 1. The following new Section 3.9 is hereby added to the Bylaws: 3.9 MANDATORY RETIREMENT. Upon the attainment of age 70, a director shall retire from the Board of Directors and shall thereafter cease to be qualified to serve as a director of the corporation. A vacancy shall be deemed to exist at the time a director attains the age of 70, and the Board of Directors or the shareholders may, then or thereafter, elect a successor to take office upon such retirement and until the term of the retired director would have ended, but for said retirement. In all other respects, the Bylaws shall remain in full force and affect according to their terms and provisions. IN WITNESS WHEREOF, the undersigned hereby certifies that the foregoing Third Amendment to the Bylaws of Nichols Research Corporation was duly adopted by the Board of Directors on August 24, 1995. /s/ Patsy L. Hattox ------------------------------------------- Secretary EX-10.17 3 AMENDMENT TWO TO THE NICHOLS RESEARCH CORPORATION 1991 STOCK OPTION PLAN Pursuant to Section 8 of the Nichols Research Corporation 1991 Stock Option Plan (the "Plan"), Nichols Research Corporation (the "Company"), hereby amends the Plan as follows: 1. Effective upon approval by the shareholders of the Company, the second sentence of Section 4 of the Plan is amended to increase by 300,000 shares the aggregate number of shares which may be issued pursuant to option exercises under the Plan, to 950,000 shares of Capital Stock. 2. Effective September 1, 1994, Section 6 of the Plan is hereby amended to extend the term of the Plan by providing that the Plan will expire on November 12, 2000. Except as amended above, the Plan shall remain in full force and effect according to its terms and provisions. Done this the 25th day of August, 1994. NICHOLS RESEARCH CORPORATION Chris H. Horgen By:__________________________________ Its Chief Executive Officer THIRD AMENDMENT TO THE NICHOLS RESEARCH CORPORATION 1991 STOCK OPTION PLAN Pursuant to Section 8 of the Nichols Research Corporation 1991 Stock Option Plan (the "Plan"), Nichols Research Corporation (the "Company"), hereby amends the Plan as follows: Effective upon approval by the shareholders of the Company, the second sentence of Section 4 of the Plan is amended to increase by 500,000 shares the aggregate number of shares which may be issued pursuant to option exercises under the Plan to 1,450,000 shares of Capital Stock. Except as amended above, the Plan shall remain in full force and effect according to its terms and provisions. Done this the 24th day of August, 1995. NICHOLS RESEARCH CORPORATION /s/ Chris H. Horgen ------------------------------------ Chief Executive Officer EX-10.18 4 CREDIT AGREEMENT THIS CREDIT AGREEMENT, dated as of August 16, 1995, is between and among NICHOLS RESEARCH CORPORATION, a Delaware corporation ("Borrower"), SOUTHTRUST BANK OF ALABAMA, NATIONAL ASSOCIATION, a national banking association ("SouthTrust"), FIRST ALABAMA BANK, an Alabama state banking corporation ("First Alabama"), and CORESTATES BANK, N.A., a national banking association ("Corestates") (SouthTrust, First Alabama and Corestates being collectively referred to herein as the "Banks"). R E C I T A L S: A. Borrower has requested that Banks make available to Borrower a line of credit loan in the maximum principal amount of up to $73,500,000. B. Banks are willing to make such line of credit available to Borrower on the terms and conditions set forth herein. AGREEMENT: NOW, THEREFORE, the parties agree as follows: ARTICLE 1. DEFINITIONS 1.1. Definitions. In addition to the terms defined in the introductory paragraph hereof, the following terms shall have the following respective meanings: "Accelerated Reimbursement Obligation" means at any time the sum of the undrawn portion of the Letters of Credit plus the amounts of all drawings against the Letters of Credit for which Borrower has not reimbursed Lender. "Accounts" mean all accounts, accounts receivable, chattel paper, leases, promissory notes, contracts for receipt of money, conditional sales contracts, and evidences of indebtedness of or owing to Borrower and/or any of the Subsidiaries whether now existing or hereafter arising, including, without limitation, (i) all accounts and other rights to payment of money which arise or result from Borrower's or any of the Subsidiaries' selling or other disposition of Borrower's goods or the providing of services by the Borrower and/or any of the Subsidiaries, (ii) the proceeds of any insurance covering the Accounts, (iii) the return of unearned insurance premiums, and (iv) amounts due under contracts with the United States Government, subject to the provisions of the Act. "Account Debtor" means any Person who is or may become obligated under or in connection with an Account. "Act" means the United States Assignment of Claims Act of 1940, as amended. "Advance" means a disbursement by Banks to Borrower of principal of the Line of Credit Loan pursuant to Article 2 hereof. "Affiliate" means any director or officer of Borrower or any person who, directly, indirectly or beneficially, owns 5% or more of the capital stock of Borrower or any member of the immediate family of any such officer, director or stockholder, or any corporation or other entity which is controlled by, controls, or is under common control with the Borrower. "Agreement" means this Credit Agreement. "Applicable Environmental Law" means any statutory law or case law pertaining to health or the environment, or petroleum products, or oil, or hazardous substances, including without limitation the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, as codified at 42 U.S.C. Section 9601, et. seq.; the Resource Conservation and Recovery Act of 1976, as amended, as codified at 42 U.S.C. Section 6901, et seq.; the Superfund Amendments and Reauthorization Act of 1986, as amended, as codified at 42 U.S.C. Section 9671, et seq.; and any state or local law, regulation or ordinance pertaining to such matters. "Base Rate" means the rate of interest designated by SouthTrust periodically as its Base Rate. The Base Rate is not necessarily the lowest rate charged by SouthTrust. The Base Rate may be ascertained by calling (205) 254-5900. When an interest rate is tied to the Base Rate, such interest rate will change, as and when the Base Rate changes. "Borrowing Base Certificate" means the certificate executed by the Borrower in the form attached hereto as Exhibit A. "Business Day" means any day (other than a Saturday or Sunday) upon which all the Banks are open for business and on which dealings in U.S. Dollars are carried on in the Eurodollar Market. "Capital Expenditures" mean expenditures made or liabilities incurred for the acquisition of any fixed assets or improvements, replacements, substitutions or additions thereto which have a useful life of more than one year, including the direct or indirect acquisition of such assets by way of increased product or service charges, offset items or otherwise and the principal portion of payments with respect to Capitalized Lease Obligations. "Capitalized Lease Obligations" mean any Debt represented by obligations under a lease that is required to be capitalized for financial reporting purposes in accordance with GAAP, and the amount of such Debt shall be the capitalized amount of such obligations determined in accordance with GAAP. "Closing Date" means the date of this Agreement. "Code" means the Internal Revenue Code of 1986, together with all amendments from time to time thereto, including any rules or regulations promulgated thereunder. "Collateral" means the Accounts, Inventory, General Intangibles, Equipment, and other property and interests now or hereafter hypothecated to Banks as security for the Obligations, and the proceeds and products thereof. "Commitment Period" means the period of time during which Banks shall be committed to make Advances to Borrower, and shall be from the Closing Date until the Commitment Termination Date. "Commitment Termination Date" means the first to occur of (1) March 31, 1997, or such later date as Borrower and Banks may agree upon in writing pursuant to Section 2.11 hereof, it being agreed that Banks shall have no obligation to extend the Commitment Termination Date, or (2) the date that Banks, by reason of an Event of Default, suspends the making of further Advances. "CoreStates Note" means that certain Line of Credit Promissory Note of even date herewith, in the principal amount of up to $20,000,000, executed and delivered by Borrower to CoreStates, evidencing CoreStates' Proportionate Share of the Line of Credit. "Debt" means the sum of (i) indebtedness for borrowed money or for the deferred purchase price of property or services, (ii) Capitalized Lease Obligations, (iii) all other items which in accordance with GAAP would be included in determining total liabilities as shown on a balance sheet of a Person as at the date as of which Debt is to be determined. "Default Rate" means two percent (2%) in excess of the Base Rate. "Eligible Billed Accounts" mean billed Accounts arising in the ordinary course of Borrower's or the Subsidiaries' business from the sale of finished product Inventory or rendition of services, which Banks, in their reasonably exercised credit judgment, deem to be Eligible Billed Accounts. Without limiting the generality of the foregoing, no Account shall be an Eligible Billed Account if: (i) it arises out of a sale made by Borrower or the Subsidiaries to an Affiliate of Borrower or to a Person controlled by an Affiliate or Subsidiary of Borrower; or (ii) it is due or unpaid more than ninety (90) days after the original invoice date; or (iii) fifty percent (50%) or more of the Accounts from the Account Debtor are not deemed Eligible Billed Accounts hereunder; or (iv) the total unpaid Accounts of the Account Debtor exceed twenty percent (20%) of the net amount of all Accounts, to the extent of such excess; or (v) any covenant, representation or warranty contained in this Agreement with respect to such Account has been breached; or (vi) the Account Debtor is also Borrower's or one of the Subsidiaries' creditor or supplier, or has disputed liability with respect to such Account, or has made any claim with respect to any other Account due from such Account Debtor to Borrower or one of the Subsidiaries, or the Account otherwise is or may become subject to any right of setoff by the Account Debtor, provided, however, that such Account shall be ineligible only to the extent of any setoff claimed by the Account Debtor; or (vii) the Account Debtor has commenced a voluntary case, or has had commenced against it, an involuntary case under the federal bankruptcy laws, as now constituted or hereafter amended, or made an assignment for the benefit of creditors, or a decree or order for relief under the federal bankruptcy laws has been filed against the Account Debtor, or if the Account Debtor has failed, suspended business, ceased to be Solvent, or consented to or suffered a receiver, trustee, liquidator or custodian to be appointed of it or for all or a significant portion of its assets or affairs; or (viii) it arises from a sale to an Account Debtor outside the United States; or (ix) it arises from a sale to the Account Debtor on a bill-and-hold, guaranteed sale, sale-or-return, sale-on-approval, consignment or any other repurchase or return basis; or (x) Banks believe, in their sole judgment, that collection of such Account is insecure or that payment thereof is doubtful or will be delayed by reason of the Account Debtor's financial condition; or (xi) the Account Debtor is located in either the State of New Jersey or the State of Minnesota, unless Borrower or the applicable Subsidiary has filed a Notice of Business Activities Report with the appropriate officials in those states for the then current year; or (xii) the Account is subject to a Lien, other than a Lien in favor of the Banks; or (xiii) the goods giving rise to such Account have not been delivered to and accepted by the Account Debtor or the services giving rise to such Account have not been performed by Borrower or the Subsidiary and accepted by the Account Debtor or the Account otherwise does not represent a final sale; or (xiv) the total unpaid Accounts of the Account Debtor exceed a credit limit determined by Banks, in their sole discretion, to the extent such Account exceeds such limit; or (xv) the Account is evidenced by chattel paper, a note, or an instrument of any kind, or has been reduced to judgment; or (xvi) Borrower or the Subsidiary has made any agreement with the Account Debtor for any deduction therefrom, except for discounts or allowances which are made in the ordinary course of business for prompt payment and which discounts or allowances are reflected in the calculation of the face value of each invoice related to such Account; or (xvii) Borrower or the Subsidiary has made an agreement with the Account Debtor to extend the time of payment thereof; or (xviii) the Account arises from a retail sale of goods to a Person who is purchasing same primarily for personal, family or household purposes; or (xix) the Account arises out of a shipment of Inventory, goods, or products to an address other than an address in the United States; or (xx) the Account Debtor is not a resident citizen of the United States or a corporate entity or partnership formed and existing under the laws of the United States or a political subdivision thereof. "Eligible Unbilled Accounts" mean unbilled Accounts which, if billed, would meet the definition of Eligible Billed Accounts, and which are not more than ninety (90) days old measured from the date the goods giving rise to such Account were delivered or the services giving rise to such Account were performed by Borrower or one of the Subsidiaries, as the case may be. "Employee Plan" means any plan subject to Title IV of ERISA and maintained in whole or in part for employees of Borrower and/or the Subsidiaries. "ERISA" means the Employee Retirement Income security Act of 1974, together with all amendments from time to time thereto, including any rules or regulations promulgated thereunder. "Equipment" means all equipment now or hereafter used or useful in the operation of the Borrower's and/or any of the Subsidiaries' business, together with all accessories, parts and additions now or hereafter affixed thereto or used in connection therewith; provided, however, that with respect to equipment which is leased and not owned by the Borrower or the Subsidiary, the Equipment shall include only the leasehold interest of Borrower or the Subsidiary, together with any options to purchase and any greater or additional rights thereto that Borrower or the Subsidiary may hereafter acquire, except for the equipment and personal property referred to on Exhibit A to the Security Agreement. "Eurodollar Interest Period" means, with respect to any period in which the Eurodollar Rate is in effect, a period of either one (1), two (2), three (3), or six (6) months, as Borrower may elect by delivery of a Eurodollar Rate Election Notice; provided that any Eurodollar Interest Period may not extend beyond the last day of the Commitment Period; and provided further that if any Eurodollar Interest Period would otherwise end on a day which is not a Business Day, such Eurodollar Interest Period shall be extended to the next succeeding Business Day unless the result of such extension would be to extend such Eurodollar Interest Period beyond the last day of the Commitment Period, in which event such Eurodollar Interest Period shall end on the immediately preceding Business Day. "Eurodollar Rate" means the London Interbank Offered Rate in effect from time to time for the applicable Eurodollar Interest Period, as determined by Lender from the financial press (currently quoted in the "Money Rates" table contained in The Wall Street Journal) plus 125 basis points (1.25%). "Eurodollar Rate Election" shall mean an election by Borrower to convert the interest rate applicable to the outstanding principal balance of the Line of Credit Loan to the Eurodollar Rate. "Eurodollar Rate Election Notice" shall mean a written notice of Borrower's Eurodollar Rate Election delivered to Lender, which notice must specify (i) the Eurodollar Interest Period as either one (1), two (2), three (3), or six (6) months, and (ii) the principal amount of the Line of Credit Loan to bear interest at the Eurodollar Rate which must be at least $1,000,000 and any excess must be in increments of $100,000. "Event of Default" means the events described in Article 7 hereof. "Existing Letter of Credit" means the irrevocable letter of credit number SB8775 dated January 11, 1995, issued by SouthTrust for Borrower's account, in the aggregate amount of up to $2,287,300, for the benefit of SouthTrust Bank of Alabama, National Association as Trustee under the Trust Indenture dated as of January 1, 1995, between said trustee and the State Industrial Development Authority, and any renewal or replacement thereof. "First Alabama Note" means that certain Line of Credit Promissory Note of even date herewith, in the principal amount of up to $25,000,000, executed and delivered by Borrower to First Alabama, evidencing First Alabama's Proportionate Share of the Line of Credit. "Fixed Charge Coverage" means a fraction in which the numerator is the sum of the net income of the Borrower (after provision for federal and state taxes) for the twelve (12) month period preceding the applicable date plus the interest, lease and rental expenses of the Borrower for said period plus the sum of non-cash expenses or allowances for such period (including, without limitation, amortization or write down of intangible assets, depreciation, depletion, and deferred taxes and expenses) and the denominator is the sum of the current portion of the long term debt of Borrower as of the applicable date plus the interest, lease and rental expenses for the twelve (12) month period preceding the applicable date. "Funded Pension Plan" means a Plan that (a) covers any employee of the Borrower and/or the Subsidiaries or that the Borrower otherwise has sponsored or maintained or to which the Borrower and/or the Subsidiaries has made any contributions within five (5) years preceding the date of this Agreement and (b) is subject to the minimum funding standards of Section 301 et seq. of ERISA. "Future Letters of Credit" mean any irrevocable or standby letters of credit hereafter issued by SouthTrust for the Borrower's account with an expiration date prior to the Commitment Termination Date, expressly excluding the Existing Letter of Credit. "GAAP" means, as in effect from time to time, generally accepted accounting principles consistently applied with respect to a corporation conducting a business the same as or similar to that of the Borrower. "General Intangibles" mean all general intangibles of Borrower and/or of any of the Subsidiaries, whether now owned or hereafter acquired, including, without limitation, all choses in action, causes of action, corporate or other business records, deposit accounts, inventions, designs, patents, patent applications, trademarks, trade names, trade secrets, goodwill, copyrights, registrations, licenses, franchises, customer lists, tax refunds and tax refund claims, computer programs, all claims under guaranties, security interests or other security held by or granted to Borrower and/or any of the Subsidiaries to secure payment of any of the Accounts by an Account Debtor, all rights to indemnification, and all other intangible property of every kind and nature. "Intercreditor Agreement" means that certain Intercreditor Agreement among the Banks of even date herewith. "Interest Coverage Ratio" means for any fiscal period the ratio of Pretax Income for such period to Interest Expense for such period. "Interest Expense" for any fiscal period means the amount properly recorded or recordable as interest expense of the Borrower for such period determined in accordance with GAAP, plus operating lease payments for such period. "Inventory" means all inventory of whatever kind or nature of Borrower and/or of the Subsidiaries, now owned or hereafter acquired by Borrower and/or by any of the Subsidiaries, and wherever located, including, without limitation, all goods held for sale or lease or furnished or to be furnished under contracts, and any raw materials, goods in transit, work in process or finished goods, supplies, returned or repossessed goods, together with all goods and materials used or consumed in Borrower's and/or any of the Subsidiaries' business. "Lender" means SouthTrust, as agent for the Banks pursuant to the Intercreditor Agreement, or any Person appointed as successor agent pursuant to the Intercreditor Agreement. "Letters of Credit" mean, collectively, the Future Letters of Credit. "Lien" means any voluntary or involuntary mortgage, security deed, deed of trust, lien, pledge, assignment, charge, security interest, title retention agreement, financing lease, levy, execution, seizure, judgment, attachment, garnishment, charge or other encumbrance of any kind. "Line of Credit Loan" means the $73,500,000 credit facility available to Borrower pursuant to Article 2 of this Agreement, with accrued interest on such principal and other agreed charges as shall be outstanding at any given time. "Loan Documents" means this Agreement, the Notes, the Security Agreement, and any other documents or instruments now or hereafter executed evidencing, securing, or relating to the Line of Credit Loan. "Loan Value of Accounts" means an amount which, at any given time, is not more than (i) 85% of the aggregate Eligible Billed Accounts plus (ii) 65% of the aggregate of Eligible Unbilled Accounts, provided, that the aggregate amount of Eligible Unbilled Accounts may not exceed $40,000,000 at any time and the amount of the Subsidiaries' Eligible Billed Accounts may not exceed $10,000,000 and the amount of the Subsidiaries' Eligible Unbilled Accounts may not exceed $1,000,000 at any time. "Multiemployer Plan" has the meaning set forth in Section 4001(a)(3) of ERISA. "Net Income" means for any fiscal period the gross revenues of the Borrower for such period less all expenses and other proper charges (including taxes on income), determined in accordance with GAAP on a consolidated basis, but excluding in any event: (a) any gains or losses on the sale or other disposition of investments or fixed or capital assets other than in the ordinary course of business and any taxes on such excluded gains and any tax deductions or credits on account of any such excluded losses; (b) the proceeds of any life insurance policy; (c) net earnings and losses of any corporation substantially all the assets of which have been acquired by the Borrower in any manner, realized by such other corporation prior to the date of such acquisition; (d) net earnings and losses of any corporation with which the Borrower shall have consolidated or which shall have merged into or with the Borrower, realized by such other corporation prior to the date of such consolidation or merger; (e) net earnings or losses of any business entity in which the Borrower has an ownership interest unless such net earnings shall have actually been received by the Borrower in the form of cash distributions; (f) any gain arising from the acquisition of any securities of the Borrower; (g) any reversal of a contingency reserve which contingency reserve was taken prior to the date of this Agreement; and (h) any gain arising from the termination of any Funded Pension Plan. "Notes" mean, collectively, the SouthTrust Note, the First Alabama Note, and the CoreStates Note. "Obligations" mean the Line of Credit Loan, the Accelerated Reimbursement Obligation, the Reimbursement Obligation, and all other advances, debts, liabilities, obligations, covenants and duties owing, arising, due or payable from Borrower or Subsidiaries to Banks of any kind or nature, present or future, whether or not evidenced by any note, guaranty or other instrument, whether arising under this Agreement or any of the other Loan Documents whether direct or indirect (including those acquired by assignment), absolute or contingent, primary or secondary, due or to become due, now existing or hereafter arising and however evidenced or acquired. The term includes, without limitation, all principal, interest, charges, expenses, fees, attorneys' fees and any other sums chargeable to Borrower under any of the Loan Documents and all rights Banks may at any time or times have to reimbursement in connection with any Letters of Credit or guaranty issued for Borrower's benefit. "Organizational Documents" means the Borrower's and the Subsidiaries' articles of incorporation and bylaws, with all amendments thereto, respectively. "Overadvance" means an Advance by Banks at any time when the aggregate outstanding principal of the Line of Credit Loan plus the Accelerated Reimbursement Obligation exceeds the Loan Value of Accounts, or will exceed the Loan Value of Accounts if such Advance is made. "Permitted Liens" means the Liens described on Exhibit B hereof, Liens securing purchase money borrowing permitted by this Agreement, and financing statements filed by lessors of personal property leases. "Person" means an individual, corporation, partnership, association, joint-stock company, trust, business trust, unincorporated organization or joint venture, or a court or governmental authority. "Plan" means an employee benefit plan now or hereafter maintained for employees of Borrower or Subsidiaries that is covered by Title IV of ERISA. "Potential Default" means an event, which with the giving of notice or lapse of time or both, will constitute an Event of Default. "Pretax Income" for any fiscal period means the Net Income for such period (a) minus any portion thereof constituting interest income, (b) plus the sum of all amounts deducted in computing Net Income for (i) taxes, (ii) interest expense or (iii) operating lease payments computed on a consolidated basis. "Prohibited Transaction" means any transaction set forth in Section 406 of ERISA or Section 4975 of the Code. "Proportionate Share" means, with respect to Advances and payment of interest, and principal, as appropriate under the Line of Credit Loan, the following percentages: SouthTrust 285/735 First Alabama 250/735 CoreStates 200/735 "Regulation U" means Regulation U of the Board of Governors of the Federal Reserve System from time to time in effect and shall include any successor or other regulation or official interpretation of said Board of Governors relating to the extension of credit by banks for the purpose of purchasing or carrying margin stocks applicable to member banks of the Federal Reserve System. "Reimbursement Obligation" means Borrower's obligation to reimburse SouthTrust for drawings under the Letters of Credit. "Reportable Event" means any of the events set forth in Section 4043(b) of ERISA. "Security Agreement" means that certain Security Agreement, dated of even date herewith, between the Borrower and the Subsidiaries and the Banks and the Lender, wherein the Borrower and the Subsidiaries have granted a security interest in the collateral described therein as security for the Line of Credit Loan and the Accelerated Reimbursement Obligation. "Solvent" as to any Person, means such Person (i) owns property, real, personal, and mixed, whose aggregate fair saleable value is greater than the amount required to pay all of such Person's Debt (including contingent debts), and (ii) is able to pay all of its Debt as such Debt matures and (iii) has capital sufficient to carry on its business and transactions and all business and transactions in which it is about to engage. "SouthTrust Note" means that certain Line of Credit Promissory Note of even date herewith, in the principal amount of up to $28,500,000, executed and delivered by Borrower to SouthTrust, evidencing SouthTrust's Proportionate Share of the Line of Credit. "Subsidiaries" mean Communications & Systems Specialists, Inc., a Maryland corporation, Conway Computer Group, Inc., a Delaware corporation, CSC Acquisitions, Inc., an Alabama corporation, and NRC Technical Services Corporation, an Alabama corporation, all or a sufficient percentage of the capital stock of each of which is owned by the Borrower and which are consolidated for all accounting and tax purposes with the Borrower on the Borrower's financial statements and federal income tax returns. "Tangible Net Worth" means the aggregate of the (a) par or stated value of all outstanding capital stock; (b) capital surplus; and (c) retained earnings; less (x) any surplus resulting from any write up of assets subsequent to the Closing Date; (y) the amount of any goodwill, patents, trademarks, tradenames, customer lists, non-competition agreements, and copyrights reflected on the books of the Borrower; and (z) the amount paid for any treasury stock reflected as a reduction of the capital surplus or retained earnings accounts. 1.2. Singular and Plural. Singular terms shall include the plural forms and vice versa, as applicable, of the terms defined. 1.3. Amendments. All references to other documents or instruments shall be deemed to refer to such documents or instruments as they may hereafter be extended, renewed, modified, or amended and all replacements and substitutions therefor. ARTICLE 2. THE LINE OF CREDIT LOAN 2.1. Disbursement of Advances. Subject to the terms and conditions of this Agreement, and for so long as no Event of Default or Potential Default exists; Banks agree to make Advances of the Line of Credit Loan to Borrower from time to time during the Commitment Period, in an aggregate principal amount at any time outstanding not to exceed the lesser of (i) $73,500,000 less an amount equal to the Accelerated Reimbursement Obligation, or (ii) the Loan Value of Accounts as determined by Banks from the last Borrowing Base Certificate submitted to Banks. During the Commitment Period, Borrower may borrow, repay and reborrow the principal of the Line of Credit Loan, all in accordance with the terms and conditions of this Agreement. Each Advance shall be disbursed as provided in Article 8 hereof. Nothing in this Section shall be construed to require a Bank to make an Advance in excess of its Proportionate Share. 2.2. The Notes. The liability of the Borrower to pay the Line of Credit Loan shall be evidenced by the Notes. 2.3. Payments. (a) On the first (1st) day of each calendar month during the Commitment Period, and at the expiration of any Eurodollar Interest Period, Borrower shall pay to Lender all accrued and unpaid interest. (b) At the expiration of the Commitment Period, the outstanding principal balance of the Line of Credit Loan, plus all accrued but unpaid interest thereon, shall be due and payable. (c) All payments will be applied first to interest then due and payable and any excess shall be applied in reduction of principal. 2.4. Interest Rate. (a) The outstanding principal balance of the Line of Credit Loan shall bear interest at the Base Rate, except that the Borrower may initially or at any time thereafter elect the Eurodollar Rate in accordance with the procedures set forth herein, and upon the expiration of any Eurodollar Interest Period, this Note will bear interest at the Base Rate unless and until a new Eurodollar Rate Election is made. Borrower shall exercise such Eurodollar Rate Election by delivering to Lender a Eurodollar Rate Election Notice not less than two (2) Business Days prior to the date on which the Borrower desires the Eurodollar Interest Period to begin (unless Lender in its sole discretion, elects to accept such election on a shorter notice from time to time). (b) Borrower agrees that, notwithstanding anything to the contrary herein, if at any time Banks determine, in accordance with reasonable and ordinary commercial standards, that their acquisition of funds in the London interbank market would be unsafe, impractical or in violation of any law, regulation, guideline or order, Banks may so notify Borrower in writing or by telephone, and upon the giving of such notice, any Eurodollar Rate Election then in effect shall immediately terminate and the outstanding principal balance hereof shall thereupon commence to bear interest at the Base Rate. Borrower further agrees that, notwithstanding the fact that Banks may have elected to base the interest rate applicable hereunder upon Lender's cost of funds in the Eurodollar market, Banks shall not be required actually to obtain funds from such source at any time; however, subject to the foregoing sentence, the Eurodollar Rate will continue to be available to Borrower. (c) All interest on the outstanding principal amount hereunder, whether accruing at the Base Rate or the Eurodollar Rate, shall be calculated on the basis of a 360-day year by multiplying the outstanding principal amount by the applicable per annum rate, multiplying the product thereof by the actual number of days elapsed, and dividing the product so obtained by 360. 2.5. Purpose. Borrower shall use the proceeds of the Line of Credit Loan for general working capital purposes for itself and each of the Subsidiaries. 2.6. Borrowing Base Certificate. Two (2) Business Days prior to the date of the first Advance and on the tenth (10th) day of each month thereafter, Borrower shall submit to Lender a Borrowing Base Certificate. Each Borrowing Base Certificate shall be signed and certified as true and correct by the chief executive officer or chief financial officer of the Borrower. 2.7. Mandatory Prepayments. If the sum of the outstanding principal amount of the Line of Credit Loan plus the Accelerated Reimbursement Obligation at any time exceeds the Loan Value of Accounts, the Borrower shall immediately pay to the Lender, without need of notice or demand by Banks (and without Banks' waiving the Potential Default or Event of Default which may arise as a result of such excess), an amount sufficient to reduce said sum to the Loan Value of Accounts then outstanding. 2.8. Mandatory Advances. (a) The Banks shall make an Advance on the Line of Credit Loan for a sum equal to a draw under any Future Letter of Credit, even if such Advance would constitute an Overadvance. (b) The Banks may in their sole discretion, but shall not be obligated to, make an Advance on the Line of Credit Loan for a sum sufficient to pay accrued interest on the Line of Credit Loan or other fees and expenses under this Agreement if Borrower has failed to timely pay the same, even if such Advance would constitute an Overadvance. 2.9. Prepayment. Borrower may prepay the outstanding principal balance of the Line of Credit Note, in whole or in part, without premium or penalty upon two (2) Business Days prior written notice to Banks; provided that if such prepayment occurs during an Eurodollar Interest Period and if Banks determine (which determination shall be conclusive) that they are unable to prepay the deposits or borrowings by which they have funded any portion of the principal amount of the Line of Credit Loan without incurring any loss, charge, cost or penalty, Borrower shall, at the time of such prepayment, pay to Lender the amount of any such loss, charge, cost or penalty; provided further, that if such prepayment occurs during an Eurodollar Interest Period (as opposed to the last day thereof), Borrower shall also pay to Banks a premium derived as follows: (i) Divide the principal amount of the Line of Credit Loan so prepaid by the number of days in the Eurodollar Interest Period, (ii) multiply the quotient obtained in (i) by the number of days remaining in the Eurodollar Interest Period, and (iii) multiply the product obtained in (ii) by the difference between the Eurodollar Rate then in effect and the average Base Rate during such Eurodollar Interest Period. 2.10. Late Charges; Interest on Overdue Installments; Collection Costs. (a) Borrower will pay to Lender a late charge equal to five percent (5%) of any payment not received by Lender within ten (10) days after the due date thereof in order to cover the additional expenses incident to the handling and processing of delinquent payments. Collection or acceptance by Lender of such late charge shall not constitute a waiver of any rights or remedies of Banks provided herein. (b) Upon the occurrence of an Event of Default, Borrower agrees to pay interest to Lender at the Default Rate on Obligations, including accrued interest, until the Obligations have been paid in full. (c) Banks shall be entitled to recover all costs of collecting, securing or attempting to collect or secure the Obligations, including, without limitation, court costs and attorneys' fees, including attorneys' fees in any appellate or bankruptcy proceedings. 2.11. Term. The Line of Credit Loan will mature at the expiration of the Commitment Period, provided, however, that Banks may, in their sole discretion, at the anniversary of the Closing Date and each anniversary thereafter, elect to extend the Commitment Period for an additional one (1) year. Banks shall give Borrower notice of their intention to extend or not extend the Commitment Period by the last day of February of each year. In the event Banks elect to extend the Commitment Period, Borrower agrees to execute such documentation to reflect such extension as Banks may reasonably request. 2.12. Commitment Fee. Borrower agrees to pay Lender a line of credit fee equal to one-eighth of one percent (1/8 of 1%) per annum of the average monthly unused (unfunded) portion of the Line of Credit Loan, which such line of credit fee shall be payable quarterly, in arrears, over the term of the Line of Credit Loan, commencing on December 1, 1995, and shall be shared proportionately by the Banks according to their Proportionate Share. This line of credit fee shall be fully earned at the closing of the Line of Credit Loan, and shall be payable within five (5) days of the end of each quarter. 2.13. Security. The Line of Credit Loan and the Reimbursement Obligation are secured by a security interest in the Collateral. 2.14 Future Letters of Credit. (a) SouthTrust will issue Future Letters of Credit upon application therefor by Borrower and the Borrower's execution of applications and agreements for letters of credit in form and substance satisfactory to SouthTrust and the payment of letter of credit fees to SouthTrust. Such Future Letters of Credit shall be issued for the benefit of Borrower in connection with its normal business activities. The outstanding face amount of Future Letters of Credit shall not exceed $20,000,000 at any time. (b) The letter of credit fees paid to SouthTrust by Borrower in connection with Future Letters of Credit shall be remitted to the Banks by SouthTrust according to their Proportionate Share. ARTICLE 3. CONDITIONS PRECEDENT TO MAKING ADVANCES The obligations of Banks to make any Advance to Borrower shall be subject to the satisfaction by Borrower of the following conditions precedent, as of the date of the requested Advance: (a) There shall exist no Event of Default or Potential Default. (b) The representations and warranties of Borrower made in this Agreement or in any certificate executed and delivered pursuant hereto shall be true and accurate in all material respects. (c) Borrower shall have performed or observed all agreements, covenants, and conditions required by Banks to be performed or observed by Borrower, including, without limitation, the submission of any required Borrowing Base Certificate. (d) Borrower shall have duly executed the Loan Documents (and the Subsidiaries shall have duly executed the Security Agreement), together with any and all other documents that Banks or their legal counsel, in their reasonable discretion, shall deem necessary to complete the transactions contemplated hereunder. (e) Any proceedings taken in connection with the performance and observance of the provisions of this Agreement shall be reasonably satisfactory to Banks and their legal counsel. (f) Borrower shall have delivered to Lender landlord consents, in form and content satisfactory to Banks, with respect to any Collateral which is located on property leased by the Borrower or the Subsidiaries which is designated from time to time by Lender. (g) Prior to the first Advance, Lender shall have received, in form and substance satisfactory to Banks and their counsel: (i) Copies of the Organizational Documents of the Borrower and of the Subsidiaries, certified on the Closing Date by the appropriate Persons on behalf of the Borrower and the Subsidiaries. (ii) Certificates of existence and good standing for Borrower and of the Subsidiaries, all certified on or within thirty (30) days of the Closing Date by the Secretaries of State of Delaware, Alabama and Maryland, as applicable. (iii) Copies of the resolutions of the Board of Directors of Borrower and of the Subsidiaries, certified as of the Closing Date by the appropriate Persons on behalf of the Borrower and of the Subsidiaries, authorizing (A) the transactions contemplated by this Agreement and (B) the execution, delivery and performance by the Borrower of the Loan Documents and the execution and delivery of all other documents to be delivered by the Borrower and the Subsidiaries in connection with the transactions herein contemplated. (iv) An opinion of counsel to the Borrower and the Subsidiaries in form and content satisfactory to Banks. (v) Payment to Lender of a commitment fee equal to one- sixteenth of one percent (1/16 of 1%) of the principal amount of the Line of Credit Loan, to be shared by Banks proportionately in accordance with their Proportionate Shares. (vi) Payment to Lender of a $5,000 agent fee to be retained by Lender. (vii) Such other agreements, instruments, approvals, payments, opinions and other documents as Banks may reasonably request. Each request for Advance shall constitute Borrower's representation and warranty that each of the foregoing conditions is satisfied on the date of such request, and will continue to be satisfied on the date the requested Advance is made, and that all representations and warranties contained in the Loan Documents are true and correct and that Borrower is in compliance with all terms and conditions of the Loan Documents and that the Subsidiaries are in compliance with all the terms and conditions of the Security Agreement as of the date of such request. In the event Banks, at their option, elect to make one (1) or more Advances prior to receipt and approval of all items required by this Article 3, such election shall not obligate Banks to make any subsequent Advances without full compliance with this Article 3. ARTICLE 4. REPRESENTATIONS AND WARRANTIES To induce Banks to enter into this Agreement and to make Advances hereunder, Borrower represents and warrants to Banks that: 4.1. Existence, Power and Qualification. The Borrower is duly incorporated, validly existing and in good standing under the laws of the State of Delaware, and is duly qualified as a foreign corporation and is in good standing under the laws of the State of Alabama and of each jurisdiction where its ownership of property or conduct or proposed conduct of its business requires such qualification, and has the power and authority and the legal right to own its property and to conduct its business in the manner in which it is now conducted or hereafter contemplates conducting its business. 4.2. Authority to Borrow Hereunder. Borrower has the power and authority and the legal right to make, deliver and perform the Loan Documents. Borrower has taken all necessary action on its part to authorize the execution, delivery and performance of the Loan Documents, and the borrowing contemplated thereby. No consent or authorization of, or filing with, any federal, state, county or municipal government, or any department or agency of any such government, is required of Borrower in connection with the execution, delivery, performance, validity or enforceability of the Loan Documents, or the borrowing contemplated hereby. 4.3. Due Execution and Enforceability. The Loan Documents have been duly executed and delivered on behalf of Borrower, and constitute the legal, valid and binding obligation of Borrower enforceable against Borrower in accordance with their respective terms, except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws affecting the enforcement of creditor's rights generally, and general principles of equity which may limit the availability of equitable remedies. 4.4. No Conflict. The execution, delivery and performance of the Loan Documents, and the consummation of the transactions contemplated therein, will not (a) conflict with or be in contravention of any law, regulation, rule, order or judgment applicable to Borrower or its Organizational Documents, or any other agreement, instrument, mortgage, deed of trust, lien, lease, judgment, decree or order to which Borrower is a party or is subject or by which Borrower or its properties are bound or affected, or (b) result in the creation of any Lien upon any of the properties of Borrower. 4.5. Material Claims. There is no litigation, claim, lawsuit, investigation, action or other proceeding pending or, to the knowledge of Borrower, threatened before any court, agency, arbitrator or other tribunal which individually or in the aggregate might result in any material adverse change in the financial condition, operations, businesses or prospects of Borrower. 4.6. Financial Statements Accurate. All financial statements heretofore or hereafter provided by the Borrower are and will be true and complete in all material respects as of their respective dates and will fairly present the financial condition of the Borrower, and there are no liabilities, direct or indirect, fixed or contingent, as of the dates of such statements which are not reflected therein or in the notes thereto or in a written certificate delivered with such statements. All financial statements have been or will be prepared in accordance with GAAP. There has been no material adverse change in the financial condition, operations, or prospects of the Borrower, since the date of such statements except as fully disclosed in writing with the delivery of such statements. 4.7. No Defaults or Restrictions. There is no declared default under any agreement or instrument nor does there exist any restriction in the Organizational Documents of Borrower that causes or would cause a material adverse effect on the business, properties, operations or condition, financial or otherwise, of Borrower. 4.8. Payment of Taxes. Borrower has filed all federal, state, and local tax returns which are required to be filed and has paid, or made adequate provision for the payment of, all taxes which have or may become due pursuant to said returns or to assessments received by Borrower. 4.9. Necessary Permits, Etc. Borrower possesses all franchises, trademarks, permits, licenses, consents, agreements and governmental approvals that are necessary or required by any authority to carry on its businesses as now conducted. Borrower has received no notice of default or termination of any material agreement or any notice of noncompliance with any law, rule or regulation by which it is bound, which would cause a material adverse effect upon the business, properties, operations or condition, financial or otherwise, of Borrower. 4.10. Disclosure. Neither this Agreement nor any other document, financial statement, credit information, certificate or statement required herein to be furnished to Banks by Borrower in connection with this Agreement contains any untrue, incorrect or misleading statement of material fact, and all of these documents taken as a whole do not omit to state a fact material to this Agreement, to Banks' decision to enter into this Agreement or to the transactions contemplated hereunder. All representations and warranties made herein or any certificate or other document delivered to Banks by or on behalf of Borrower, pursuant to or in connection with this Agreement, shall be deemed to have been relied upon by Banks notwithstanding any investigation heretofore or hereafter made by Banks or on their behalf, and shall survive the making of Advances as contemplated hereby. 4.11. Regulation U. Borrower is not engaged and will not engage, principally or as one of its important activities, in the business of extending credit for the purpose of "purchasing" or "carrying" any "margin stock" (as each of the quoted terms is defined or used in Regulation U), and no part of the Line of Credit Loan will be used for so "purchasing" or "carrying" "margin stock" or for any purpose which violates, or which would be inconsistent with, the provisions of Regulation U. If requested by Banks, Borrower will furnish to Banks a statement in conformity with the requirements of Regulation U to the foregoing effect. 4.12. Title to Assets. Borrower has good and marketable title to all of its assets, subject to no Lien except for Permitted Liens. The Borrower enjoys peaceable and undisturbed possession under all leases under which it is operating, and none of said leases contain any provisions which are unduly burdensome or which may materially affect or impair the operations of the Borrower, and all of such leases are in full force and effect. 4.13. Compliance with Applicable Environmental Law. Borrower represents and warrants to Lender that Borrower and its properties are not in violation of or subject to any existing, pending or threatened investigation or inquiry by any governmental authority or any response costs or remedial obligations under any Applicable Environmental Law, and this representation and warranty would continue to be true and correct following disclosure to the applicable governmental authorities of all relevant facts, conditions and circumstances, if any, pertaining to the Borrower and its properties; that Borrower has not obtained and is not required to obtain any permits, licenses or similar authorizations to construct, occupy, operate or use any buildings, improvements, fixtures or equipment owned or operated by Borrower by reason of any Applicable Environmental Law; that Borrower has taken all steps necessary to determine and has determined that no petroleum products, oil, hazardous substances, or solid wastes have been disposed of or otherwise released on the Borrower's properties; and that the use which Borrower has made, makes or intend to make of its properties will not result in the location on or disposal or other release of any petroleum products, oil, hazardous substances or solid waste on such properties. Borrower hereby agrees to pay any fines, charges, fees, expenses, damages, losses, liabilities, or response costs arising from or pertaining to the application of any such Applicable Environmental Law to the Borrower and to indemnify and forever save Banks harmless from any and all judgments, fines, charges, fees, expenses, damages, losses, liabilities, response costs, or attorneys' fees and expenses arising from the application of any such Applicable Environmental Law to Borrower, its properties, or Banks. The Borrower agrees to notify Banks in the event that any governmental agency or other entity notifies it that it may not be in compliance with any Applicable Environmental Law. Borrower agrees to permit Banks to have access to its properties at all reasonable times in order to conduct, at Borrowers' expense, any tests which Banks deem are necessary to ensure that Borrower and its properties are in compliance with all Applicable Environmental Laws. Terms used in this Section 4.13 which are defined in any Applicable Environmental Law shall have the meanings given therein. 4.14. Controlled Companies. The Borrower is not an "investment company" within the meaning of the Investment Company Act of 1940, as amended, nor is subject to regulation under the Public Utility Holding Act of 1935, the Federal Power Act, or any other law or regulation which relates to the incurring of debt, including, but not limited to, laws and regulations regulating common or contract carriers or the sale of electricity, gas, steam, water or other public utility services. 4.15. Title to Collateral. Except for the security interests granted herein or except for Permitted Liens, Borrower is, or as to Collateral to be acquired after the date hereof will be, the sole owner, either in fee simple or leasehold, of the Collateral free from any adverse Liens, security interests or other encumbrances. Borrower shall defend the Collateral against all claims and demands of all other parties who at any time claim any interest in the Collateral. 4.16. Place of Business. Borrower's chief executive office is located at 4040 South Memorial Parkway, Huntsville, Alabama, 35802. The locations of the chief executive offices of the Subsidiaries are set forth in the Security Agreement. The Equipment and Inventory is and shall be located only at the locations listed on Exhibit C to this Agreement. Borrower has separately furnished or will furnish to Banks true and correct copies of the lease agreements for the leased parcels which have been requested by the Banks. 4.17. Borrower's Name. Borrower has not changed its name or been known by any other name within the last five (5) years, nor has it been the surviving corporation in a merger effected within the last five (5) years. 4.18. Existing Debt. Borrower is not in default with respect to any of its existing Debt or with respect to any material agreement to which Borrower is a party. 4.19. Insolvency. Borrower is now and, after giving effect to the transactions contemplated hereby, at all times will be, Solvent. 4.20. Subsidiaries. Borrower has no subsidiaries except for the Subsidiaries and except as indicated on Exhibit D to this Agreement. Each of its Subsidiaries is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation and is duly qualified as a foreign corporation and is in good standing under the laws of each jurisdiction where its ownership of property or conduct or proposed conduct of its business requires such qualification. 4.21. Inventory. All Inventory has been produced, and during the term hereof will be produced, in compliance with the requirements of the Federal Fair Labor Standards Act. No Inventory is now, nor shall any Inventory at any time or times hereafter be, stored with a bailee, warehouseman or similar party without Banks' prior written consent and, if Banks give such consent, Borrower will concurrently therewith cause any such bailee, warehouseman, or similar party to issue and deliver to Banks, in form and substance acceptable to Banks, warehouse receipts therefor in Banks' name. No Inventory is or will be consigned to any Person without Banks' prior written consent, and, if such consent is given, Borrower shall, prior to the delivery of any Inventory on consignment, (i) provide Banks with all consignment agreements to be used in connection with such consignment, all of which shall be acceptable to Banks, (ii) prepare, execute and file appropriate financing statements with respect to any consigned inventory, showing Banks as assignee, (iii) conduct a search of all filings made against the consignee in all jurisdictions in which any consigned Inventory is to be located and deliver to Banks copies of the results of all such searches and (iv) notify, in writing, all the creditors of the consignee which are or may be holders of Liens in the Inventory to be consigned that Borrower expects to deliver certain Inventory to the consignee, all of which Inventory shall be described in such notice by item or type. 4.22. ERISA. Borrower is in compliance with all applicable material provisions of ERISA. Neither Borrower nor any of the Subsidiaries has received any notice to the effect that it is not in full compliance with any of the requirements of ERISA and the regulations promulgated thereunder. No fact or situation that could result in a material adverse change in the financial condition of Borrower, including, but not limited to, any Reportable Event or Prohibited Transaction, exists in connection with any Plan. Neither Borrower nor any of the Subsidiaries has any withdrawal liability in connection with a Multiemployer Plan. ARTICLE 5. AFFIRMATIVE COVENANTS Borrower agrees and covenants that until the Line of Credit Loan has been paid in full, the Commitment Period has expired, and all Letters of Credit have expired and the Reimbursement Obligations have been paid, Borrower shall comply with each of the following affirmative covenants: 5.1. Payment of Line of Credit Loan and Maintenance of Loan Values. Borrower will duly and punctually pay the principal and interest of the Line of Credit Loan in accordance with the terms of this Agreement and the Notes. Borrower will maintain the Loan Value of Accounts at an amount that at all times equals or exceeds the sum of the outstanding principal balance of the Line of Credit Loan plus the Accelerated Reimbursement Obligation. 5.2. Maintenance of Existence. Borrower will maintain its existence and, in each jurisdiction in which the character of the properties owned by it or in which the transaction of its business makes qualification necessary, maintain such qualification and good standing. 5.3. Compliance with Laws; Payment of Claims. Borrower will comply in all material respects with all applicable laws, rules, regulations and orders such compliance to include without limitation, compliance with ERISA and Applicable Environmental Laws; paying before the same become delinquent all taxes, assessments and governmental charges or levies imposed upon Borrower or upon its income or profits or upon any of its properties; and paying all lawful claims, which if unpaid, might become a Lien upon any of its properties, except to the extent contested in good faith by proper proceedings which stay the imposition of any penalty, fine or Lien resulting from the nonperformance or nonpayment thereof and with respect to which adequate reserves have been set aside for payment thereof. 5.4. Accrual and Payment of Taxes. Borrower will accrue all current tax liabilities of all kinds, all required withholdings of income taxes of employees, all required old age and unemployment contributions, and pay the same when they become due, unless appropriate extensions are obtained. 5.5. Other Indebtedness. Borrower will duly and punctually pay or cause to be paid all principal and interest of any Debt to other creditors, comply with and perform all conditions, terms and obligations of the notes or other instruments evidencing such indebtedness and the mortgages, deeds of trust, security agreements and other instruments evidencing security for such indebtedness. 5.6. Examination and Visitation By Banks. Subject only to federal security requirements, at any reasonable time and from time to time during normal business hours, Borrower will permit Banks or their representatives to examine and make copies and abstracts from the records and books of account of, and visit the properties of, Borrower, and to discuss the affairs, finances and accounts of Borrower with any of its officers, directors or employees. 5.7. Accounting Records. Borrower will keep adequate records and books of account, with complete entries made in accordance with GAAP, reflecting all of its financial transactions. 5.8. Maintenance of Permits, Etc. Borrower will obtain, maintain and preserve all permits, licenses, authorizations, approvals, certificates and accreditation which are necessary for the proper conduct of its businesses. 5.9. Conduct Business. Borrower will conduct its business as now conducted and do all things necessary to preserve, renew and keep in full force and effect its rights and franchises necessary to continue such businesses. 5.10. Correction of Defect, Etc. On request of Banks, Borrower will promptly correct any scrivener's error which may be discovered in the contents of the Loan Documents, or in the execution thereof, and execute and deliver such further instruments and do such further acts as may be necessary or as may be requested by Lender to carry out more effectively the purposes of this Agreement or the Loan Documents. 5.11. Quarterly Reporting Requirements. Borrower will furnish to Banks as soon as available and in any event within forty-five (45) days after the end of each fiscal quarter of Borrower, the balance sheet of Borrower as at the end of such quarter and statements of income and retained earnings of Borrower, certified by the treasurer or chief financial officer of the Borrower as true and correct, and otherwise in form and substance satisfactory to Banks, and consistent with those quarterly statements previously provided to Banks. Such statements shall be accompanied by a certificate of Borrower's chief financial officer certifying that (i) to the best of his knowledge no Potential Default exists and (ii) no Event of Default exists under the Loan Documents, or if such is not the case, the actions which the Borrower proposes to take with respect thereto. 5.12. Annual Audited Reporting Requirements. For the fiscal year ending August 31, 1995, and for each fiscal year thereafter, Borrower shall provide Banks, as soon as available and in any event within ninety (90) days after the end of each fiscal year of Borrower, the balance sheets, statements of income and retained earnings, and a statement of cash flow of Borrower for such year, all of which such financial statements shall be audited and certified by a nationally or regionally recognized independent certified public accounting firm as (i) fairly presenting the financial condition of Borrower as at the end of such fiscal year and the results of the operations of Borrower for such period and (ii) having been prepared in accordance with GAAP on a consolidated basis. Such statements shall be accompanied by a certificate of Borrower's chief financial officer certifying that (i) to the best of his knowledge no Potential Default exists and (ii) no Event of Default exists under the Loan Documents, or, if such is not the case, the actions which the Borrower proposes to take with respect thereto. Banks reserve the right to require such additional information of the Borrower at such times as it deems necessary in its sole discretion. 5.13. Employee Plan Reports and Notices. Borrower will, upon request, promptly furnish to Banks after the filing or receipt thereof, copies of all reports and notices, if any, which Borrower files under the Code or ERISA with the Internal Revenue Service, the Pension Benefit Guaranty Corporation or the U.S. Department of Labor, or which Borrower receives from any such agency, with respect to any Plan, if any of the information therein could form the basis of, or any dispute referred to therein which, if determined adversely to Borrower, could constitute or give rise to an Event of Default or Potential Default. 5.14. SEC Reports. Borrower shall furnish to Lender, at the same time it supplies the same to the Securities and Exchange Commission, copies of all quarterly and annual reports and other reports required to be submitted under applicable securities laws and regulations. 5.15. Insurance. Maintain insurance with insurance companies satisfactory to Banks on such of its properties, in such amounts and against such risks as is customarily maintained in similar businesses operating in the same vicinities, and file with Banks, upon request, from time to time, a detailed list of the insurance then in effect, stating the names of the insurance companies, the amounts and rates of the insurance, dates of expiration thereof, and the properties and risks covered thereby, and within ten (10) days after notice in writing from Banks, shall obtain additional insurance customarily carried by businesses similar to Borrower as Banks may reasonably request. Such insurance shall name Banks as additional insureds and provide that any losses payable thereunder shall (pursuant to a lender's loss payable endorsement) be payable to the Banks, as their interest may appear, and shall provide that insurance provided thereby, as to the interest of the Banks, shall not be invalidated by any act or neglect of the Borrower, nor by the commencing of any proceedings by or against the Borrower in bankruptcy, insolvency, receivership or any other proceedings for the relief of a debtor, nor by any foreclosure, repossession or other proceedings relating to the property insured, nor by any occupation of such property or the use of such property for purposes more hazardous than permitted in the policy. With respect to all insurance on the Collateral, Borrower hereby assigns to the Banks all right to receive proceeds, directs any insurer to pay all proceeds directly to the Banks, and authorizes the Lender to endorse any check or draft for such proceeds and apply the same toward satisfaction of the Obligations. The Borrower shall furnish to the Banks insurance certificates, in form and substance satisfactory to the Banks, evidencing compliance by it with the terms of this Section and, upon the request of the Banks at any time, the Borrower shall furnish the Banks with certified photostatic copies of the policies required by the terms of this Section. The Borrower will cause each insurer under each of the policies to agree (either by endorsement upon such policy or by letter addressed to the Banks) to give the Banks at least 30 days' prior written notice of the cancellation of such policies in whole or in part or the lapse of any coverage thereunder. Borrower agrees that it will not take any action or fail to take any action which action or inaction would result in the invalidation of any insurance policy required hereunder. At least 10 days prior to the date the premiums on each such policy or policies shall become due and payable, the Borrower shall furnish to the Banks evidence of the payment of such premises. Borrower shall furnish to the Banks evidence of insurance as Banks may require. 5.16. Accounts Aging Reports. Within forty-five (45) days after the end of each quarter, Borrower will provide Banks with an Accounts aging report, in form acceptable to Banks. 5.17. Maintenance of Bank Accounts. Borrower will maintain its primary bank accounts with SouthTrust or one of its Affiliates. 5.18. Financial Covenants. Borrower will maintain on a consolidated basis: (a) a Tangible Net Worth of not less than $55,000,000; (b) a ratio of total Debt to Tangible Net Worth of not more than 1.8 to 1.0; (c) a Fixed Charge Coverage of at least 1.75 to 1.0; (d) working capital of not less than $35,000,000; and (e) as of the last day of each fiscal quarter for the preceding twelve (12) month period an Interest Coverage Ratio of at least 2.0 to 1.0. 5.19. Maintenance of Properties. The Borrower will keep the Equipment, Inventory, and its other properties in good repair, working order and condition, reasonable wear and tear excepted, and from time to time make all needed and proper repairs, renewals, replacements, additions, and improvements thereto as is necessary for items that have become obsolete or worn in the ordinary course of business, and comply with the provisions of all leases to which Borrower is a party or under which it occupies property so as to prevent any loss or forfeiture thereof or thereunder. 5.20. Notice to Banks. Immediately notify the Banks of any event causing a material loss or depreciation in value of the Collateral and the amount of such loss or depreciation, any event which may have a materially adverse effect on the Borrower's operations or financial condition, or if Borrower becomes aware of the occurrence of any Event of Default or Potential Default. 5.21. Collection of Accounts. Diligently pursue collection of all Accounts and other amounts due Borrower by others, including Affiliates of Borrower. 5.22. Landlord and Storage Agreements. Upon Banks' request, provide Banks with copies of all agreements between Borrower and any landlord or warehouseman which owns any premises at which any Collateral may, from time to time, be kept. 5.23. Litigation. Immediately notify Banks of any material lawsuit involving Borrower. 5.24. ERISA Compliance. (a) At all times make prompt payment of contributions required to meet the minimum funding standards set forth in ERISA with respect to each Plan; (b) at the request of any of the Banks, furnish to Banks copies of an annual report required to be filed pursuant to ERISA in connection with each Plan and any other employee benefit plan of it and its Affiliates subject to said Section; (c) notify Banks as soon as practicable of any Reportable Event and of any additional act or condition arising in connection with any Plan which Borrower believes might constitute grounds for the termination thereof by the Pension Benefit Guaranty Corporation or for the appointment by the appropriate United States district court of a trustee to administer the Plan; and (d) furnish to Banks, promptly upon Banks' request therefor, such additional information concerning any Plan or any other such employee benefit plan as may be reasonably requested. 5.25. Auditors Letters. Furnish the Banks with a copy of each letter written to the Borrower by its independent certified public accountant concerning internal controls and management review immediately upon receipt of same. 5.26. Compliance with Act. Promptly upon Banks' written request, Borrower will execute any and all documentation required by Banks so as to comply with the Act with respect to all or any of the Accounts subject to the Act. ARTICLE 6. NEGATIVE COVENANTS Borrower agrees and covenants that until the Line of Credit Loan has been paid in full the Commitment Period has expired, and all Letters of Credit have expired and all Reimbursement Obligations have been paid, Borrower shall abide by and observe the following negative covenants: 6.1. Indebtedness. Except as permitted or contemplated by this Agreement, Borrower will not create, incur, assume or suffer to exist any Debt or obligation for money borrowed, or guarantee, or endorse, or otherwise be or become contingently liable in connection with the obligations of any person, firm, or corporation (including, without limitation, any affiliates) aggregating in excess of $500,000, except: (a) Indebtedness for taxes not at the time due and payable or which are being actively contested in good faith by appropriate proceedings and against which reserves deemed adequate by Banks have been established by Borrower, but only if the nonpayment of such taxes does not result in a lien upon any property of Borrower; (b) Contingent liabilities arising out of the endorsement of negotiable instruments in the ordinary course of collection or similar transactions in the ordinary course of business; (c) Debt, other than for borrowed money, incurred in the ordinary course of business, including that evidenced by trade promissory notes with a maturity of less than one year; (d) Debt for money borrowed from the Banks pursuant to this Agreement; (e) Debt incurred prior to the date of this Agreement and reflected on the financial statements referred to in Section 4.6 hereof, including, without limitation, money borrowed from SouthTrust under a term note dated February 9, 1994; (f) Debt incurred in connection with the Existing Letter of Credit and the obligations of Borrower in connection therewith; and (g) Debt to Persons who are not Affiliates for purchase money borrowing incurred in connection with the purchase of capital assets used in the business of Borrower not to exceed $1,000,000 during any fiscal year. 6.2. No Liens; Exceptions. Borrower will not create, incur, assume or suffer to exist any lien upon or with respect to any of its properties, rights, income or other assets, whether now owned or hereafter acquired, other than: (a) Liens at any time existing in favor of the Banks pursuant to this Agreement; (b) Permitted Liens; (c) Inchoate Liens arising by operation of law to secure claims for the purchase of labor, services, materials, equipment or supplies to the extent that payment thereof shall not at the time be delinquent; (d) Liens incurred in the ordinary course of business in connection with workmen's compensation, unemployment insurance or other forms of governmental insurance or benefits, or to secure performance of tenders, statutory obligations, leases and contracts (other than for money borrowed or for credit received in respect of property acquired) entered into in the ordinary course of business as presently conducted or to secure obligations for surety or appeal bonds, excluding, however, in any such case any lien arising in favor of the Pension Benefit Guaranty Corporation; or (e) Liens for taxes, assessments or governmental charges or levies provided payment thereof shall not be delinquent. 6.3. Merger, Etc. Borrower will not enter into any merger or similar transaction unless the Borrower is the surviving corporation, and Borrower will not form any Subsidiary, whether wholly or partially owned, or enter into any joint venture without giving the Banks prior written notice thereof. 6.4. Sale or Disposition of Substantially All Assets. Borrower will not sell, assign, lease or otherwise dispose of (whether in one transaction or in a series of transactions) all or substantially all of its assets (whether now or hereafter acquired), without the prior written consent of Banks, which may be granted or refused by Banks in Banks' sole discretion. 6.5. Other Disposition of Assets. Borrower will not sell, lease, transfer or otherwise dispose of assets, unless any such disposition shall be in the ordinary course of business for a full and fair consideration, which in no event shall include a transfer for full or partial satisfaction of a pre-existing debt. 6.6. ERISA Funding and Termination. Borrower will not permit (a) the funding requirements of ERISA with respect to any Plan ever to be less than the minimum required by ERISA or (b) any Plan ever to be subject to involuntary termination proceedings. 6.7. Transactions with Affiliates. Borrower will not, without the prior written consent of Banks, enter into any transaction with any Person affiliated with Borrower other than in the ordinary course of Borrower's business and on fair and reasonable terms no less favorable to Borrower than those that Borrower would obtain in a comparable arms-length transaction with a Person not an affiliate; provided, Borrower may make advances or loans to the Subsidiaries and have outstanding at any time such advances or loans aggregating up to $1,000,000 in principal amount to any one Subsidiary. 6.8. Change in Business. Make any material change in the nature of the business of the Borrower as carried on at the date hereof. 6.9. Change Principal Places of Business. Change the principal places of business or chief executive office without thirty (30) days' prior written notice to Banks. 6.10. Changes in Accounting. Change the methods of accounting of the Borrower, unless such change is permitted by GAAP and provided such change does not have the effect of curing or preventing what would otherwise be an Event of Default or Potential Default had such change not taken place. 6.11. Sale and Lease-Back. Enter into any arrangement whereby the Borrower shall sell or transfer all or any substantial part of its property then owned by it and shall thereupon within one year thereafter rent or lease the property so sold or transferred. 6.12. Distributions to Shareholders. At any time after and during the continuance of a Potential Default or an Event of Default, pay any cash dividends or otherwise make any cash distributions to any of its shareholders. 6.13. Amendments. Amend any instrument evidencing a Lien, charge or encumbrance, except in the ordinary course of business. 6.14. Loans to Employees and Other Persons. Make any loans or other advances to any employee or any other Person, except in the ordinary course of Borrower's business in accordance with its historical practices and except as permitted by Section 6.7 of this Agreement. ARTICLE 7. EVENTS OF DEFAULT AND REMEDIES 7.1. Events of Default. The occurrence of any one or more of the following events shall constitute an Event of Default hereunder: (a) Nonpayment of principal or interest on the Line of Credit Loan, nonpayment of any sum due under the Reimbursement Obligation, or nonpay- ment of any other sum payable under this Agreement or any of the other Loan Documents, when and as the same shall become due and payable, whether on demand, at their stated maturities, by acceleration or otherwise which nonpayment shall continue for five (5) days after written notice thereof shall have been given to Borrower by Lender (a "Monetary Default"). (b) Any representation or warranty made by or on behalf of Borrower, under or in connection with this Agreement shall be materially false as of the date on which made. (c) Borrower shall fail to perform or observe any term, covenant or agreement (other than a Monetary Default) contained in any Loan Document to be performed or observed by Borrower or any of the Subsidiaries shall fail to perform or observe any terms, covenants, or agreement contained in the Security Agreement to be performed or observed by the Subsidiaries, and such failure shall remain unremedied for thirty (30) days after written notice thereof shall have been given to Borrower by Lender (a "Non-Monetary Default"). (d) Borrower shall be generally not paying its debts as they become due or shall make a general assignment for the benefit of creditors; or any petition shall be filed by or against the Borrower under the federal bankruptcy laws, or any other proceeding shall be instituted by or against Borrower seeking to adjudicate it a bankrupt or insolvent, or seeking liquidation, reorganization, arrangement, adjustment or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors, or seeking the entry of an order for relief or the appoint- ment of a receiver, trustee, custodian or other similar official for Borrower or any substantial part of its property (provided, that as to any involuntary proceeding, such shall not constitute an Event of Default unless the same is not dismissed or vacated within sixty (60) days of the date of such filing); or the Borrower shall take any action to authorize or effect any of the transactions set forth above in this Section 7.1(d). (e) Failure of the Borrower to pay when due any Debt owing to another creditor or the default by the Borrower, in the performance of any term, provision or condition contained in the agreement under which any such indebtedness was created or is governed, the effect of which is to cause, or to permit the holder or holders of such indebtedness, upon the giving of notice or lapse of time, or both, to cause such indebtedness to become due prior to its stated maturity. (f) Any court, government or governmental agency shall condemn, seize or otherwise appropriate, or take custody or control of all or any substantial portion of the property of Borrower. (g) Borrower shall fail within thirty (30) days to pay, bond, or otherwise discharge any judgment or order for the payment of money which is not stayed on appeal or while otherwise being appropriately contested in good faith, or for which the Borrower is not fully insured. (h) If a Reportable Event shall occur which Banks, in their sole discretion, shall determine in good faith constitutes grounds for the termination by the Pension Benefit Guaranty Corporation of any Plan or for the appointment by the appropriate United States district court of a trustee shall be requested or appointed, or if Borrower is in "default" (as defined in Section 4219(c)(5) of ERISA) with respect to payments to a Multiemployer Plan resulting from Borrower's complete or partial withdrawal from such Plan. (i) An event of default (as defined or used therein) under any reimbursement agreement relating to the Letters of Credit, under any reimbursement agreement relating to the Existing Letter of Credit, or under any other indebtedness now or hereafter owing by Borrower to one or more of the Banks, including, without limitation, the indebtedness owed by Borrower to SouthTrust under that term note dated February 9, 1994. (j) A material adverse change in the financial condition of the Borrower. Notwithstanding anything in this section, all requirements of notice shall be deemed eliminated if Lender is prevented from giving such notice by bankruptcy or other applicable law. In such event, the cure period, if any, shall then run from the occurrence of the event or condition of default rather than from the date of notice. 7.2. Remedies. If any Event of Default occurs, Banks may, at their option: (a) By written notice to Borrower, terminate the Commitment Period, and thereby terminate (i) their obligation to make further Advances hereunder (except pursuant to then outstanding Future Letters of Credit) and (ii) SouthTrust's obligation to issue Future Letters of Credit. (b) Declare the entire Obligations (expressly including the Accelerated Reimbursement Obligation), together with the interest accrued thereon, to be, and the same shall thereupon become, immediately due and payable, without presentment, protest or further demand or notice of any kind, all of which are hereby expressly waived. (c) Proceed to protect and enforce its rights by action at law (including, without limitation, bringing suit to reduce any claim to judgment), suit in equity and other appropriate proceedings including, without limitation, for specific performance of any covenant or condition contained in this Agreement or the other Loan Documents. (d) Exercise any and all rights and remedies afforded by the laws of the United States, the State of Alabama or any other appropriate jurisdiction as may be available for the collection of debts and enforcement of covenants and conditions such as those contained in this Agreement and in the other Loan Documents. (e) Exercise the rights and remedies of setoff and/or banker's lien against the interest of Borrower in and to every account and other property of Borrower which is in the possession of Banks or any Person which then owns a participating interest in the Line of Credit Loan, to the extent of the full amount of the Line of Credit Loan. ARTICLE 8. DISBURSEMENT OF ADVANCES. 8.1. Procedure for Advances Under Line of Credit Loan. Borrower may request Advances of the Line of Credit Loan on any Business Day during the Commitment Period, provided that the Borrower shall have given to Lender irrevocable written notice in the form attached as Exhibit E hereto, signed by a duly authorized officer of the Borrower (which such notice may be sent via teletransmission) on or before 9:00 a.m., Birmingham, Alabama time, two (2) Business Days preceding the requested borrowing date (or irrevocable oral notice on or before 9:00 a.m., Birmingham, Alabama time two (2) Business Days preceding the requested borrowing date confirmed in writing in the form attached as Exhibit E hereto signed by a duly authorized officer of the Borrower (which writing may be sent via teletransmission)) no later than 5:00 p.m., Birmingham, Alabama time, on the same Business Day) specifying (i) the aggregate amount to be borrowed under the Line of Credit Loan, and (ii) the requested borrowing date. Lender shall, upon receipt of Borrower's requisition for an Advance, notify Banks of such requisition in the manner specified in the Intercreditor Agreement. Each Bank shall provide the Lender with funds, on or before 1:00 p.m., Birmingham, Alabama time, on each borrowing date in an amount equal to such Bank's Proportionate Share of the requested borrowing by wire transferring same day or immediately available funds to such account as the Lender shall specify from time to time by notice to the Banks. Subject to the provisions of this Agreement on the date requested in Borrower's notice, the Lender shall make the proceeds of the Advance available to the Borrower in immediately available funds by depositing the same into Borrower's checking account maintained with SouthTrust or otherwise disbursed in a manner acceptable to Banks and Borrower; provided, however, that the Lender shall be obligated to make the proceeds of such Advance available only to the extent that the Lender shall have received the Proportionate Shares thereof from the Banks. No Bank's obligation to fund its Proportionate Share of an Advance shall be affected by any other Bank's failure to fund its Proportionate Share of an Advance, nor shall any Bank's Proportionate Share be increased as a result of any such failure of any other Bank. 8.2. Banks' Obligations Several. The obligations of the Banks hereunder are several and not joint. None of the Banks shall be liable to the Borrower due to the failure of any Bank to fund its Proportionate Share. 8.3. Place, Manner, Time and Extension of Payment. All sums payable hereunder and under the Notes shall be paid to Lender at Lender's principal office in Birmingham, Alabama, not later than noon Birmingham, Alabama time on the date due in immediately available funds. If any payment falls due on a day during which banks are not open for ordinary banking business in Birmingham, Alabama, and Philadelphia, Pennsylvania, then such due date shall be extended to the next succeeding day during which banks in Birmingham, Alabama and Philadelphia, Pennsylvania are so open for ordinary banking business, but during any such extension all unpaid principal of the Line of Credit Loan and other sums bearing interest shall continue to bear interest at the rates herein provided. The Lender shall send Borrower statements of all amounts due hereunder, which statements shall be considered correct and conclusively binding on the Borrower absent manifest error unless the Borrower notifies the Lender to the contrary within ten (10) days of its receipt of any statement which it deems to be incorrect. The Banks may, in their sole discretion, charge against any deposit account of the Borrower maintained at any of the Banks, all or any part of any amount due under this Agreement, the Notes, or the other Loan Documents. Any payment made by Borrower to Lender pursuant to this Section 8.3 shall, to the extent such payment is required to be transmitted by Lender to the other Banks pursuant to the Intercreditor Agreement, discharge that portion of Borrower's obligation under the Notes. 8.4 Discontinuance of Advances. Notwithstanding any other provision of this Article 8 and in addition to any other remedy available to the Banks, if the Banks request the Borrower to comply with the Act, as provided for in Section 5.26 of this Agreement and Borrower fails to do so within 15 days of such request, the Banks may, in their sole discretion, refuse to make any future Advances to Borrower (and SouthTrust may refuse to issue any Future Letters of Credit) until Borrower complies with such request. ARTICLE 9. GENERAL PROVISIONS 9.1. Notices. All notices and other communications provided for hereunder shall be in writing and, if mailed by certified mail, return receipt requested, shall be deemed to have been received on the earlier of the date shown on the receipt or three (3) days after the postmarked date thereof, or, if sent by overnight courier, shall be deemed to have been received on the next business day following dispatch, or, if delivered by hand, shall be deemed effective when delivered. In addition, notices may be sent by facsimile provided that a copy of such notice is simultaneously given by mail or hand delivery as hereinabove provided and any such notice shall be deemed received in accordance with the foregoing provisions. Notice of change of address shall also be governed by this Section. Notices shall be addressed as follows: To Borrower: Nichols Research Corporation 4040 South Memorial Parkway (35802) Post Office Box 400002 Huntsville, Alabama 35815-1502 Attention: Chief Financial Officer Facsimile: (205) 880-0367 To SouthTrust: SouthTrust Bank of Alabama, National Association SouthTrust Tower--11th Floor 420 North 20th Street (35203) Post Office Box 2554 Birmingham, Alabama 35290 Attention: Regional Corporate Banking Facsimile: (205) 254-5022 To First Alabama: First Alabama Bank 216 West Side Square (35801) Post Office Box 680 Huntsville, Alabama 35804-0680 Attention: Kenneth Watson, Vice President Facsimile: (205) 535-0312 To CoreStates: CoreStates Bank, N.A. FCI-8-3-16 1339 Chestnut Street Post Office Box 7618 Philadelphia, PA 19101-7618 Attention: James P. Richards, Vice President Facsimile: (215) 973-6745 9.2. No Control By Banks. None of the covenants or other provisions contained in this Agreement shall, or shall be deemed to, give Lender or Banks the rights or power to exercise control over the affairs and/or management of Borrower, the power of Lender or Banks being limited to the right to exercise the remedies provided for herein. 9.3. No Waiver By Banks, Etc. The acceptance by Lender or Banks at any time and from time to time of part payment on the Line of Credit Loan shall not be deemed to be a waiver of any Event of Default then existing. No waiver by Lender or Banks of any particular Event of Default shall be deemed to be a waiver of any Event of Default other than said particular Event of Default. No delay or omission by Lender or Banks in exercising any right or remedy under the Loan Documents or otherwise shall impair such right or remedy or be construed as a waiver thereof or an acquiescence therein, nor shall any single or partial exercise of any such right or remedy preclude other or further exercise thereof, or the exercise of any other right or remedy under the Loan Documents or otherwise. The rights and remedies of Lender or Banks in this Agreement are cumulative and are in addition to, and are not exclusive of, any rights or remedies provided by law. The rights of Lender or Banks under this Agreement against Borrower are not conditional or contingent on any attempt by Lender or Banks to exercise any of their rights under the Loan Documents, or against Borrower or any other Person. 9.4. Banks' Expenses; Indemnification. Whether or not any Advances are advanced hereunder or the transactions contemplated hereby are consummated, Borrower will pay on demand all reasonable fees, costs and expenses in connection with the preparation, execution, and delivery of the Loan Documents and the other documents to be delivered under this Agreement, including, without limitation, the fees, out-of-pocket expenses and other disbursements of Banks and their counsel. Borrower shall pay on demand all reasonable costs and expenses (including, without limitation, attorneys' fees, accountants' fees and expenses), if any, of Banks in connection with the enforcement, collection, restructuring, refinancing and "work-out" (including with respect to any waiver or amendment) of this Agreement and the Loan Documents. Borrower will save Banks harmless from and against any and all claims, damages, actions, costs, expenses and liabilities asserted by Borrower or any other Person (i) with respect to or resulting from any breach by Borrower of any of the covenants under the Loan Documents or any misrepresentation or breach of warranty by Borrower under the Loan Documents, or in connection with the performance by Lender of the provisions of the Loan Documents to be performed by Borrower, (ii) in connection with the execution, delivery and performance of the Loan Documents by Borrower and/or the Subsidiaries, (iii) as a result of the conduct of the Borrower and/or the Subsidiaries; and (iv) in connection with any violation or alleged violation by Borrower, the Subsidiaries, or their predecessors in interest of any Applicable Environmental Law, except for the gross negligence or wilful misconduct of the Bank(s) seeking indemnity hereunder. All sums payable to Banks by Borrower under the provisions of this Section 9.4 shall bear interest at the Default Rate, which interest shall be payable by Borrower to Banks on demand. 9.5. GAAP. All accounting and financial terms used herein, and compliance with each covenant contained herein, which relates to financial matters, shall be determined in accordance with GAAP, except to the extent that a deviation therefrom is expressly stated herein. 9.6. Number and Gender. Whenever herein the singular number is used, the same shall include the plural where appropriate, and words of any gender shall include each other gender where appropriate. 9.7. Headings. The headings, captions and arrangements used in this Agreement are, unless specified otherwise, for convenience only and shall not be deemed to limit, amplify or modify the terms of this Agreement, nor affect the meaning thereof. 9.8. Survival of Covenants, Etc. All covenants, agreements, representations and warranties made herein shall survive the execution and delivery of this Agreement and the Loan Documents. All statements contained in any certificate or other instrument delivered by or on behalf of Borrower shall be deemed to constitute representations and warranties made by Borrower. 9.9. Successors and Assigns; Participation. All covenants and agreements contained in this Agreement shall bind and inure to the benefit of the respective successors and assigns of the parties hereto, except that Borrower may not assign any rights hereunder without the prior written consent of Banks. Banks (and each of them) may assign to one or more Persons all or any part of, or may grant participations to one or more Persons, in all or any part of the Line of Credit Loan, and to the extent of any assignment or participation the assignee or participant of such assignment or participation shall have the rights and benefits hereunder as if it were a Bank hereunder, except that Borrower shall be entitled to deal exclusively with Banks and rely upon documents, consents and writings signed solely by Banks, without the necessity of any such participant joining in. Borrower authorizes Banks (and each of them) to disclose to any purchaser or participant, or any prospective purchaser or participant of an interest in the Loans, any financial or other information pertaining to Borrower. 9.10. Severability of Provisions. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws during the term hereof, such provision shall be fully severable, and this Agreement, as the case may be, shall be construed and enforced as if such illegal, invalid or unenforceable provisions had never comprised a part hereof, and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance therefrom. Furthermore, in lieu of such illegal, invalid or unenforceable provision there shall be added automatically as a part of this Agreement, a provision as similar in terms to the illegal, invalid or unenforceable provision as may be possible which is legal, valid and enforceable. 9.11. Entire Agreement, Amendments, Counterparts. This Agreement and the Loan Documents embody the entire agreement and understanding between Borrower and Banks relating to the subject matter hereof. The provisions of this Agreement may not be amended, modified or waived except by written agreement of Borrower and Banks. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. 9.12. Governing Law; Jurisdiction. THE LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ALABAMA. LENDER'S PRINCIPAL PLACE OF BUSINESS IS LOCATED IN JEFFERSON COUNTY, ALABAMA, AND BORROWER AGREES THAT THE LOAN DOCUMENTS SHALL BE DELIVERED TO, HELD BY AND FUNDED BY LENDER AT SUCH PRINCIPAL PLACE OF BUSINESS, AND THE HOLDING OF THE LOAN DOCUMENTS THEREAT SHALL CONSTITUTE SUFFICIENT MINIMUM CONTACTS OF BORROWER WITH JEFFERSON COUNTY, ALABAMA FOR PURPOSES OF CONFERRING JURISDICTION UPON THE STATE AND FEDERAL COURTS PRESIDING IN SUCH COUNTY AND STATE. BORROWER AGREES THAT ANY LEGAL ACTION OR PROCEEDING ARISING HEREUNDER MAY BE BROUGHT IN THE CIRCUIT COURT OF THE STATE OF ALABAMA, IN JEFFERSON COUNTY, ALABAMA, OR IN THE UNITED STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ALABAMA, AND CONSENTS AND SUBMITS TO THE PERSONAL JURISDICTION OF ANY SUCH COURTS IN ANY ACTION OR PROCEEDING. 9.13. Waiver of Trial by Jury. TO THE EXTENT PERMITTED BY APPLICABLE LAW, BORROWER HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY ON ANY CLAIM, COUNTERCLAIM, SETOFF, DEMAND, ACTION OR CAUSE OF ACTION (I) ARISING OUT OF OR IN ANY WAY PERTAINING OR RELATING TO THIS CREDIT AGREEMENT OR THE LOAN DOCUMENTS, OR (II) IN ANY WAY CONNECTED WITH OR PERTAINING OR RELATED TO OR INCIDENTAL TO ANY DEALINGS OF THE PARTIES HERETO WITH RESPECT TO THIS CREDIT AGREEMENT OR THE LOAN DOCUMENTS OR IN CONNECTION WITH THE TRANSACTIONS RELATED THERETO OR CONTEMPLATED THEREBY OR THE EXERCISE OF ANY PARTIES' RIGHTS AND REMEDIES THEREUNDER, IN ALL OF THE FOREGOING CASES WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE. BORROWER AGREES THAT BANKS MAY FILE A COPY OF THIS WAIVER WITH ANY COURT AS WRITTEN EVIDENCE OF THE KNOWING, VOLUNTARY AND BARGAINED AGREEMENT OF BORROWER IRREVOCABLY TO WAIVE ITS RIGHT TO TRIAL BY JURY, AND THAT, TO THE EXTENT PERMITTED BY APPLICABLE LAW, ANY DISPUTE OR CONTROVERSY WHATSOEVER BETWEEN BORROWER AND BANKS SHALL INSTEAD BE TRIED IN A COURT OF COMPETENT JURISDICTION BY A JUDGE SITTING WITHOUT A JURY. IN WITNESS WHEREOF, Borrower and Banks have caused this Agreement to be duly executed by their duly authorized officers as of the day and year first above written. NICHOLS RESEARCH CORPORATION, a Delaware corporation /s/ Allen E. Dillard --------------------------------- Chief Financial Officer SOUTHTRUST BANK OF ALABAMA, NATIONAL ASSOCIATION, a national banking association /s/ Curtis J. Perry --------------------------------- Vice President FIRST ALABAMA BANK, an Alabama state banking corporation /s/ Kenneth D. Watson --------------------------------- Vice President CORESTATES BANK, N.A., a national banking association /s/ James P. Richards --------------------------------- Vice President EX-10.19 5 LEASE (BUILD TO SUIT) This Lease is made this 1st day of September , 1995 between Parkway Properties, an Alabama General Partership, ("Landlord") whose address is 1900 Golf Road, Suite B, Huntsville, Al. 35802, and Nichols Research Corporation, ("Tenant") whose address is 1910 Nichols Drive, Huntsville, Al., who agree as follows: 1. PREMISES 1.1 DESCRIPTION OF PREMISES: Landlord hereby leases to Tenant, and Tenant hereby leases from Landlord, the following, hereinafter referred to as the "Premises": a. the real property located in the City of Huntsvllle, County of Madison, State of Alabama, more particularly described in Exhibit A attached hereto; b. the building containing approximately 40,000 square feet of interior ground floor area, and other improvements on the above-referenced real property, all as described in and to be constructed in accordance with Exhibit B attached hereto; and c. a parking area to be located on or adjacent to the above-described real property, containing spaces for at least N/A automobiles. 1.2 CONDITION OF PREMISES: As of the commencement of the Term, as defined in Paragraph 2.1, the Premises shall be in good condition. 1.3 ACCEPTANCE OF PREMISES: Landlord shall notify Tenant when the building and other improvements that are a part of the Premises have been substantially completed. Within ten days after receipt of such notice (whether or not Tenant is then in possession of the Premises), Tenant shall deliver to Landlord a list of items that Tenant deems it necessary that Landlord complete or correct in order for the Premises to be acceptable. Landlord shall immediately commence to complete or correct the items, except those that it reasonably contends are not justified. 1.4 ACCESS: Tenant shall have full and unimpaired access to the Premises at all times. 2. TERM 2.1 TERM: The Term of this Lease shall commence ten days after Tenant's written acceptance of the Premises, or on the day Tenant occupies the Premises, whichever is the earlier, and shall continue for a period of 5 years thereafter. Said Term shall be subject to extension pursuant to any agreement of the parties or any option hereinafter set forth. A memorandum acknowledging the date of commencement of said Term shall be executed promptly thereafter by the parties hereto. 2.2 EARLY ENTRY: At any time prior to the commencement of the Term hereof, Tenant, at its risk, may enter upon and store on the Premises as it may elect; provided, however, that such entry and storage shall not interfere with any construction to be undertaken on the Premises, and the same shall not be construed as an acceptance of the Premises by Tenant or as a waiver of any of the provisions hereof. 2.3 COMPLETION AND DELIVERY: (a) Landlord agrees to complete the construction of the improvements to the Premises and deliver possession to Tenant on or before N/A, provided, however, that the time within which Landlord is to complete the improvements shall be extended for a period equal to the period of any delay encountered by Landlord in the work of construction because of fire, earthquake, or other acts of God, acts of the public enemy, riot, insurrection, governmental regulations of the sale of materials and supplies or the transportation thereof, or strikes directly affecting Landlord's work of construction, or shortages of material or labor resulting directly from governmental controls or diversions. In any event, however, it is expressly agreed that the time within which Landlord is required by this Lease to complete the construction of the improvements to the Premises and deliver possession to Tenant shall not be extended beyond N/A. (b) The improvements shall be deemed complete on the date when the same shall be completed in substantial conformity with the plans and specifications approved by the parties hereto, and Landlord shall have furnished Tenant the architect's certificate of said completion and certificate of occupancy or the equivalent, if required by any public authority. (c) Delivery of the Premises to Tenant shall be deemed to take place upon completion thereof unless Landlord withholds possession thereof or obstructs Tenant's entry therein, in which case delivery shall be deemed to take place when unobstructed entry and possession of the Premises are tendered to Tenant subject to the terms of this Lease. 2.4 FAILURE TO COMPLETE CONSTRUCTION: Should Landlord fail to so complete and deliver the Premises to Tenant on or before the date set forth in the first sentence of Paragraph 2.3, this Lease shall terminate at the written election of Tenant. However, acceptance by Tenant of the Premises after said date shall constitute a revival of this Lease in accordance with all the terms hereof. 2.5 OPTION TO EXTEND: Tenant shall have the option to extend the Term on all the provisions contained in this Lease, except for rent, for N/A year periods following expiration of the initial term, by giving written notice of exercise of this option to Landlord at least sixty days before the expiration of the initial Term. The rent for the extended Term shall be as set forth in Article 3. 2.6 HOLDING OVER: In the event Tenant so notifies Landlord in writing at least sixty days before the expiration of the initial Term; Tenant shall have the right to hold over on the Premises for a period not to exceed three months, on the same terms and conditions as set forth herein. 3. RENT Tenant shall pay to Landlord, as rent, the sum of $35,000.00 per month in advance on the first day of each month, commenclng on the date the term commences, and continuing during the term. Monthly rent for the first month or portion of it shall be paid on the day the term commences. Rent for any partial month shall be prorated at the rate of l/30th of the monthly rent for each day. All rent shall be paid to Landlord at the address to which notices to Landlord are given, as specified in Paragraph 17 hereinbelow. In the event that this Lease is extended pursuant to the option set forth in Paragraph 2.5 hereinabove, the rent for the first N/A option term shall be the sum of N/A per month. The rent for the second N/A option term shall be the sum of N/A per month. 4. TAXES 4.1 Tenant shall pay all ad valorem, real and personal property, taxes levied and assessed against the premises which become due and payable during the term hereof. 4.2 Tenant shall pay any public improvement assessment levied and assessed against the premises during the term hereof. 4.3 Tenant shall be responsible for and shall pay any penalty or delinquency fee which shall become payable by virtue of Tenant's failure to pay or tardiness in paying the taxes and assessments described in sections 4.1 and 4.2. 5. USE OF PREMISES The Premises shall be used as offices, for sales or services, for warehousing, or for any other lawful purpose. 6. MAINTENANCE AND REPAIRS 6.1 Tenant shall, at its own cost and expense, maintain the leased premises throughout the term. Tenant shall be responsible for all repairs, renovation, replacements and maintenance with the sole exception of those described in section 6.2 next following. The rental paid, as specified in section 3 above, shall be net to Landlord, free of any and all costs and expenses incurred in maintaining the premises in good condition. 6.2 Landlord agrees, at its sole cost and expense, to repair any defects in any improvements erected by Landlord upon the Premises arising from defective design, labor or material, and to remedy and correct any violation of federal, state, or local laws, rules or regulations arising out of or relating to the construction of the improvements on the Premises. Neither Tenant's acceptance of the Premises nor Tenant's entry into possession thereof, nor payments of any monthly installments of rent, nor Tenant's performance of any of the other provisions or conditions hereof, shall relieve Landlord of such responsibility. 7. ALTERATIONS, FIXTURES AND PERSONAL PROPERTY 7.1 ALTERATIONS: Tenant, from time to time at its expense, may make such alterations, improvements, repairs and additions to and upon the Premises, and install therein such fixtures, equipment, furniture and property, as it may consider advisable for the conduct of its business. Tenant will not, without the prior written consent of Landlord, make or suffer to be made any alterations, improvements or additions which will affect the structural portions of the Premises. Tenant shall not be obligated at the expiration of this Lease to remove, alter or change any alterations, improvements, repairs or additions, or to restore the Premises to their prior condition, provided that the structural strength of the building has not been adversely affected thereby. 7.2 FIXTURES AND PERSONAL PROPERTY: All fixtures, equipment, furniture and personal property installed by or at the expense of Tenant shall remain the property of Tenant. Upon termination of this Lease Tenant may, but shall not be obligated to, remove any or all such fixtures, equipment, furniture and personal property installed by or at the expense of Tenant, as it may elect. Tenant shall repair any damage caused by such removal. 8. UTILITIES AND SERVICES 8.1 Tenant shall pay for all heat, air conditioning, light, water and other public utility services used by Tenant in the Premises. 8.2 Landlord represents and warrants that the Premises will be fully equipped with heating and air conditioning equipment and facilities adequate to maintain a comfortable temperature therein at all times for the conduct by Tenant of its business. The Premises shall also be equipped with all plumbing equipment, electrical facilites and lighting fixtures and equipment required for the conduct by Tenant of its business in the Premises, and as required by all applicable laws, ordinances, rules, regulations, covenants, conditions and restrictions. 8.3 Landlord shall not be liable for failure to furnish utilities or services to the Premises when the failure results from causes beyond Landlord's reasonable control, but in case of such failure Landlord will take all steps to restore the interrupted utilites or services as soon as practicable. 9. INDEMNIFICATION Tenant shall defend, indemnify, and hold harmless the Landlord from all claims arising out of any injury or damage to any person or property resulting from the negligence or intentional acts of Tenant, or any agent or employee of Tenant. Landlord shall defend, indemnify, and hold harmless the Tenant from all claims arising out of any injury or damage to any person or property resulting from the negligence or intentional acts of Landlord, or any agent or employee of Landlord (including contractors, subcontractors, or other parties employed in connection with construction of or on the Premises). 10. INSURANCE 10.1 Tenant at its cost shall maintain public liability and property damage insurance with liability and property damage limits of not less than $500,000.00 per occurrence, insuring against all liability of Tenant and its authorized representatives arising out of and in connection with Tenant's use or occupancy of the Premises. 10.2 Tenant at its cost shall maintain on the building, and other improvements of the Premises, a policy of standard fire and extended coverage insurance, with vandalism and malicious mischief endorsements, to the extent of full replacement value. The insurance policy shall be issued in the names of Landlord and Tenant, as their interests appear, and shall provide that any proceeds shall be made payable to Landlord. 10.3 All the insurance required under this Lease shall: (1) Be issued by insurance companies authorized to do business in the state in which the Premises are located; and (2) Contain an endorsement requiring thirty (30) days' written notice from the insurance company to both parties before cancellation or change in the coverage, scope, or amount of any policy. 10.4 A certificate of insurance for each policy shall be deposited with the Landlord at the commencement of the term, and, if the policy is renewed, not less than ten (10) days before expiration of the term of the policy. 10.5 The rental paid, as specified in section 3, above, shall be net to Landlord, free of any and all costs and expenses incurred in maintaining the insurance coverage described above. 11. DAMAGE OR DESTRUCTION If, at any time after the execution hereof, the Premises shall be destroyed or damaged in whole or in part by fire, the elements, or any other cause whatsoever, Tenant shall give written notice thereof to Landlord within ten days after such damage or destruction. Landlord, at its expenses, shall immediately proceed to restore or rebuild the Premises to their condition existing immediately prior to such casualty, and shall have the right to use, in connection with such rebuilding or restoring, all proceeds of insurance paid by reason of such casualty. Rental payable by Tenant hereunder shall be entirely abated during any time during which the Premises are completely unusable, and shall be equitably adjusted during any time during which the Premises are partly unusable as a result of such casualty. Tenant shall have the right to extend the Term of this lease (or any extended Term during which such casualty may occur) by a period equal to the period during which the Premises are completely unusable by Tenant by reason of such casualty. Tenant's election to extend the Term shall be made by written notice to the Landlord within thirty days of completion of rebuilding or restoration. The rebuilding or restoration shall be completed within a reasonable time, taking into consideration the extent and nature of the damage or destruction; provided, however, that in the event that for any reason the Premises have not been restored or rebuilt (to their condition existing immediately prior to the casualty) within thirty days after written notice by Tenant to Landlord of such casualty, then Tenant shall have the right at its option to terminate this Lease upon written notice to Landlord. 12. CONDEMNATION If all or any part of the Premises is taken or transferred as a result of condemnation proceedings, threatened or filed, either party hereto may terminate this Lease by providing written notice thereof to the other party, which notice shall be effective thirty days after the date of mailing. 13. ASSIGNMENT Tenant shall not voluntarily assign its interest in this Lease or in the Premises without first obtaining Landlord's written consent. Tenant shall have the right to sublease all or any portion of the Premises, provided, however, that in such event Tenant shall remain liable to Landlord under all of the provisions of this Lease. 14. DEFAULT 14.1 TENANT'S DEFAULT - DEFINITION: The occurrence of any of the following shall constitute a default by Tenant: (a) Failure to pay rent when due, if the failure continues for twenty days after written notice thereof is given by Landlord to Tenant. (b) Failure to perform any other provision of this Lease, if the failure to perform is not cured within thirty days after written notice thereof is given by Landlord to Tenant. If the default cannot reasonably be cured within thirty days, Tenant shall not be in default within the thirty day period and dilingently continues to cure the default. Notices given under this paragraph shall specify the alleged default and the applicable Lease provisions, and shall demand that Tenant remedy the default within the applicable period of time, or quit the Premises. 14.2 TENANT'S DEFAULT - REMEDIES: In the event of a default by Tenant, Landlord shall be entitled to any and all remedies provided under applicable law, including interest on unpaid rent at the rate of ten percent per annum from the date due until paid. 14.3 LANDLORD'S DEFAULT - DEFINITION: Landlord shall be in default of this Lease if its fails or refuses to perform any provision of this Lease that it is obligated to perform, if such failure or refusal is not cured within thirty days after written notice thereof is given by Tenant to Landlord. If the default cannot reasonably be cured within thirty days, Landlord shall not be in default of this Lease if Landlord commences to cure the default within the thirty day period and diligently continues to cure the default. 14.4 LANDLORD'S DEFAULT - REMEDIES: Tenant, at any time after Landlord commits a default, may cure the default at Landlord's expense. If Tenant at any time, by reason of Landlord's default, pays any sum or does any act that requires the payment of any sum, the sum paid by Tenant shall be due immediately from Landlord to Tenant at the time the sum is paid, and shall bear interest at the rate of ten percent per annum from the date the sum is due until Tenant is reimbursed by Landlord. If Landlord fails to reimburse Tenant as required by this paragraph, Tenant shall have the right to withhold from future rent due the sums owed Tenant, until Tenant is reimbursed in full for the sum and interest on same. 15. SIGNS Tenant at its cost shall have the right to place, construct, and maintain exterior signs on the Premises. 16. SUBORDINATION. This Lease is and shall be prior to any encumbrance now of record and any encumbrance recorded after the date of this Lease affecting the Premises. If, however, a lender requires that this Lease be subordinate to any such encumbrance, this Lease shall be subordinate to any such encumbrance if Landlord first obtains from the lender a written agreement that provides substantially the following: "As long as Tenant performs its obligations under this Lease, no foreclosure of, deed given in lieu of foreclosure of, or sale under the encumbrance, and no steps or procedures taken under the encumbrance, shall affect Tenant's rights under this Lease." 17. NOTICES Any written notice, demand, request, consent, approval or communication that either party desires to give or is required to give to the other party shall be either served personally or sent by prepaid, first-class mail, and shall be addressed to the other party at the address set forth in the introductory paragraph of this Lease. Either party may change its address by notifying the other party in writing of the change of address. Notices shall be deemed communicated forty-eight hours from the time of mailing if mailed as provided in this paragraph. Notices to Landlord shall be to the attention of Paula Stotts. Notices to Tenant shall be to the attention of Allen Dillard. 18. ATTORNEYS' FEES 18.1 If either party becomes a party to any litigation concerning this Lease or the Premises, by reason of any act or omission of the other party or its authorized representatives, and not by any act or omission of the party that becomes a party to that litigation or any act or omission of its authorized representatives, the party that causes the other party to become involved in the litigation shall be liable to that party for reasonable attorneys' fees and court costs incurred by it in the litigation. 18.2 If either party commences an action against the other party arising out of or in connection with this Lease, the prevailing party shall be entitled to have and recover from the losing party reasonable attorneys' fees and costs of suit. 19. SURRENDER OF PREMISES On expiration or termination of the Term hereof, Tenant shall surrender to Landlord the Premises in good condition (except for ordinary wear and tear, and except for alterations, additions, or improvements which Tenant has the right to remove under the provisions of this Lease). 20. MISCELLANEOUS PROVISIONS 20.1 Landlord covenants and warrants that it has lawful title and right to make this lease, that it will maintain Tenant in full and exclusive possession of the Premises, and that if Tenant shall pay the rent and perform all the agreements, covenants, and conditions required by this Lease to be performed by it, Tenant may freely, peaceably, and quietly occupy and enjoy the Premises without interference or hindrance, lawful or unlawful, of any person whomsoever. 20.2 Time is of the essence of each provision of this Lease. 20.3 Whenever consent or approval of either party is required or allowed, that party shall not unreasonably withhold such consent or approval. 20.4 This Lease shall be binding on and inure to the benefit of the parties, their successors, and assignees. 20.5 Each party represents that it has not had dealings with any real estate broker, finder, or other person, in any manner with respect to this Lease. Each party shall hold harmless the other party from all damages resulting from any claims that may be asserted against the other party by any broker, finder, or other person, with whom the other party has or purportedly has dealt. 20.6 This Lease shall be construed and interpreted in accordance with the laws of the state wherein the Premises are located. 20.7 This Lease contains all the agreements of the parties and cannot be amended or modified except by a written agreement. 20.8 The captions of this Lease shall have no effect on the interpretation of this Lease. 20.9 The unenforceability, invalidity, or illegality of any provision herein shall not render the other provisions unenforceable, invalid or illegal. Executed as of the day and year set forth above. LANDLORD: TENANT: R.J. Latham Allen E. Dillard - ----------------------------- ------------------------------ R.J. Latham Allen E. Dillard General Partner Chief Financial Officer EX-10.20 6 1 EMPLOYMENT AGREEMENT THIS AGREEMENT is entered into on the 16th day of May, 1995, by and between JOHN ARMISTEAD CONWAY, JR., whose address is 202 Brae Burn Drive, Jackson, Mississippi 39211 (herein called the "Employee") and CONWAY COMPUTER GROUP, INC., a Delaware corporation ("CCG"), whose address is 6360 Interstate 55 North, Suite 300, Jackson, Mississippi 39211. W I T N E S S E T H: WHEREAS, CCG is engaged in the business of computer software development, license, sale and service (including, without limitation, computer software which addresses the health care and workers' compensation markets), the remarketing of hardware, equipment and software (including the hardware and software of IBM), computer consulting services, educational services, computer connectivity and communications products and services; WHEREAS, CCG desires to obtain the services of the Employee as President of CCG and the Employee is willing to render such services to CCG upon the terms and conditions herein set forth; and WHEREAS, this Employment Agreement was a condition precedent to the acquisition by CCG of all of the business of Conway Computer Consultants, Inc. ("CCC"), Conway Computer Applications, Inc. ("CCA") and Conway Computer Investments, Inc. ("CCI") and the Employee, as a shareholder of CCC, CCA and CCI, derived a substantial benefit from the consideration paid by CCG in connection with such acquisitions; NOW, THEREFORE, in consideration of the mutual promises set forth herein and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows: 1. DUTIES AND SALARY. (a) CCG agrees to employ the Employee and the Employee agrees to accept employment by CCG on a full-time basis as President of CCG at a base salary of $12,500.00 per month payable during the Term of Employment, as hereinafter defined. Such salary may be increased from time to time in the discretion of the CCG Board of Directors. (b) The Employee hereby agrees to undertake such travel as may be required in the performance of his duties. The reasonable travel expenses of the Employee shall be reimbursed in accordance with CCG's reimbursement policy, in effect from time to time. The Employee shall not be required to relocate from the Jackson, Mississippi area without his consent. (c) The Employee shall carry out his duties under the general supervision of CCG. (d) The Employee's duties shall include the duties and responsibilities identified on Schedule I attached hereto. The Employee shall perform such other tasks and duties as may be assigned by CCG, from time to time and CCG reserves the right to change the office and/or position of the Employee within CCG, so long as such change is mutually acceptable. The Employee shall devote his full time, attention, skill and efforts to the tasks and duties assigned by CCG. The Employee shall not provide services, for compensation, to any other person or business entity while employed by CCG without the written consent of CCG. 2 2. TERM OF EMPLOYMENT. This Agreement shall commence as of the date hereof and shall end two (2) years from the date hereof (the "Term of Employment"), unless terminated earlier as provided herein. Upon expiration of the initial Term of Employment, unless earlier terminated as provided herein, the Employee shall be employed as a temporary, on-call employee. The terms and provisions of such employment as a temporary, on- call employee are defined in Section 16 below. 3. TERMINATION BEFORE EXPIRATION OF TERM OF EMPLOYMENT. The termination of the employment of the Employee during the initial Term of Employment shall occur in one of the following ways: (a) BY CCG, FOR CAUSE. Termination by CCG shall be deemed to be for cause only upon: (i) Employee's conviction of or pleading guilty to a felony; (ii) Refusal or failure by the Employee, without reasonable excuse or proper authorization, to carry out any reasonable instructions of CCG consistent with Employee's rights or duties as set forth in this Agreement; (iii) Material breach of this Agreement or any material breach of any agreement with CCG; (iv) The Employee's demonstration of negligence or willful misconduct in the execution of his duties, including without limitation breach of fiduciary duty or the duty of loyalty owed CCG. If CCG intends to terminate for cause, CCG shall provide notice to Employee of intent to terminate his employment, stating the termination provision in this Agreement relied upon and setting forth in reasonable detail the facts and circumstances claimed to provide a basis for termination under the provisions so indicated, and shall provide Employee with an opportunity to cure the alleged default or breach within thirty (30) days of receipt of the notice, provided that if the matter is not curable within such thirty (30) day period, the Employee shall not be deemed in default if the Employee commences immediately to cure the matter and proceeds diligently thereafter to complete the cure, further provided that the alleged breach or default must be cured within ninety (90) days of receipt of the notice. CCG shall not be required to give more than one notice with respect to the same matter. Notwithstanding the foregoing, no notice and no cure right shall be required with respect to termination for cause under 3(a)(i) or an act involving theft of information or property of CCG. (b) BY CCG, WITHOUT CAUSE. Any termination of Employee by CCG for reasons other than as set forth in subsections 3(a), (e) or (f) shall be a termination without cause. CCG may terminate the employment of Employee without cause by thirty (30) days' prior written notice at any time. (c) BY EMPLOYEE, FOR GOOD REASON. Termination by the Employee shall be deemed for good reason because of a material breach by CCG of this Agreement including, without limitation, making a material change in the Employee's duties, responsibilities or authority as set forth in this Agreement, without his express written consent. In all cases in which Employee intends to terminate for Good Reason, the Employee shall provide CCG with notice of intent to terminate this Agreement, stating the facts and circumstances giving rise to a breach of this Agreement claimed to provide a basis for termination under the provisions so indicated, and shall provide CCG with an opportunity to cure the alleged default or breach within thirty (30) days of receipt of the notice, provided that if the matter is not curable within such thirty (30) day period, CCG shall not be deemed in default if it commences immediately to cure the matter and proceeds diligently thereafter to complete the cure, further provided that the alleged breach or default must be cured within ninety (90) days of receipt of the notice. Employee shall not be required to give more than one such notice with respect to the same matter. (d) BY THE EMPLOYEE, WITHOUT GOOD REASON. Any termination by Employee for reasons other than as set forth in subsections 3(c), (e) or (f) shall be a termination without good reason. The Employee may terminate his employment without good reason upon thirty (30) days' prior written notice at any time. (e) DEATH OF THE EMPLOYEE. (f) DISABILITY OF EMPLOYEE. If, during the Term of Employment, a physician selected by CCG determines that the Employee has become physically or mentally disabled so as to be unable to carry out the normal and usual duties of his employment for three (3) continuous months, and reasonable accommodation cannot be made to allow the Employee to continue to perform his duties full-time, his employment hereunder may be terminated at the election of CCG or the Employee. 4. CONSEQUENCES OF TERMINATION. The termination of the employment of Employee will cause the following results: (a) If the termination is by CCG for cause, or is by the Employee under Section 3(d) above, the following payments shall be made: (i) CCG will pay the Employee within five (5) days after the date of termination any unpaid salary prorated to the date of termination, the amount of any accrued annual vacation pay to which he may be entitled under CCG's vacation plan and benefits, with such compensation and benefits (if any) paid only through the date termination occurs. (ii) the Employee shall pay to CCG as liquidated damages and not as a penalty an amount equal to $3,125.00 multiplied by the number of full months remaining after the date of termination until expiration of the initial Term of Employment assuming the Term of Employment is not terminated early. For example, if employment is terminated 11 months after the date hereof, the liquidated damages would be $40,625.00 ($3,125.00 X 13 months). The liquidated damages shall be paid in equal, consecutive monthly installments without interest commencing 30 days after termination, provided that, if any monthly installment is not paid within 10 days after notice of default, the entire amount of liquidated damages shall be paid in lump sum immediately. The liquidated damages may be prepaid. (b) If the termination is by CCG under Section 3(b) above, or is by the Employee for good reason, CCG shall pay to the Employee, in addition to the amounts set forth in 4(a)(i) above, as liquidated damages and not as a penalty, an amount equal to $3,125.00 multiplied by the number of full months remaining after the date of termination until expiration of the initial Term of Employment assuming the Term of Employment is not terminated early. For example, if employment is terminated 11 months after the date hereof, the liquidated damages would be $40,625.00 ($3,125.00 X 13 months). The liquidated damages shall be paid in equal, consecutive monthly installments without interest commencing 30 days after termination, provided that, if any monthly installment is not paid within 10 days after notice of default, the entire amount of liquidated damages shall be paid in lump sum immediately. The liquidated damages may be prepaid. (c) If both parties have grounds for termination under Sections 3(a) and 3(c), such termination shall be deemed to be by mutual consent and neither party shall owe the other party the liquidated damages set forth above in Sections 4(a)(ii) or 4(b). (d) In the event of the Employee's death or disability, the following provisions will apply: (i) Upon his death, the Employee's estate will be entitled to receive the amount set forth in Section 4(a)(i) and the benefits set forth in any plans of CCG then in effect and applicable under the circumstances. The Employee or his estate shall be entitled to no other compensation or benefits in the event of death. (ii) Upon termination on account of disability, Employee will be entitled to receive the amount set forth in Section 4(a)(i) and the benefits set forth in any plans of CCG then in effect and applicable under the circumstances. The Employee or his personal representative shall be entitled to no other compensation or benefits in the event of disability. (e) The Employee shall not be required to mitigate the amount of payment provided for in this Section 4 by seeking employment. (f) The amounts set forth above in this Section 4 shall be paid and received in complete discharge of any other obligation of CCG to Employee or Employee to CCG resulting from termination of his employment. 5. FRINGE BENEFITS. The Employee shall participate in any group health insurance, vacation and sick leave plans, and other benefit plans available to all employees of CCG in accordance with their terms and conditions which may be amended or terminated by CCG at any time. 6. NON-DISCLOSURE COVENANTS AND PROPRIETARY MATTERS. (a) Unless authorized or instructed in writing by CCG, the Employee shall not, except as required in the conduct of CCG's business, during or at any time after the Term of Employment, disclose to others, or use, any of CCG's inventions or discoveries or its respective secret or confidential information or data (oral, written, or in machine readable form) which the Employee may obtain during the course of or in connection with the Employee's employment (or employment or affiliation with any company that transfers to CCG such information or data), including such inventions, discoveries, information, know-how or data relating to machines, equipment, products, systems, software, contracts, contract performance, research or development, designs, computations, formulas, processes, manufacturing procedures, business methods, customer lists, and suppliers, whether or not developed by the Employee, by others in CCG or obtained by CCG from third parties, and irrespective of whether or not such inventions, discoveries, information, knowledge or data have been identified by CCG as secret or confidential, unless and until, and then to the extent and only to the extent that, such inventions, discoveries, information, knowledge or data become available to the public otherwise than by the Employee's act or omission. (b) The Employee shall not, except as required in the conduct of CCG's business, disclose to others, or use, any of the information (which, if disclosed or used, could be harmful to CCG) relating to present and prospective customers of CCG, business dealings with such customers, prospective sales and advertising programs and agreements with representatives or prospective representatives of CCG, present or prospective sources of supply or any other business arrangements of CCG, including but not limited to customers, customer lists, costs, prices and earnings, whether or not such information is developed by the Employee, by others in CCG or obtained by CCG from third parties, and irrespective of whether or not such information has been identified by CCG as secret or confidential, unless and until, and then to the extent and only to the extent that, such information becomes available to the public otherwise than by the Employee's act or omission. (c) The Employee agrees to disclose immediately to CCG or any persons designated by it and to assign to CCG or its successors or assigns, all inventions made, discovered, or first reduced to practice by the Employee, solely or jointly with others, during the Term of Employment or within a period of six months from the date of termination of such employment (either during or outside of the Employee's working hours and either on or off CCG's premises), which inventions are made, discovered or conceived either in the course of such employment, or with the use of CCG's time, material, facilities or funds, or which are directly related to any investigations or obligations undertaken by CCG; and the Employee hereby grants and agrees to grant the right to CCG and its nominees to obtain, for its own benefit and in its own name (entirely at its expense) patents and patent applications including original, continuation, reissue, utility and design patents, and applications, patents of addition, confirmation patents, registration patents, petty patents, utility models, and all other types of patents and the like, and all renewals and extensions of any of them for those inventions in any and all countries; and the Employee shall assist CCG, at CCG's expense, without further charge during the term of the Employee's employment, and after termination of the Employee's employment at the same base salary rate (excluding any bonuses, incentive or deferred compensation or other benefits and based upon a forty hour work week) as during the last year of the Employee's employment (determined on an hourly basis for this purpose), through counsel designated by CCG, to execute, acknowledge, and deliver all such further papers, including assignments, applications for Letters Patent (of the United States or of any foreign country), oaths, disclaimers or other instruments and to perform such further acts, including giving testimony or furnishing evidence in the prosecution or defense of appeals, interferences, suits and controversies relating to any aforesaid inventions as may reasonably be deemed necessary by CCG or its nominees to effectuate the vesting or perfecting in CCG or its nominees of all right, title and interest in and to said inventions, applications and patents. (d) The Employee agrees to disclose immediately to CCG or any persons designated by it and to assign to CCG, at its option, or its successors or assigns, all works of authorship, including all writings, computer programs, software, and firmware, written or created by the Employee solely or jointly with others, during the course of his employment by CCG (either during or outside of the Employee's working hours and either on or off CCG's premises), which works are made or conceived either in the course of such employment, or with the use of CCG's time, material, facilities or funds, or which are directly related to any investigations or obligations undertaken by CCG; and the Employee hereby agrees that all such works are works made for hire, of which CCG is the author and the beneficiary of all rights and protections afforded by the law of copyright in any and all countries; and the Employee will assist CCG at CCG's expense without further charges during the term of his employment, and after termination of his employment at the same base salary rate (excluding any bonuses, incentive or deferred compensation or other benefits) as during the last year of his employment (determined on an hourly basis for this purpose assuming a forty hour work week), through counsel designated by CCG, to execute, acknowledge, and deliver all such further papers, including assignments, applications for copyright registration (in the United States or in any foreign country), oaths, disclaimers or other instruments, and to perform such further acts, including giving testimony or furnishing evidence in the prosecution or defense of appeals, interferences, suits and controversies relating to any aforesaid works, as may be deemed necessary by CCG or by its nominees to effectuate the vesting or perfecting in CCG or its nominees of all rights and interest in and to said works and copies thereof, including the exclusive rights of copying and distribution. (e) The Employee shall keep complete, accurate and authentic accounts, notes, data and records of all inventions made, discovered or developed and all works of authorship written or created by the Employee as aforesaid in the manner and form requested by CCG. (f) All computer or other hardware, computer software, computer programs, source codes, object codes, magnetic tapes, printouts, samples, notes, records, reports, documents, customer lists, photographs, catalogues and other writings, whether copyrightable or not, relating to or dealing with CCG's business and plans, and those of others entrusted to CCG, which are prepared or created by the Employee or which may come into his possession during or as a result of his employment, are the property of CCG, as applicable, and upon termination of his employment, the Employee agrees to return all such computer software, computer programs, source codes, object codes, magnetic tapes, printouts, samples, notes, records, reports, documents, customer lists, photographs, catalogues and writings and all copies thereof to CCG. 7. NON-SOLICITATION AND NON-COMPETITION. During the "Restriction Period" (as hereinafter defined), the Employee shall not directly or indirectly: (a) Solicit the business of CCG from any customer of CCG or any entity controlled by CCG or solicit any employees of CCG to leave the employ of CCG. (b) Directly or indirectly, hire any employees or former employees of CCG or any entity controlled by CCG or cause any entity with which the Employee is affiliated to hire any such employees or former employees of CCG. (c) Engage in, represent in any way or be connected with, as a consultant, officer, director, partner, employee, sales representative, proprietor, member, stockholder (except for stock ownership of less than 1% in a publicly owned corporation) or otherwise, any business competing with the business of CCG as conducted by CCG on the date hereof or during the period of Employee's employment by CCG within the "Territory" (as hereinafter defined). As used herein, the Restriction Period shall mean the period while the Employee is employed by CCG and two (2) years after the date the Employee ceases to be employed by CCG. As used herein, the Territory shall mean the States of Mississippi, Louisiana, Arkansas, Alabama, Tennessee, Florida and Georgia. 8. NO CONFLICT. Employee represents and warrants that he is not a party to or otherwise subject to or bound by the terms of any contract, agreement or understanding which in any manner would limit or otherwise affect his ability to perform his obligations hereunder, including without limitation any contract, agreement or understanding containing terms and provisions similar in any manner to those contained in Sections 6 and 7 hereof. Employee covenants to indemnify and hold CCG and any of its affiliates harmless from any cost or damages resulting from any breach of the provisions of this Agreement. 9. SURVIVAL OF COVENANTS, EFFECT. (a) The covenants on the part of the Employee contained or referred to in Sections 6 and 7 above shall survive termination of this Agreement, and the existence of any claim or cause of action of the Employee against CCG, whether predicated on this Agreement or otherwise. The Employee agrees that a remedy at law for any breach of the foregoing covenants contained or referred to in Sections 6 and 7 would be inadequate, that CCG would suffer irreparable harm as a result and that CCG shall be entitled to a temporary and permanent injunction or an order for specific performance of such covenants without the necessity of proving actual damage to CCG and without the posting of any bond or other security. Any breach of this Agreement by CCG shall not release the Employee from his obligations under Sections 6 and 7 hereof. (b) The Employee hereby represents and acknowledges that CCG is relying on the covenants in Sections 6 and 7 in entering into this Agreement as well as the acquisition of CCC and the assets of CCA and CCI and that the restrictions in Sections 6 and 7 are fair and reasonable. The Employee acknowledges that CCG intends to do business throughout the United States and that the geographic scope of the covenants in Section 7 is reasonable and necessary to protect the interests of CCG. (c) It is the intent of the parties that the provisions of Sections 6 and 7 shall be enforced to the fullest extent permissible under the laws and public policies of each jurisdiction in which enforcement is sought. If any particular provision of Sections 6 and 7 shall be adjudicated to be invalid or unenforceable, such provision(s) of Sections 6 and 7 shall be deemed amended to provide restrictions to the fullest extent permissible and consistent with applicable law and policies, and such amendment shall apply only with respect to the particular jurisdiction in which such adjudication is made. If such deemed amendment is not allowed by the adjudicating body, the offending provision, only, shall be deleted and the remainder of Sections 6 and 7 shall not be effected. The restrictions set forth in Sections 6 and 7 shall be in addition to, independent of, and shall not be affected by any other restrictions which may be contained in the Asset Purchase Agreement and Merger Agreement between CCG and the Employee of even date herewith. 10. ASSIGNMENT. The rights and obligations of CCG under this Agreement may be assigned by CCG to any successors in interest of CCG of that part of the business of CCG to which this Agreement applies or to its respective affiliates. This Agreement may not be assigned and any duties of the Employee may not be delegated by the Employee, but any amounts owing to the Employee upon his death shall inure to the benefit of his estate. 11. NOTICES. All notices or other communications which may be or are required to be given, served or sent by either party to the other party pursuant to this Agreement shall be in writing, addressed to its/his residence or place of business as set forth above, and shall be mailed by first-class certified mail, return receipt requested, postage prepaid, next-day air delivery, or transmitted by facsimiles or hand delivery. Such notice or other communication shall be deemed sufficiently given, served, sent or received for all purposes at such time as it is delivered to the addressee or at such time as delivery is refused by the addressee upon presentation. Each party may designate by notice in writing an address to which any notice or communication may thereafter be so given, served or sent. 12. APPLICABLE LAW JURISDICTION. This Agreement has been negotiated and executed in the State of Mississippi, and it shall be governed by, construed and enforced in accordance with the internal substantive laws and not the choice of law rules of the State of Mississippi. 13. EFFECTIVENESS/INTERPRETATION. The parties acknowledge and agree that this Agreement has been negotiated at arm's length between parties equally sophisticated and knowledgeable in the matters dealt with herein. Each party has been represented by counsel of its or his own choosing. Accordingly, any rule of law or legal decision that would require interpretation of any ambiguities in the Agreement against the party that drafted it is not applicable and is waived. 14. SEVERABILITY. If any of the articles, sections, paragraphs, clauses or provisions of this Agreement shall be held by a court of last resort to be invalid, the remainder of this Agreement shall not be affected thereby. 15. ENTIRE AGREEMENT. The foregoing contains the entire agreement between the parties relating to the subject matter of this Agreement, and may not be altered or amended except by an instrument in writing approved by CCG and signed by the parties hereto, and this Agreement supersedes all prior understandings and agreements relating to employment of the Employee by CCG. The waiver of any rights under this Agreement on any one or more occasions shall not constitute a waiver on any subsequent occasion. 16. TEMPORARY, ON-CALL EMPLOYMENT. After the initial two-year Term of Employment and provided such employment has not terminated pursuant to Section 3 hereof prior to expiration of the term of employment, the Employee shall become a temporary, on-call employee of CCG. The terms and conditions relating to such employment as a temporary, on-call employee of CCG are as follows: (a) The Employee shall render consulting services to CCG on an as needed basis at the request of CCG, but in no event shall Employee be required to devote more than 50 hours per month to consulting services for CCG. (b) The Employee shall not be restricted with respect to other employment provided such other employment does not unreasonably interfere with his ability to render consulting services to CCG and provided further that such employment is not in competition with CCG. It is intended hereby that the restrictive covenants of Sections 6 and 7 shall continue to apply to the Employee as a temporary, on-call employee. (c) The Employee shall not have the duties set forth in Section 1 and Schedule I hereof and shall not be an officer of CCG. (d) The salary set forth in Section 1 hereof shall terminate after the initial two year Term of Employment. As a temporary, on-call employee of CCG, the Employee shall receive the sum of $4,166.66 per month even though in any one month the Employee performs less than 50 hours of consulting services to CCG or in any one month CCG requests no such consulting services. (e) At the end of the two year period during which Employee is a temporary, on-call employee, his employment with CCG shall terminate unless by material written agreement the parties continue the employment relationship after such date. IN WITNESS WHEREOF, CCG has caused this Agreement to be executed by its duly authorized officers and the Employee has hereunto set his hand as of the date first above written. CONWAY COMPUTER GROUP, INC. By: Michael J. Mruz --------------------------- Its: Vice President --------------------- John Armistead Conway, Jr. ------------------------------------- JOHN ARMISTEAD CONWAY, JR., Employee SCHEDULE I DUTIES OF EMPLOYEE John A. Conway, Jr. President The President has responsibility for overall corporate operations and personnel administration. He must insure that plans are created and programs implemented that will ensure the achievement of both CCG and NRC corporate goals as set by the Board of Directors and the Shareholders. At a minimum, the President must be concerned with profitability, financial matters and reporting of same both at CCG and to NRC, employee satisfaction and morale, consumer satisfaction, and maintaining proper business processes, policies, and procedures. In addition to duties as the President of CCG, he should be available to fulfill duties as a corporate officer of NRC or any other such duties as he may be assigned by the Board or NRC. EX-10.21 7 EMPLOYMENT AGREEMENT THIS AGREEMENT is entered into on the 30th day of June, 1995, by and between DONALD Y. MENENDEZ, whose address is 4221 Sharpsburg Drive, Birmingham, Alabama 35213 (herein called the "Employee") and CSC ACQUISITIONS, INC., an Alabama corporation ("CSC"), whose address is 1801 First Avenue South, Suite 400, Birmingham, Alabama 35233. W I T N E S S E T H: WHEREAS, CSC is engaged in the business of providing computerized management information systems and services to physicians and other health care providers; and WHEREAS, CSC desires to obtain the services of the Employee as President of CSC and the Employee is willing to render such services to CSC upon the terms and conditions herein set forth. NOW, THEREFORE, in consideration of the mutual promises set forth herein and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows: 1. DUTIES AND SALARY. (a) CSC agrees to employ the Employee and the Employee agrees to accept employment by CSC on a full-time basis as President of CSC at a base salary of $180,000.00 per year payable twice monthly during the Term of Employment, as hereinafter defined. Such salary may be increased from time to time in the discretion of the CSC Board of Directors. (b) The Employee hereby agrees to undertake such travel as may be required in the performance of his duties. The reasonable travel expenses of the Employee shall be reimbursed in accordance with CSC's reimbursement policy, in effect from time to time. The Employee shall not be required to relocate from the Birmingham, Alabama area without his consent. (c) The Employee shall carry out his duties under the general supervision of the Board of Directors of CSC. (d) The Employee's duties shall include the duties and responsibilities identified on Schedule I attached hereto. The Employee shall perform such other tasks and duties as may be assigned by CSC, from time to time and CSC reserves the right to change the office and/or position of the Employee within CSC, so long as such change is mutually acceptable. The Employee shall devote his full time, attention, skill and efforts to the tasks and duties assigned by CSC. The Employee shall not provide services, for compensation, to any other person or business entity while employed by CSC without the written consent of CSC. (e) Effective on the date hereof, Employee shall be granted an incentive stock option to purchase 22,000 shares of common stock of Nichols Research Corporation which grant shall be by a separate option grant agreement on the first day of employment hereunder, provided that if the number of shares over which options may be exercised would exceed the maximum number permitted for incentive stock options by the Internal Revenue Code such excess shall be granted as non-statutory stock options under the NRC Stock Option Plan by a separate option grant agreement on the first day of employment hereunder which shall be subject to the same vesting schedule as the incentive stock options. 2. TERM OF EMPLOYMENT. This Agreement was executed on the date of the execution of that certain Asset Purchase Agreement by and among CSC, Nichols Research Corporation ("NRC"), Computer Services Corporation and Roland B. Smith, Sr. (the "Purchase Agreement") and shall commence as of the date of closing of the Purchase Agreement and shall end two (2) years from such date of closing (the "Term of Employment"), unless terminated earlier as provided in Section 3, below, or extended as provided in this Section 2. Upon expiration of the initial Term of Employment, unless earlier terminated as provided herein, the Employee's employment shall continue automatically month-to-month until terminated by either party with at least thirty (30) days' prior written notice with or without cause. Until such closing, CSC shall incur no liability or obligation to Employee. It shall be a condition subsequent to the effectiveness of this Agreement that the Purchase Agreement is closed and consummated. In the event the Purchase Agreement is not closed and consummated on or before September 1, 1995, either party may void and rescind this Agreement immediately upon written notice to the other party, in which case it shall be as if this Agreement was never executed. 3. TERMINATION BEFORE EXPIRATION OF TERM OF EMPLOYMENT. The termination of the employment of the Employee during the initial Term of Employment shall occur in one of the following ways: (a) BY CSC, FOR CAUSE. Termination by CSC shall be deemed to be for cause only upon: (i) Employee's conviction of or pleading guilty to a felony; (ii) Refusal or failure by the Employee, without reasonable excuse or proper authorization, to carry out any reasonable instructions of CSC consistent with Employee's rights or duties as set forth in this Agreement; (iii) Material breach of this Agreement or any material breach of any agreement with CSC; (iv) The Employee's demonstration of negligence or willful misconduct in the execution of his duties, including without limitation breach of fiduciary duty or the duty of loyalty owed CSC. If CSC intends to terminate for cause, CSC shall provide notice to Employee of intent to terminate his employment, stating the termination provision in this Agreement relied upon and setting forth in reasonable detail the facts and circumstances claimed to provide a basis for termination under the provisions so indicated, and shall provide Employee with an opportunity to cure the alleged default or breach within thirty (30) days of receipt of the notice, provided that if the matter is not curable within such thirty (30) day period, the Employee shall not be deemed in default if the Employee commences immediately to cure the matter and proceeds diligently thereafter to complete the cure, further provided that the alleged breach or default must be cured within ninety (90) days of receipt of the notice. CSC shall not be required to give more than one notice with respect to the same matter. Notwithstanding the foregoing, no notice and no cure right shall be required with respect to termination for cause under 3(a)(i) or an act involving theft of information or property of CSC. (b) BY EMPLOYEE, FOR GOOD REASON. Termination by the Employee shall be deemed for good reason only because of a material breach by CSC of this Agreement including, without limitation, making a material change in the Employee's duties, responsibilities or authority as set forth in this Agreement, without his express written consent. In all cases in which Employee intends to terminate for Good Reason, the Employee shall provide CSC with notice of intent to terminate this Agreement, stating the facts and circumstances giving rise to a breach of this Agreement claimed to provide a basis for termination under the provisions so indicated, and shall provide CSC with an opportunity to cure the alleged default or breach within thirty (30) days of receipt of the notice, provided that if the matter is not curable within such thirty (30) day period, CSC shall not be deemed in default if it commences immediately to cure the matter and proceeds diligently thereafter to complete the cure, further provided that the alleged breach or default must be cured within ninety (90) days of receipt of the notice. Employee shall not be required to give more than one such notice with respect to the same matter. (c) DEATH OF THE EMPLOYEE. (d) DISABILITY OF EMPLOYEE. If, during the Term of Employment, a physician selected by mutual agreement of CSC and the Employee determines that the Employee has become physically or mentally disabled so as to be unable to carry out the normal and usual duties of his employment for three (3) continuous months, and reasonable accommodation cannot be made to allow the Employee to continue to perform his duties full-time, his employment hereunder may be terminated at the election of CSC or the Employee. 4. SALARY AND BENEFITS UPON TERMINATION. Upon any termination of the employment of Employee, the Employee shall be entitled only to the following salary and benefits: (a) If the termination is for any reason other than death or disability, including, without limitation, by CSC for cause or by Employee for good reason, CSC will pay the Employee within five (5) days after the date of termination any unpaid salary prorated to the date of termination, the amount of any accrued annual vacation pay to which he may be entitled under CSC's vacation plan and benefits, with such compensation and benefits (if any) paid only through the date termination occurs. (b) In the event of the Employee's death or disability, the following provisions will apply: (i) Upon his death, the Employee's estate will be entitled to receive the amount set forth in Section 4(a) and the benefits set forth in any plans of CSC then in effect and applicable under the circumstances. The Employee or his estate shall be entitled to no other compensation or benefits in the event of death. (ii) Upon termination on account of disability, Employee will be entitled to receive the amount set forth in Section 4(a) and the benefits set forth in any plans of CSC then in effect and applicable under the circumstances. The Employee or his personal representative shall be entitled to no other compensation or benefits in the event of disability. (c) In the event the termination is by CSC for cause or by Employee for good reason, or in the event of any breach of this Agreement by either party, the parties respectively reserve any rights and remedies they may have at law or equity, in addition to and not in lieu of the payments called for in this Section 4. For all other terminations (other than for cause or good reason or in the event of a breach), the amounts set forth above in this Section 4 shall be paid and received in complete discharge of any other obligation of CSC to Employee or Employee to CSC resulting from termination of his employment. 5. FRINGE BENEFITS. The Employee shall participate in any group health insurance, vacation and sick leave plans, and other benefit plans available to all employees of CSC in accordance with their terms and conditions which may be amended or terminated by CSC at any time. 6. NON-DISCLOSURE COVENANTS AND PROPRIETARY MATTERS. (a) Unless authorized or instructed in writing by CSC, the Employee shall not, except as required in the conduct of CSC's business, during or at any time after the Term of Employment, disclose to others, or use, any of CSC's inventions or discoveries or its respective secret or confidential information or data (oral, written, or in machine readable form) which the Employee may obtain during the course of or in connection with the Employee's employment (or employment or affiliation with any company that transfers to CSC such information or data), including such inventions, discoveries, information or data relating to machines, equipment, products, systems, software, contracts, contract performance, research or development, designs, computations, formulas, manufacturing procedures, customer lists, and suppliers, whether or not developed by the Employee, by others in CSC or obtained by CSC from third parties, and irrespective of whether or not such inventions, discoveries, information, knowledge or data have been identified by CSC as secret or confidential, unless and until, and then to the extent and only to the extent that, such inventions, discoveries, information, knowledge or data become available to the public otherwise than by the Employee's act or omission. (b) The Employee shall not, except as required in the conduct of CSC's business, disclose to others, or use, any of the information (which, if disclosed or used, could be harmful to CSC) relating to present and prospective customers of CSC, business dealings with such customers, prospective sales and advertising programs and agreements with representatives or prospective representatives of CSC, present or prospective sources of supply or any other business arrangements of CSC, including but not limited to customers, customer lists, costs, prices and earnings, whether or not such information is developed by the Employee, by others in CSC or obtained by CSC from third parties, and irrespective of whether or not such information has been identified by CSC as secret or confidential, unless and until, and then to the extent and only to the extent that, such information becomes available to the public otherwise than by the Employee's act or omission. (c) The Employee agrees to disclose immediately to CSC or any persons designated by it and to assign to CSC or its successors or assigns, all inventions made, discovered, or first reduced to practice by the Employee, solely or jointly with others, during the Term of Employment or within a period of six months from the date of termination of such employment (either during or outside of the Employee's working hours and either on or off CSC's premises), which inventions are made, discovered or conceived either in the course of such employment, or with the use of CSC's time, material, facilities or funds, or which are directly related to any investigations or obligations undertaken by CSC; and the Employee hereby grants and agrees to grant the right to CSC and its nominees to obtain, for its own benefit and in its own name (entirely at its expense) patents and patent applications including original, continuation, reissue, utility and design patents, and applications, patents of addition, confirmation patents, registration patents, petty patents, utility models, and all other types of patents and the like, and all renewals and extensions of any of them for those inventions in any and all countries; and the Employee shall assist CSC, at CSC's expense, without further charge during the term of the Employee's employment, and after termination of the Employee's employment at the same base salary rate (excluding any bonuses, incentive or deferred compensation or other benefits and based upon a forty hour work week) as during the last year of the Employee's employment (determined on an hourly basis for this purpose), through counsel designated by CSC, to execute, acknowledge, and deliver all such further papers, including assignments, applications for Letters Patent (of the United States or of any foreign country), oaths, disclaimers or other instruments and to perform such further acts, including giving testimony or furnishing evidence in the prosecution or defense of appeals, interferences, suits and controversies relating to any aforesaid inventions as may reasonably be deemed necessary by CSC or its nominees to effectuate the vesting or perfecting in CSC or its nominees of all right, title and interest in and to said inventions, applications and patents. (d) The Employee agrees to disclose immediately to CSC or any persons designated by it and to assign to CSC, at its option, or its successors or assigns, all works of authorship, including all writings, computer programs, software, and firmware, written or created by the Employee solely or jointly with others, during the course of his employment by CSC (either during or outside of the Employee's working hours and either on or off CSC's premises), which works are made or conceived either in the course of such employment, or with the use of CSC's time, material, facilities or funds, or which are directly related to any investigations or obligations undertaken by CSC; and the Employee hereby agrees that all such works are works made for hire, of which CSC is the author and the beneficiary of all rights and protections afforded by the law of copyright in any and all countries; and the Employee will assist CSC at CSC's expense without further charges during the term of his employment, and after termination of his employment at the same base salary rate (excluding any bonuses, incentive or deferred compensation or other benefits) as during the last year of his employment (determined on an hourly basis for this purpose assuming a forty hour work week), through counsel designated by CSC, to execute, acknowledge, and deliver all such further papers, including assignments, applications for copyright registration (in the United States or in any foreign country), oaths, disclaimers or other instruments, and to perform such further acts, including giving testimony or furnishing evidence in the prosecution or defense of appeals, interferences, suits and controversies relating to any aforesaid works, as may be deemed necessary by CSC or by its nominees to effectuate the vesting or perfecting in CSC or its nominees of all rights and interest in and to said works and copies thereof, including the exclusive rights of copying and distribution. (e) The Employee shall keep complete, accurate and authentic accounts, notes, data and records of all inventions made, discovered or developed and all works of authorship written or created by the Employee as aforesaid in the manner and form requested by CSC. (f) All computer or other hardware, computer software, computer programs, source codes, object codes, magnetic tapes, printouts, samples, notes, records, reports, documents, customer lists, photographs, catalogues and other writings, whether copyrightable or not, relating to or dealing with CSC's business and plans, and those of others entrusted to CSC, which are prepared or created by the Employee or which may come into his possession during or as a result of his employment, are the property of CSC, as applicable, and upon termination of his employment, the Employee agrees to return all such computer software, computer programs, source codes, object codes, magnetic tapes, printouts, samples, notes, records, reports, documents, customer lists, photographs, catalogues and writings and all copies thereof to CSC. 7. NON-SOLICITATION AND NON-COMPETITION. During the "Restriction Period" (as hereinafter defined) and within the "Territory" (as hereinafter defined), the Employee shall not directly or indirectly: (a) Solicit the business of CSC from any customer of CSC or any entity controlled by CSC. (b) Directly or indirectly, hire any employees of CSC or any entity controlled by CSC or cause any entity with which the Employee is affiliated to hire any such employees of CSC. As used herein, the term "employees" shall mean persons who are, at the time in question, current employees of CSC or its affiliates or who were, within six (6) months of the date of the prohibited hiring, employees of CSC or its affiliates. (c) Engage in, represent in any way or be connected with, as a consultant, officer, director, partner, employee, sales representative, proprietor, member, stockholder (except for stock ownership of less than 1% in a publicly owned corporation) or otherwise, any business competing with the business of CSC as conducted by CSC on the date hereof or during the period of Employee's employment by CSC. As used herein, the Restriction Period shall mean the period while the Employee is employed by CSC and one (1) year after the date the Employee ceases to be employed by CSC. As used herein, the Territory shall mean the States of Alabama, Mississippi, North Carolina, Florida and Georgia and any other state in which CSC does business after the date hereof while Employee is employed by CSC. As used herein, the term "business of CSC" shall mean the business of providing computerized management information systems and services to physicians and other health care providers. 8. NO CONFLICT. Employee represents and warrants that he is not a party to or otherwise subject to or bound by the terms of any contract, agreement or understanding which in any manner would limit or otherwise affect his ability to perform his obligations hereunder, including without limitation any contract, agreement or understanding containing terms and provisions similar in any manner to those contained in Sections 6 and 7 hereof. 9. SURVIVAL OF COVENANTS, EFFECT. (a) The covenants on the part of the Employee contained or referred to in Sections 6 and 7 above shall survive termination of this Agreement, and the existence of any claim or cause of action of the Employee against CSC, whether predicated on this Agreement or otherwise. The Employee agrees that a remedy at law for any breach of the foregoing covenants contained or referred to in Sections 6 and 7 would be inadequate, that CSC would suffer irreparable harm as a result and that CSC shall be entitled to a temporary and permanent injunction or an order for specific performance of such covenants without the necessity of proving actual damage to CSC and without the posting of any bond or other security. Any nonmaterial breach of this Agreement by CSC shall not release the Employee from his obligations under Section 7 hereof. Any breach (whether or not material) by CSC shall not release the Employee from his obligations under Section 6. (b) The Employee hereby represents and acknowledges that CSC is relying on the covenants in Sections 6 and 7 in entering into this Agreement and that the restrictions in Sections 6 and 7 are fair and reasonable. The Employee acknowledges that CSC presently intends to do business throughout the United States and that the geographic scope of the covenants in Section 7 is reasonable and necessary to protect the interests of CSC. (c) It is the intent of the parties that the provisions of Sections 6 and 7 shall be enforced to the fullest extent permissible under the laws and public policies of each jurisdiction in which enforcement is sought. If any particular provision of Sections 6 and 7 shall be adjudicated to be invalid or unenforceable, such provision(s) of Sections 6 and 7 shall be deemed amended to provide restrictions to the fullest extent permissible and consistent with applicable law and policies, and such amendment shall apply only with respect to the particular jurisdiction in which such adjudication is made. If such deemed amendment is not allowed by the adjudicating body, the offending provision, only, shall be deleted and the remainder of Sections 6 and 7 shall not be affected. 10. ASSIGNMENT. The rights and obligations of CSC under this Agreement may be assigned or delegated by CSC to any affiliate of CSC or to any successors in interest of CSC or of that part of the business of CSC to which this Agreement applies so long as the duties of Employee are not materially affected. Any other assignment of this Agreement shall require the written consent of Employee. After the date hereof, CSC may change its name to "Computer Services Corporation," and such name change shall not affect the rights and duties of the parties hereto. This Agreement may not be assigned and any duties of the Employee may not be delegated by the Employee, but any amounts owing to the Employee upon his death shall inure to the benefit of his estate. 11. NOTICES. All notices or other communications which may be or are required to be given, served or sent by either party to the other party pursuant to this Agreement shall be in writing, addressed to its/his residence or place of business as set forth above, and shall be mailed by first-class certified mail, return receipt requested, postage prepaid, next-day air delivery, or transmitted by facsimiles or hand delivery. Such notice or other communication shall be deemed sufficiently given, served, sent or received for all purposes at such time as it is delivered to the addressee or at such time as delivery is refused by the addressee upon presentation. Each party may designate by notice in writing an address to which any notice or communication may thereafter be so given, served or sent. 12. APPLICABLE LAW JURISDICTION. This Agreement has been negotiated and executed in the State of Alabama, and it shall be governed by, construed and enforced in accordance with the internal substantive laws and not the choice of law rules of the State of Alabama. 13. EFFECTIVENESS/INTERPRETATION. The parties acknowledge and agree that this Agreement has been negotiated at arm's length between parties equally sophisticated and knowledgeable in the matters dealt with herein. Each party has been represented by counsel of its or his own choosing. Accordingly, any rule of law or legal decision that would require interpretation of any ambiguities in the Agreement against the party that drafted it is not applicable and is waived. 14. SEVERABILITY. If any of the articles, sections, paragraphs, clauses or provisions of this Agreement shall be held by a court of last resort to be invalid, the remainder of this Agreement shall not be affected thereby. 15. ENTIRE AGREEMENT. The foregoing contains the entire agreement between the parties relating to the subject matter of this Agreement, and may not be altered or amended except by an instrument in writing approved by CSC and signed by the parties hereto, and this Agreement supersedes all prior understandings and agreements relating to employment of the Employee by CSC. The waiver of any rights under this Agreement on any one or more occasions shall not constitute a waiver on any subsequent occasion. IN WITNESS WHEREOF, CSC has caused this Agreement to be executed by its duly authorized officers and the Employee has hereunto set his hand as of the date first above written. CSC ACQUISITIONS, INC. By: Chris H. Horgen --------------------------- Its: President --------------------- Donald Y. Menendez ------------------------------ Donald Y. Menendez, Employee SCHEDULE I DUTIES OF EMPLOYEE Provide overall direction and management of CSC consistent with job title and prior responsibilities and as required to support CSC's business plans and long-term strategy. EX-10.22 8 EMPLOYMENT AGREEMENT THIS AGREEMENT is entered into on the 1st day of September, 1994, by and between D. BRUCE McINDOE, residing at 2101 Viewpoint Court, Brookeville, MD 20833 (herein called the "Employee"), COMMUNICATIONS & SYSTEM SPECIALISTS, INC. (herein called "CSSi") with a principal place of business at 10260 Old Columbia Road, Columbia, Maryland 21046, and NICHOLS RESEARCH CORPORATION, with a principal place of business located at 4040 Memorial Parkway South, Huntsville, Alabama 35802 (herein called "NRC"). W I T N E S S E T H: WHEREAS, NRC, as purchaser, and Employee , George H. Mahler IV and Allegheny College, as sellers, entered into and consummated a Stock Purchase Agreement dated as of September 1, 1994 (the "Purchase Agreement") whereby NRC acquired all of the stock of CSSi (and CSSi became a wholly owned subsidiary of NRC), and the Employee's continued employment with CSSi was a material inducement to NRC to enter into the Purchase Agreement; WHEREAS, CSSi and NRC desire to obtain the services of the Employee as President of CSSi and the Employee is willing to render such services to CSSi upon the terms and conditions herein set forth. NOW, THEREFORE, in consideration of the mutual promises set forth herein and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows: 1. DUTIES AND SALARY. (a) CSSi agrees to employ the Employee and the Employee agrees to accept employment by CSSi on a full-time basis as President of CSSi at an annual initial base salary of $120,000 payable during the Term of Employment, as hereinafter defined. ("CSSi" as used herein refers to CSSi as a wholly owned subsidiary of NRC, any successor entity, and NRC itself in the event CSSi or its assets and/or operations are merged into NRC.) Such initial salary shall be payable in equal installments during each month or such other pay periods established from time to time by the Board of Directors of CSSi (the "Board") or the Board of Directors of NRC (the "NRC Board"), pursuant to their standard employment practices. The Employee's duties shall include the following: (i) to promote the growth of and manage the business and day to day operations of CSSi; (ii) to perform the duties normally associated with the Office of President or such other office to which Employee may be nominated and appointed by the Board, subject to control and direction of the Board or the NRC Board; (iii) to train and supervise CSSi's employees and to perform or cause to be performed quality control for projects and contracts performed by CSSi; (iv) to manage and/or actually assist in the bidding and performance of major or material projects and contracts undertaken by CSSi and/or NRC; (v) to direct and supervise the sale and marketing of CSSi's contracts, services and products and, if requested, the contracts, services and products of NRC; (vi) to assist NRC in developing business with CSSi customers utilizing NRC products and services; (vii) to assist NRC in developing business with NRC customers utilizing CSSi products and services; and (viii) to perform such other and/or different duties as may be determined or delegated by the Board or the NRC Board, consistent with the duties of the President. (b) CSSi agrees to employ the Employee for the Term of Employment, except as hereinafter provided. The Employee hereby agrees to undertake such travel as may be required in the performance of his duties. The reasonable travel expenses of the Employee shall be reimbursed in accordance with CSSi's reimbursement policy, in effect from time to time. (c) The Employee shall carry out his duties under the general supervision of the Board or its designee and/or the NRC Board or its designee. (d) The Employee shall perform such other tasks and duties as may be assigned by CSSi, from time to time and CSSi and/or NRC reserve the right to change the office and/or position of the Employee within CSSi, so long as such change is mutually acceptable. If such change in office and/or position is not acceptable to Employee, Employee and CSSi shall make a good faith effort to resolve their dispute in a mutually acceptable manner. If the parties are unable to reach such a resolution, Employee may appeal first to the Chief Executive Officer of NRC, and if that appeal also fails to resolve the parties' differences, Employee may appeal to the NRC Board. No change in Employee's office and/or position shall be made until such appeals have been taken or until such change is mutually agreeable to the parties. At all times, the Employee shall follow all of the instructions and directions of CSSi and of the Board, which are consistent with this Agreement, and shall abide by all of CSSi's rules and procedures in force from time to time. The Employee shall devote his full time, attention, skill and efforts to the tasks and duties assigned by CSSi. Without the prior written consent of CSSi and NRC, the Employee shall not provide services, for compensation, to any other person or business entity while employed by CSSi. (e) NRC agrees that the position of president of CSSi shall be of equal status to a group vice-president of NRC. NRC shall elect Employee to serve as a member of the CSSi Board for so long as Employee is employed by CSSi, its successors in interest, or NRC. In the event that CSSi is merged into NRC so that CSSI ceases to exist as a distinct entity, NRC agrees to appoint and elect Employee to positions with NRC that are of equal status as those positions which Employee previously held within CSSi. (f) The Employee shall not be required to relocate beyond 30 miles from Columbia, Maryland, without his consent. 2. TERM OF EMPLOYMENT. This Agreement shall commence as of the date hereof and shall end August 31, 1999 (the "Term of Employment"), unless terminated earlier as provided herein. Upon expiration of the initial Term of Employment unless earlier terminated as provided herein, the Term of Employment shall continue automatically month-to-month until terminated by either party with at least thirty (30) days' prior written notice with or without cause. 3. TERMINATION BEFORE EXPIRATION OF TERM OF EMPLOYMENT. The termination of the employment of the Employee during the Term of Employment may occur in one of the following ways: (a) BY CSSI AND/OR NRC, FOR CAUSE. Termination by CSSi and/or NRC shall be deemed to be for cause only upon: (i) Employee's conviction of or pleading guilty to fraud, misappropriation, embezzlement or any felony; (ii) A good faith determination by the Board or the NRC Board that the Employee has breached either this Agreement, the Purchase Agreement or the Non-Competition Agreement; (iii) Refusal by the Employee, without reasonable excuse or proper authorization, to carry out any reasonable instruction of the Board or the NRC Board consistent with Employee's rights or duties as set forth in this Agreement; (iv) Breach of any material duty or obligation owed to CSSi or NRC, including without limitation breach of fiduciary duty or the duty of loyalty; (v) Final revocation, after exhaustion of all available appeals, of Employee's security clearance based upon an act or omission by the Employee; or (vi) The Employee's demonstration of gross negligence or willful misconduct in the execution of his duties. In all cases in which CSSi or NRC intends to terminate for cause, CSSi and NRC shall provide notice to Employee of intent to terminate this Agreement, stating the termination provision in this Agreement relied upon and setting forth in reasonable detail the facts and circumstances claimed to provide a basis for termination under the provisions so indicated, and shall provide Employee with an opportunity to cure the alleged default or breach within thirty (30) days of receipt of the notice, provided that if the matter is not curable within such thirty (30) day period, the Employee shall not be deemed in default if the Employee commences immediately to cure the matter and proceeds diligently thereafter to complete the cure, further provided that the alleged breach or default must be cured within ninety (90) days of receipt of the notice. CSSi and NRC shall not be required to give more than one notice with respect to the same matter. Notwithstanding the foregoing, no notice and no cure right shall be required with respect to termination for cause under 3(a)(i), 3(a)(v) or an act involving theft of information or property of CSSi or NRC. (b) BY CSSI AND/OR NRC, WITHOUT CAUSE. Any termination of Employee by CSSi and/or NRC for reasons other than as set forth in subsections 3(a)(i) through 3(a)(vi), above, shall be a termination without cause. CSSi or NRC may terminate the employment of Employee without cause by ninety (90) days' prior written notice at any time. During such ninety (90) day period, the parties may attempt to resolve the reasons, if any, which motivated NRC or CSSi to terminate without cause, but the failure of any such attempt shall not affect the right of NRC or CSSi to terminate without cause. (c) BY THE EMPLOYEE. The Employee may by written notice terminate his employment at any time during the Term of Employment: (i) For any reason, including retirement pursuant to the provisions of CSSi's or NRC's retirement plan, other than for Good Reason (as defined below). (ii) For "Good Reason," defined as termination because of a material breach by CSSi or NRC of this Agreement or the Purchase Agreement, including without limitation making a material change in the Employee's duties, responsibilities or authority as set forth in this Agreement, without his express written consent. In all cases in which Employee intends to terminate for Good Reason, the Employee shall provide CSSi and NRC with notice of intent to terminate this Agreement, stating the facts and circumstances giving rise to a breach of this Agreement or the Purchase Agreement claimed to provide a basis for termination under the provisions so indicated, and shall provide CSSi and NRC with an opportunity to cure the alleged default or breach within thirty (30) days of receipt of the notice, provided that if the matter is not curable within such thirty (30) day period, CSSi and NRC shall not be deemed in default if they commence immediately to cure the matter and proceed diligently thereafter to complete the cure, further provided that the alleged breach or default must be cured within ninety (90) days of receipt of the notice. Employee shall not be required to give more than one such notice with respect to the same matter. (iii) For a "Change in Control," defined as the merger or a consolidation of CSSi, other than a merger of another corporation into CSSi in which CSSi is the surviving corporation, the liquidation of CSSi, or NRC shall cease to own at least a majority of the shares of stock of CSSi, or the sale or other disposition of a substantial part of the business of CSSi and its subsidiaries, which would cause the Employee's position with CSSi to become of less dignity, responsibility, importance or scope from the position and attributes thereof described in Section 1(a), or results in the nonperformance or impossibility of performance of any other obligation of CSSi or NRC to Employee under this Agreement, including without limitation obligations under Section 5. (d) DEATH OF THE EMPLOYEE. (e) DISABILITY OF EMPLOYEE. For this purpose, disability shall be defined in accordance with Section 4(e)(ii). 4. CONSEQUENCES OF TERMINATION. The termination of the employment of Employee will cause the following results: (a) If the termination is by CSSi and/or NRC for cause, or is by the Employee for any reason other than for Good Reason or Change in Control, CSSi will pay the Employee within five (5) days after the date of termination any unpaid salary, incentive compensation under Section 5, the amount of any accrued annual vacation pay to which he may be entitled under CSSi's vacation plan, and benefits. All such compensation and benefits (if any) shall be paid only through the date termination occurs. (b) If the termination is by CSSi and/or NRC without cause, CSSi and/or NRC shall pay to the Employee (i) in monthly installments over a six-month period immediately following the termination, an amount as liquidated damages equal to one hundred percent (100%) of the Employee's annual base salary then in effect and (ii) all incentive compensation (if any) based upon "Gross Profits" of CSSi through the initial Term of Employment, as determined and paid in the manner prescribed in Section 5(b). (c) If the termination is by the Employee for Good Reason, CSSi shall pay to the Employee (i) in monthly installments over a six-month period immediately following the termination, an amount as liquidated damages equal to fifty percent (50%) of the Employee's annual base salary then in effect and (ii) all incentive compensation (if any) based upon "Gross Profits" of CSSi through the initial Term of Employment, as determined and paid in the manner prescribed in Section 5(b). (d) If the termination is by Employee for Change in Control, CSSi shall pay to the Employee (i) in monthly installments over a six-month period immediately following the termination, an amount as liquidated damages equal to one hundred percent (100%) of the Employee's annual base salary then in effect and (ii) all incentive compensation (if any) based upon "Gross Profits" of CSSi through the initial Term of Employment, as determined and paid in the manner prescribed in Section 5(b). (e) In the event of the Employee's death or disability, the following provisions will apply: (i) The Employee's employment shall be terminated upon his death, and the Employee's estate will be entitled to receive the amount set forth in Section 5(b) and the benefits set forth in any plans of CSSi then in effect and applicable under the circumstances. The Employee or his estate shall be entitled to no other compensation or benefits in the event of death. (ii) If, during the Period of Employment, a physician selected jointly by Employee and CSSi (neither of which may unreasonably withhold or delay such selection) determines that the Employee has become physically or mentally disabled so as to be unable to carry out the normal and usual duties of his employment for three (3) continuous months, and reasonable accommodation cannot be made to allow the Employee to continue to perform his duties full-time, his employment hereunder may be terminated at the election of CSSi. During the period of the Employee's disability, the Employee shall continue to earn all compensation and other benefits as if he were not disabled, and following termination Employee will be entitled to receive the amount set forth in Section 5(b) and the benefits set forth in any plans of CSSi then in effect and applicable under the circumstances. The Employee or his personal representative shall be entitled to no other compensation or benefits in the event of disability. (f) The Employee shall not be required to mitigate the amount of payment provided for in this Section 4 by seeking employment or otherwise. 5. INCENTIVE COMPENSATION AND FRINGE BENEFITS. (a) The Employee shall participate in any group health insurance, vacation and sick leave plans, and other benefit plans available to all employees of CSSi in accordance with their terms and conditions. (b) In addition to bonuses which the Employee may receive, the Employee shall be paid an incentive bonus equal to a percentage of the "Gross Profits" of CSSi earned and received during the period beginning on the date hereof and ending August 31, 1999, in accordance with the following provisions. No incentive bonus shall be paid under this Section 5(b) unless a minimum of $400,001 of Gross Profits is earned during each fiscal year. The percentage of Gross Profits payable to the Employee as provided in this paragraph shall be as follows: GROSS PROFITS INCENTIVE BONUS 0 - $400,000 -0- $400,001-$500,000 30% of Gross Profits $500,001-$600,000 40% of Gross Profits $600,001 and above 50% of Gross Profits As used in this Section 5(b), the term "Gross Profits" shall be defined in the same manner as that term is defined under generally accepted accounting principles and under cost accounting standards promulgated as of the date of this Agreement by the Cost Accounting Standards Board which, in general, defines Gross Profits as profits from contracts less unallowable expenses and applicable over-runs. For indirect cost rates not directly controlled by CSSi, that is, general and administrative and material handling costs, annual provisional budget rates will be used in the determination of Gross Profits. No business unit external to CSSi's current organizational structure will be assigned to CSSi, and no contract used to determine Gross Profits will be entered into by CSSi, without the mutual consent of the parties. The parties shall make a good faith effort to reach such mutual consent, and neither party shall unreasonably withhold their consent when such assignment or contract would be in the best interests of CSSi. Calculation of Gross Profits shall be made based on the Gross Profits received by CSSi during the fiscal years and partial fiscal years of CSSi beginning on the date hereof and ending August 31, 1999. For partial fiscal years within the period, the amount of Gross Profits threshold shall be prorated. For example, if this Agreement is effective July 1, 1994, and Gross Profits for July and August 1994 are $85,000, then on an annualized basis Gross Profits would be $510,000. Therefore, the incentive compensation for such short period would be $34,000 (($510,000 x 40%)/12*2). Payments, if any, required under this Section shall be made to the Employee within ninety (90) days after the end of each fiscal year of CSSi, beginning with ninety days after August 31, 1994, and ending August 31, 1999, or later as may be required by subsections 5(b)(i) through 5(b)(v), below. The Gross Profits described in this Section 5(b) shall be based only on the Gross Profits of CSSi. NRC or another entity controlled by or succeeding NRC shall not merge CSSi into NRC or into such other entity, and shall not otherwise operate CSSi otherwise than as a wholly owned subsidiary of NRC or its successor without Employee's consent. If Employee consents to such merger or other operation, then separate books and accounts shall be maintained regarding what were previously CSSi's operations, products, services and functions. Similarly, in the event NRC chooses to remove from CSSi's control any of the current or future operations, products, services or functions of CSSi, then similarly separate books and accounts shall be maintained with respect to such reassigned operations, products, services or functions for the purposes of computing CSSi's Gross Profits and determining the Employee's incentive compensation hereunder. (i) NRC's Chief Financial Officer ("CFO") shall prepare and deliver to Employee a proposed Gross Profits statement for each fiscal year, within forty-five (45) days of the end of such fiscal year, setting forth in reasonable detail the basis for the calculation, Employee and his accountants shall have the right to consult with the appropriate personnel of NRC, CSSi and their agents and shall have the right to examine on a concurrent basis any and all work papers, schedules and other documents prepared by CSSi, NRC or their accountants in connection with the proposed Gross Profits. (ii) Employee may dispute the proposed Gross Profits statement by notifying CSSi in writing setting forth in reasonable detail, to the extent possible, the amount(s) in dispute and the basis for such dispute, within thirty (30) days of Employee's receipt of the proposed statement. In the event of such a dispute, the CFO and Employee's accountants shall attempt in good faith to resolve such dispute, and any resolution by them as to any disputed amount(s) shall be final, binding and conclusive on Employee, CSSi, and NRC. (iii) If Employee's accountants and the CFO do not resolve any such dispute within fifteen (15) days of the date of receipt by CSSi and NRC of Employee' written notice of dispute, the CFO and Employee's accounts shall, within five (5) additional days, submit any such unresolved dispute to an independent accounting firm of national reputation appointed jointly by Employee and CSSi (neither of which may unreasonably withheld or delay such appointment) (the "Independent Accounting Firm"), which firm shall, within forty (40) days of each submission, resolve each such item remaining in dispute within the range of amounts proposed by Employee and NRC, and such resolution shall be binding and conclusive on Employee, CSSi, and NRC. The fees and disbursements of the Independent Accounting Firm shall be borne by CSSi and Employee in the proportion that the aggregate amount of disputed items submitted to the Independent Accounting Firm that is unsuccessfully disputed by each party (as finally determined by the Independent Accounting Firm) bears to the aggregate amount of such disputed items submitted. (iv) The proposed Gross Profits, adjusted for the resolution of any and all disputes pursuant to subsections (b)(ii) and (b)(iii) above, will be deemed to be the final Gross Profits for the period covered by the statement upon the later of (i) the lapse of the 30-day period referred to in subsection (b)(ii) above; (2) to the extent any amount is still in dispute, the lapse of the 15-day period referred to in subsection (b)(iii); or (3) such later date upon which all disputes submitted to the Independent Accounting Firm pursuant to subsection (b)(iii) have been resolved. (v) CSSi shall pay to the Employee the amount of incentive bonus, if any, on any portion of the proposed Gross Profits as shown on the statement furnished Employee under Section 5(b)(i) with the delivery of such statement. (c) If the Term of Employment continues beyond August 31, 1999, the Employee shall no longer be entitled to receive the incentive compensation provided in Section 5(b) and any other incentive compensation, bonuses or other incentive plans available to the Employee shall be in the sole discretion of CSSi and/or NRC. (d) CSSi shall increase the annual base salary of the Employee in a manner consistent with raises given executive employees of NRC. (e) Employee shall be entitled to benefit in the incentive bonus plan, if any, currently maintained by NRC and described in Section 2.9 of the NRC policy manual on a basis consistent with the manner in which group vice presidents of NRC benefit under such plan. (f) In addition to the incentive compensation set forth in Section 5(b) above, an annual bonus of $25,000 will be paid Employee if and when during any fiscal year of NRC the Employee is materially responsible for obtaining contracts or business for NRC which results in the added employment at the NRC Astech Division facility in Salt Lake City, Utah, of fifteen (15) or more full-time employees during such fiscal year dedicated to the performance of Astech or NRC contracts. Such bonus shall be paid during each year such staffing level at the Astech facility remains at 15 or more additional employees due to the efforts of Employee. The bonus shall be prorated for any year during which such added employment falls below fifteen (15) full-time employees. The NRC Astech Division presently employs 16 persons. (g) The Employee shall receive or be eligible to receive the following incentive stock option grants: (i) An option to purchase 20,000 shares of NRC common stock at fair market value at date of grant on September 1, 1994, provided Employee is employed by CSSi on such date; and (ii) An option to purchase 10,000 shares of NRC common stock at fair market value at date of grant on the earlier of August 31, 1995, or August 31, 1996, if CSSi's Gross Profit exceeds $400,000 as of the year ending on August 31, 1995, or August 31, 1996, provided Employee is employed by CSSi on such date(s). The incentive stock options are subject to the terms and conditions contained in the option plans and grants, including vesting, exercise and nontransferability as the same may be amended from time to time. (h) In the event that CSSi and/or NRC is audited by the Internal Revenue Service as a result of the NRC/CSSi transaction, CSSi and/or NRC shall provide written notice to the Employee stating that the audit is taking place, and specifying, to the extent of CSSi and/or NRC's knowledge, the particular purposes and focus of the audit. Upon completion of the audit, CSSi and/or NRC shall provide written notice to the Employee stating in reasonable detail the conclusions of the audit. 6. NON-DISCLOSURE COVENANTS AND PROPRIETARY MATTERS. (a) Unless authorized or instructed in writing by CSSi, the Employee shall not, except as required in the conduct of CSSi's business, during or at any time after the Term of Employment, disclose to others, or use, any of NRC's or CSSi's inventions or discoveries or their respective secret or confidential information, knowledge or data (oral, written, or in machine readable form) which the Employee may obtain during the course of or in connection with the Employee's employment, including such inventions, discoveries, information, knowledge, know-how or data relating to machines, equipment, products, systems, software, contracts, contract performance, research and/or development, designs, compositions, formulae, processes, manufacturing procedures or business methods, whether or not developed by the Employee, by others in NRC or CSSi or obtained by NRC or CSSi from third parties, and irrespective of whether or not such inventions, discoveries, information, knowledge or data have been identified by NRC or CSSi as secret or confidential, unless and until, and then to the extent and only to the extent that, such inventions, discoveries, information, knowledge or data become available to the public otherwise than by the Employee's act or omission. (b) During the Term of Employment and for a period eighteen (18) months thereafter, the Employee shall not, except as required in the conduct of CSSi's business, disclose to others, or use, any of the information (which, if disclosed or used, could be harmful to NRC or CSSi) relating to present and prospective customers of NRC or CSSi, business dealings with such customers, prospective sales and advertising programs and agreements with representatives or prospective representatives of NRC or CSSi, present or prospective sources of supply or any other business arrangements of NRC or CSSi, including but not limited to customers, customer lists, costs, prices and earnings, whether or not such information is developed by the Employee, by others in NRC or CSSi or obtained by NRC or CSSi from third parties, and irrespective of whether or not such information has been identified by NRC or CSSi as secret or confidential, unless and until, and then to the extent and only to the extent that, such information becomes available to the public otherwise than by the Employee's act or omission. (c) The Employee agrees to disclose immediately to CSSi or NRC or any persons designated by them and to assign to NRC or CSSi or their successors or assigns, all inventions made, discovered, or first reduced to practice by the Employee, solely or jointly with others, during the Term of Employment or within a period of six months from the date of termination of such employment (either during or outside of the Employee's working hours and either on or off CSSi's or NRC's premises), which inventions are made, discovered or conceived either in the course of such employment, or with the use of NRC's or CSSi's time, material, facilities or funds, or which are directly related to any investigations or obligations undertaken by CSSi or NRC; and the Employee hereby grants and agrees to grant the right to CSSi or NRC and their nominees to obtain, for theirs own benefit and in their own name (entirely at their expense) patents and patent applications including original, continuation, reissue, utility and design patents, and applications, patents of addition, confirmation patents, registration patents, petty patents, utility models, etc., and all other types of patents and the like, and all renewals and extensions of any of them for those inventions in any and all countries; and the Employee shall assist CSSi and/or NRC, at CSSi's expense, without further charge during the term of the Employee's employment, and after termination of the Employee's employment at the same base salary rate (excluding any bonuses, incentive or deferred compensation or other benefits and based upon a forty hour work week) as during the last year of the Employee's employment (determined on an hourly basis for this purpose), through counsel designated by CSSi or NRC, to execute, acknowledge, and deliver all such further papers, including assignments, applications for Letters Patent (of the United States or of any foreign country), oaths, disclaimers or other instruments and to perform such further acts, including giving testimony or furnishing evidence in the prosecution or defense of appeals, interferences, suits and controversies relating to any aforesaid inventions as may reasonably be deemed necessary by CSSi or NRC or their nominees to effectuate the vesting or perfecting in CSSi or NRC or their nominees of all right, title and interest in and to said inventions, applications and patents. Notwithstanding the foregoing, the Employee need not take any action called for under this Section 6(d) which will cause undue personal hardship to the Employee. (d) The Employee agrees to disclose immediately to CSSi and/or NRC or any persons designated by them and to assign to NRC or CSSi, at their option, or their successors or assigns, all works of authorship, including all writings, computer programs, software, and firmware, written or created by the Employee solely or jointly with others, during the course of his employment by CSSi or NRC (either during or outside of the Employee's working hours and either on or off CSSi's or NRC's premises), which works are made or conceived either in the course of such employment, or with the use of NRC's or CSSi's time, material, facilities or funds, or which are directly related to any investigations or obligations undertaken by CSSi or NRC; and the Employee hereby agrees that all such works are works made for hire, of which CSSi and/or NRC, as applicable, are the authors and the beneficiaries of all rights and protections afforded by the law of copyright in any and all countries; and the Employee will assist NRC and/or CSSi at CSSi's expense without further charges during the term of his employment, and after termination of his employment at the same base salary rate (excluding any bonuses, incentive or deferred compensation or other benefits) as during the last year of his employment (determined on an hourly basis for this purpose assuming a forty hour work week), through counsel designated by CSSi or NRC, to execute, acknowledge, and deliver all such further papers, including assignments, applications for copyright registration (in the United States or in any foreign country), oaths, disclaimers or other instruments, and to perform such further acts, including giving testimony or furnishing evidence in the prosecution or defense of appeals, interferences, suits and controversies relating to any aforesaid works, as may be deemed necessary by CSSi or NRC or by their nominees to effectuate the vesting or perfecting in CSSi or NRC or their nominees of all rights and interest in and to said works and copies thereof, including the exclusive rights of copying and distribution. (e) The Employee shall keep complete, accurate and authentic accounts, notes, data and records of all inventions made, discovered or developed and all works of authorship written or created by the Employee as aforesaid in the manner and form requested by CSSi or NRC. (f) All computer or other hardware, computer software, computer programs, source codes, object codes, magnetic tapes, printouts, samples, notes, records, reports, documents, customer lists, photographs, catalogues and other writings, whether copyrightable or not, relating to or dealing with CSSi's or NRC's business and plans, and those of others entrusted to CSSi or NRC, which are prepared or created by the Employee or which may come into his possession during or as a result of him employment, are the property of CSSi or NRC, as applicable, and upon termination of his employment, the Employee agrees to return all such computer software, computer programs, source codes, object codes, magnetic tapes, printouts, samples, notes, records, reports, documents, customer lists, photographs, catalogues and writings and all copies thereof to CSSi or NRC. 7. NON-SOLICITATION AND NON-COMPETITION. Simultaneously with the execution of this Agreement, the Employee shall enter into the Non-Competition Agreement with CSSi and NRC attached as Exhibit "G-1" to the Purchase Agreement. 8. SURVIVAL OF COVENANTS, EFFECT. (a) The covenants on the part of the Employee contained or referred to in Sections 6 and 7 above shall survive termination of this Agreement, and the existence of any claim or cause of action of the Employee against CSSi or NRC, whether predicated on this Agreement or otherwise. The Employee agrees that a remedy at law for any breach of the foregoing covenants contained or referred to in Sections 6 and 7 would be inadequate, that CSSi and NRC would suffer irreparable harm as a result and that NRC and/or CSSi shall be entitled to a temporary and permanent injunction or an order for specific performance of such covenants without the necessity of proving actual damage to NRC or CSSi. (b) The Employee hereby represents and acknowledges, and NRC and CSSi are relying on such representation and acknowledgment in entering into this Agreement, that the terms and conditions of the above covenants are fair and reasonable. (c) It is the desire and intent of the parties that the provisions of Section 6 shall be enforced to the fullest extent permissible under the laws and public policies of each jurisdiction in which enforcement is sought. If any particular provision of Section 6 shall be adjudicated to be invalid or unenforceable, such provision(s) of Section 6 shall be deemed amended to provide restrictions to the fullest extent permissible and consistent with applicable law and policies, and such amendment shall apply only with respect to the particular jurisdiction in which such adjudication is made. If such deemed amendment is not allowed by the adjudicating body, the offending provision, only, shall be deleted and the remainder of Section 6 shall not be effected. 9. ASSIGNMENT. The rights and obligations of CSSi under this Agreement may be assigned by CSSi to NRC or to any other successors in interest of CSSi and/or NRC or of that part of the business of CSSi or NRC to which this Agreement applies or to their respective affiliates. This Agreement may not be assigned and any duties of the Employee may not be delegated by the Employee, but any amounts owing to the Employee upon his death shall inure to the benefit of his heirs, legatees, personal representatives, executor or administrator. 10. NOTICES. All notices or other communications which may be or are required to be given, served or sent by either party to the other party pursuant to this Agreement shall be in writing, addressed to its/his residence or place of business as set forth above, and shall be mailed by first-class certified mail, return receipt requested, postage prepaid, next-day air delivery, or transmitted by telegram, telex or hand delivery. Such notice or other communication shall be deemed sufficiently given, served, sent or received for all purposes at such time as it is delivered to the addressee (with the return receipt, the delivery receipt, or with respect to a telex or telecopy, the answerback, being deemed conclusive, but not exclusive, evidence of such delivery) or at such time as delivery is refused by the addressee upon presentation. Each party may designate by notice in writing an address to which any notice or communication may thereafter be so given, served or sent. Any notice or other communication sent by Employee to CSSi shall also be sent, at the same time, to NRC. Notices hand delivered to CSSi or NRC must be delivered to an officer of CSSi and NRC and all other notices shall be sent to the attention of the Board, in the case of CSSi, or to the President, in the case of NRC. 11. Applicable Law Jurisdiction. This Agreement has been negotiated and executed in the State of Maryland, and it shall be governed by, construed and enforced in accordance with the internal substantive laws and not the choice of law rules of the State of Maryland. Any judicial proceedings brought against either party with respect to this Agreement shall and must be brought in any court of competent jurisdiction in Maryland, or in the United States District Court for the District of Maryland and each party accepts generally and unconditionally the exclusive jurisdiction of such courts and waives any objections as to the venue for such proceedings. If this provision is declared invalid, the parties nevertheless agree that such Courts have personal and subject matter jurisdiction and that such Courts are an appropriate and convenient forum. 12. Set-Off. Subject to this Section 12, NRC and CSSi shall have the right, for a period ending August 31, 1999, to set-off and deduct from any sums required to be paid to Employee hereunder as a result of a claim for indemnification or damages against Employee by NRC or CSSi or indemnification or damages against Employee by NRC or CSSi under the Purchase Agreement, this Agreement or the Non-Competition Agreement. CSSi and/or NRC shall provide Employee with written notice of any and all such claims within a reasonable time after CSSi and/or NRC learn of the existence of such claims. The Employee shall have the right to "cure" or commence proceedings to resolve such claims, and CSSi and NRC may not take a set-off under this Agreement until the validity and/or amount of such claims are finally determined. In addition, CSSi and NRC shall be obligated to pursue any and all third parties who may be liable for such claims, and CSSi and NRC may not take a set-off under this Agreement until all such third party liability is finally determined. 13. Effectiveness/Interpretation. The parties acknowledge and agree that this Agreement has been negotiated at arm's length between parties equally sophisticated and knowledgeable in the matters dealt with herein. Each party has been represented by counsel of its or his own choosing. Accordingly, any rule of law or legal decision that would require interpretation of any ambiguities in the Agreement against the party that drafted it is not applicable and is waived. 14. Third Party Beneficiary. NRC is intended to be a third party beneficiary to this entire Agreement and shall guarantee the performance of CSSi hereunder. 15. Severability. If any of the articles, sections, paragraphs, clauses or provisions of this Agreement shall be held by a court of last resort to be invalid, the remainder of this Agreement shall not be affected thereby. 16. Entire Agreement. The foregoing contains the entire agreement between the parties relating to the subject matter of this Agreement, and may not be altered or amended except by an instrument in writing approved by the Board of Directors of NRC and signed by the parties hereto, and this Agreement supersedes all prior understandings and agreements relating to employment of the Employee by NRC. The parties acknowledge that any prior oral or written agreements between NRC and the Employee, if any, are hereby terminated. The parties acknowledge that the Employee and NRC have also entered into a separate Purchase Agreement and Non-Competition Agreement which shall be in addition to and not in lieu of the provisions of this Agreement. IN WITNESS WHEREOF, CSSi and NRC have caused this Agreement to be executed by their duly authorized officers and the Employee has hereunto set his hand as of the date first above written. COMMUNICATIONS & SYSTEM SPECIALISTS, INC. By: D. Bruce McIndoe ---------------------------- D. Bruce McIndoe, President NICHOLS RESEARCH CORPORATION By: Michael Mruz ---------------------------- Micheal Mruz, President D. Bruce McIndoe -------------------------------- D. Bruce McIndoe, Employee EX-10.23 9 CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT This Convertible Preferred Stock Purchase Agreement (the "Agreement") is made and entered into on this the 16th day of December, 1994, by and among TXEN, INC., an Alabama corporation (the "Company"), NICHOLS RESEARCH CORPORATION, a Delaware corporation ("NRC"), all of the current shareholders of the Company, namely, Thomas L. Patterson, Paul D. Reaves and Chris H. Horgen (collectively, the "Shareholders," with Thomas L. Patterson and Paul D. Reaves collectively referred to as the "Management Shareholders"). W I T N E S S E T H In consideration of the mutual covenants, conditions and limitations set forth herein, the parties agree as follows: 1. AUTHORIZATION, ISSUANCE AND SALE. 1.1 AUTHORIZATION. Simultaneously upon or immediately after the execution of this Agreement, the Company shall adopt and file with the Probate Court of Jefferson County, Alabama, the Articles of Amendment in form identical to Exhibit A attached hereto so as to authorize one (1) share of $0.002 par value Preferred Stock, 5,000,000 shares of $0.002 par value Class A Common Stock and 1,250,000 shares of $0.002 par value Class B Common Stock. 1.2 EXCHANGE. Simultaneously upon or immediately after the execution of this Agreement and the filing of the Articles of Amendment referred to in Section 1.1. above, the Company shall effect a five for one stock split and each Shareholder shall exchange one share of $0.01 par value common stock for five shares of $0.002 par value Class A Common Stock. 1.3 ISSUANCE AND SALE OF PREFERRED STOCK. On the basis of the representations, warranties and covenants contained herein, NRC agrees to purchase and the Company agrees to sell to NRC one (1) share of Preferred Stock in consideration of One Million Five Hundred Thousand Dollars ($1,500,000) payable in immediately available funds at Closing. Upon the consummation of the Closing, the capital stock of the Company shall be as follows: (1) The sole share of authorized Preferred Stock shall be held and owned by NRC; (2) The Shareholders shall, collectively, own 5,000,000 shares of the Class A Common Stock; and (3) All shares of Class B Common Stock shall be reserved for issuance upon conversion of the Preferred Stock as provided herein and in the Articles of Amendment attached as Exhibit A. 2. CLOSING. 2.1 CLOSING DATE AND LOCATION. The Closing of NRC's purchase of the Preferred Stock shall take place at the offices of the Company in Birmingham, Alabama on or before December 31, 1994, subject to the occurrence of the conditions to each party's obligation to close and consummate such purchase and sale (or the waiver of any such conditions by the applicable party). 2.2 Delivery. At the Closing, the Company will deliver to NRC a certificate for the Preferred Stock, registered in NRC's name, against payment by NRC of the $1,500,000 purchase price in immediately available funds. At the Closing, the Company, NRC and the Shareholders shall execute and deliver the Employment Agreements, the Stock Purchase Option Agreement and each and every other agreement and instrument required by the terms of this Agreement to be executed at or prior to Closing. 3. Representations and Warranties of the Parties. 3.1 Representations and Warranties of the Company and the Management Shareholders. Except for any exceptions described on Exhibit B to this Agreement (the "Disclosure Schedule") the Company and the Management Shareholders hereby jointly and severally represent and warrant to NRC as follows: 3.1.1 Business; Organization; Authorizations; and Qualifications. The Company is engaged in the business of managed care administration and providing information systems and services to managed care administrators (the "Business"). The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Alabama, has all requisite corporate power and authority to carry on the Business as presently conducted and has all necessary power and authority to carry out the transactions contemplated under this Agreement and the other agreements. A copy of the Company's Articles of Incorporation and By-Laws have been previously furnished to NRC. The Company's Shareholders and Board of Directors have adopted resolutions approving the execution, delivery and consummation of this Agreement and the other agreements referenced herein. A certified copy of the resolutions of the Board of Directors and Shareholders of the Company have been previously delivered to NRC. The Company is qualified to transact its Business and is in good standing in the State of Alabama and in each and every other jurisdiction of the United States in which the nature and/or character of the Company's Business require such qualifications. A list of the states where the Company is qualified to do business is contained on Section 3.1.1 of the Disclosure Schedule. 3.1.2 Capital Stock. The authorized capital of the Company now consists of 2,000,000 shares of Common Capital Stock with the par value of $0.01 per share and the number of shares of Common Capital Stock outstanding at the time of the execution of this Agreement was 1,000,000, all of which are owned by the Shareholders as set forth on Section 3.1.2 of the Disclosure Schedule to this Agreement. All outstanding shares of Common Stock as of the date of this Agreement have been duly authorized, validly issued and are fully paid and non-assessable and were issued in compliance with all applicable federal and state securities laws. Except for the one (1) share of Preferred Stock which will be issued pursuant to this Agreement and which will be convertible into shares of Class B Common Stock, there are no outstanding options, warrants, conversion rights, rights of first refusal, preemptive rights or other rights or agreements for the purchase or acquisition from the Company of any capital stock or equity securities of the Company or any rights thereto. 3.1.3 No Subsidiaries. The Company does not presently own or control, directly or indirectly, any interest or equity in any other corporation, partnership, limited liability company, association or other entity. 3.1.4 Valid and Binding. All corporate action on the part of the Company, its officers, directors and shareholders, necessary for the authorization, execution, delivery of this Agreement and the other agreements referenced herein and performance of all obligations of the Company and the Shareholders has been taken prior to the execution of this Agreement. This Agreement is and, upon execution and delivery of the other agreements contemplated hereby, will be valid and binding obligations of the Company and the Shareholders and enforceable against the Company and the Shareholders in accordance with their respective terms, except as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application relating to or affecting enforcement of creditors' rights. 3.1.5 Authorization of New Classes of Stock. The Class A Common Stock, Class B Common Stock and Preferred Stock have been duly authorized and reserved, and upon the filing of the Articles of Amendment and upon the issuance of the Preferred Stock and the Class A Common Stock in accordance with the terms of this Agreement and the Articles of Amendment will be validly issued and outstanding, fully paid and non-assessable. The Class B Common Stock reserved for issuance upon conversion has been duly authorized and reserved, and upon issuance upon conversion in accordance with the terms of this Agreement and the Articles of Amendment, will be validly issued and outstanding, fully paid and non-assessable. 3.1.6 Consents. No consent, approval, order or authorization of or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority on the part of the Company is required in connection with the execution, delivery and performance of this Agreement and the other agreements hereunder, or the offer, sale or issuance of the Preferred Stock hereunder, except such as has already been obtained or is not required to be obtained prior to Closing. 3.1.7 Litigation. Except as disclosed in Section 3.1.7 of the Disclosure Schedule, there is no action, suit, proceeding or investigation pending or, to the best of the knowledge of the Company and the Management Shareholders, threatened against the Company or the Shareholders in relation to the Company in any respect whatsoever or in relation to their activities with respect to the Company, and, to the best knowledge of the Company and the Management Shareholders, no basis therefor exists. To the best of the Company's and the Management Shareholders' knowledge, there are no investigations, claims or other matters pending or threatened which might result, either individually or in the aggregate, in any material adverse change in the assets, conditions, affairs or prospects of the Company, financially or otherwise, and the Company is not subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality which names the Company as a party. 3.1.8 Intellectual Property. The Proprietary Rights described on the Proprietary Rights List on Section 3.1.8 of the Disclosure Schedule includes all of the intellectual property used in or related to the Business or necessary for the operation of the Business except to the extent identified in Section 3.1.9 of the Disclosure Schedule. Except as set forth on Section 3.1.8 of the Disclosure Schedule, which includes a listing of contracts or licenses pursuant to which the Company uses the intellectual property of third parties, with respect to the Proprietary Rights, (a) the Company is the sole and exclusive owner of and has the sole and exclusive right to use the Proprietary Rights; (b) no action, suit, arbitration, or other proceeding or investigation is pending or, to the best knowledge of the Company, threatened which involves any Proprietary Rights, (c) to the best knowledge of the Company, none of the Proprietary Rights infringes upon, conflicts with, or otherwise violates the rights of others or is being infringed upon by others, (d) none of the Proprietary Rights is subject to any outstanding order, decree, judgment, stipulation, or charge, (e) there are no royalty, commission, or similar arrangements and no licenses, sublicenses, or agreements relating to any of the Proprietary Rights, (f) the Company has not received any notice of interference or infringement of or by the Proprietary Rights, (g) the Company has not agreed to indemnify any person or entity for or against any infringement of or by the Proprietary Rights, and (h) to the best knowledge of the Company and Management Shareholders, no other party is operating a business or otherwise acting in violation or infringement of Company's Proprietary Rights. Except as set forth on Section 3.1.8 of the Disclosure Schedule, the Company has good and marketable title to the Proprietary Rights listed on the Proprietary Rights List, free and clear of all security interests, liens, pledges, encumbrances and restrictions. Except as set forth on Section 3.1.8 of the Disclosure Schedule, the transfer of the Preferred Stock to NRC pursuant to this Agreement, this conversion of the Preferred Stock to Class B Common Stock, and the transfer of the Class A Common Stock to NRC pursuant to the Stock Purchase Option Agreement do not require the consent or approval of any third party. The Company is not subject to any judgment, order, writ, injunction, or decree of any court, arbitrator, or governmental agency or instrumentality, domestic or foreign, and is not party to any agreement, which restricts or impairs the use of any Proprietary Rights. 3.1.9 Software and Information Systems. The software described on the Software List on Section 3.1.9 of the Disclosure Schedule includes all material information systems, programs, data bases, and software, other than non-exclusive commercial software, used in or related to the Business or necessary for the operation of the Business. The Software List lists all such software and identifies (a) software which is owned by the Company, (b) software which is licensed to the Company, and (c) any other software in which the Company has any use, possessory, or proprietary rights and which is used in or related to the Business. Except as set forth on Section 3.1.9 of the Disclosure Schedule, the Company has the sole and exclusive right, title, and interest in and to all software listed on the Software List, other than software used in or related to the Business pursuant to a commercially available non-exclusive license agreement. Except as set forth on Section 3.1.9 of the Disclosure Schedule, the Company has good and marketable title to the software listed on the Software List, free and clear of all security interests, licenses, royalties, liens, pledges, encumbrances and restrictions. Except as set forth on Section 3.1.9 of the Disclosure Schedule, all of the software which is owned by the Company, including all related source codes and documentation, is owned solely by the Company and has not been disclosed to any unaffiliated entity or person. Except as set forth on Section 3.1.9 of the Disclosure Schedule, there are, to the best knowledge of the Company, no violations of trade secret rights or copyrights with respect to the software. All of Company's pending software systems development projects are described in Section 3.1.21 of the Disclosure Schedule. 3.1.10 Employment/Employee Matters. The Company and the Management Shareholders are not aware that any of the Company's employees is in violation of or in conflict with any of the terms, conditions or provisions of, or has committed a breach of or a default under, any contract, covenant or instrument under which such employees are now obligated. Except for the Employment Agreements to be executed by the Management Shareholders as a condition to NRC's obligation to close and consummate this Agreement, no employee of the Company is a party to any written or oral employment agreement and all employees of the Company, including the Shareholders (prior to their execution of the Employment Agreements contemplated below) are employees at will. Section 3.1.10 of the Disclosure Schedule provides that the Company has delivered to NRC a list containing each employee of the Company and his or her title and job description. A compensations schedule for each employee has been previously delivered to NRC. Except for the Company's group health and major medical plans and 401(k) retirement plan, the Company does not maintain any pension plans, welfare benefit plans or other plans covered by the Employee Retirement Income Security Act (ERISA). No employee of the Company is subject to any non-competition agreement, confidentiality agreement or similar agreement with any other third person or employer which would prevent or restrict the employee's services for and on behalf of the Company. No employee of the Company is a member of a labor union and, to the best knowledge of the Company and the Management Shareholders, there are no labor disputes, complaints or union activities. 3.1.11 No Violations. The Company is not in violation or default of any provisions of its original Articles of Incorporation, the first amendment thereto or its By-Laws, as amended, and in effect on and as of the date of this Agreement and as of the date of Closing, or any contract, agreement or instrument to which the Company is a party or by which it is bound or, to the knowledge of the Company and the Management Shareholders, of any provision of any federal, state or local law, rule, statute, regulation, judgment, writ, decree or order applicable to the Company. The execution, delivery and performance of this Agreement and the other agreements and the consummation of the transactions contemplated hereby and thereby will not result in any such violation or contravene or constitute, with or without the passage of time and giving of notice, either a default under any such provision or contract or result in the creation or imposition of any lien, charge or encumbrance upon any assets of the Company. 3.1.12 Contracts and Agreements. All of the Company's material contracts and agreements are identified in Section 3.1.12 of the Disclosure Schedule, including but not limited to, customer contracts, supplier contracts, leases, employment contracts, and distributor agreements. Except for any of the agreements and arrangements described in Section 3.1.12 of the Disclosure Schedule, there are no employment, loan or other agreements, understandings or proposed transactions between the Company and any of its officers, directors, Shareholders, or any affiliate thereof. Except as disclosed in Section 3.1.12 of the Disclosure Schedule, no default with respect to any material contract has occurred or to the best of knowledge of the Company and the Management Shareholders, no such default is threatened or anticipated. 3.1.13 No Misrepresentations or Omissions; Disclosures. The Company and the Management Shareholders have fully provided NRC with all information, documents, agreements and instruments which are material to the business, operation and financial condition of the Company, all as more particularly described in this Agreement. To the best knowledge of the Company and the Management Shareholders, there has been no failure to disclose any known material fact necessary to make the representations and warranties contained herein not misleading. To the best knowledge of the Company and the Management Shareholders, no representation, warranty or statement by the Company in this Agreement or in the disclosures described in Schedule B to this Agreement or in any certificate furnished or to be furnished to NRC pursuant to this Agreement or any of the other agreements contains or will contain any untrue statement of a material fact or, when taken together, omits or will omit to state any material fact necessary to make the statements made herein or therein, in light of the circumstances under which they were made, not misleading. 3.1.14 Assets; Liens. A list of the tangible assets owned or leased by the Company is attached as Section 3.1.14 to the Disclosure Schedule. The Company owns its property and assets free and clear of all mortgages, liens, loans, security interests and encumbrances except those matters described in Section 3.1.14 of the Disclosure Schedule. The Company does not lease or license any property or assets other than those properties and assets described in Section 3.1.14 of the Disclosure Schedule. With respect to property leased or licensed, the Company is in compliance with such leases and licenses, no party is in default thereunder and the Company holds a valid leasehold or license interest therein. 3.1.15 Insurance. The Company maintains such types and amounts of insurance with respect to its business and properties as are customarily carried by persons or entities engaged in the same or similar businesses as the Company. A list of the insurance policies maintained by the Company and delivered to NRC set forth in Section 3.1.15 of the Disclosure Schedule. 3.1.16 Financial Statements. The Company has furnished to NRC the following Financial Statements: (a) The unaudited balance sheets of the Company at June 30, 1994 and June 30, 1993, and the related audited statements of income (loss), shareholders equity and cash for the fiscal years then ended, in each case compiled by the Company; and (b) The unaudited balance sheets of the Company at September 30, 1994 and the related unaudited statements of income (loss) for the two month period ended September 30, 1994, in each case prepared and compiled by the Company. These Financial Statements have been prepared by the Company without audit, review or the assistance of a public accountant or certified public accountant, but to the best knowledge of the Company and the Management Shareholders, (1) are true, correct and complete, (2) have been prepared in accordance with the books and records of the Company, and (3) present fairly the consolidated financial condition and consolidated operating results of the Company as of the date and for the periods indicated, none of which adjustments are or will be materially adverse, in the aggregate. The Company maintains and, for so long as NRC is a holder of any shares of capital stock, will continue to maintain the system of accounting established and administered in accordance with generally accepted accounting principles. 3.1.17 Taxes and Returns. The Company has filed or caused to be filed all federal, state and local tax returns which are required to be filed by it and all such returns are true and correct. The Company has paid or caused to be paid all taxes pursuant to such returns or pursuant to any assessments received by the Company or which the Company is obligated to withhold from amounts owing to any employee, creditor or third party. The income tax returns for the Company have never been audited by any federal, state or local authority and, to the best knowledge of the Company and the Management Shareholders, no audit is pending or threatened. 3.1.18 Compliance with Law. To the best knowledge of the Company and the Management Shareholders, the Company is in full and strict compliance with all environmental laws and is in material compliance with all other laws, rules, regulations, statutes and provisions applicable to the Company and/or its business and operations, including, without limitation, OSHA, ERISA, labor and employment laws, health laws, property and zoning laws and ordinances, tax laws, securities laws and each and every other law, statute, rule or regulation applicable to the Company. 3.1.19 No Undisclosed Liabilities. Except as disclosed in the balance sheet of the Company for the period ended September 30, 1994 and except as described in Section 3.1.19 of the Disclosure Schedule, the Company has no liabilities, obligations, debts, loans, demands, fines, taxes, tax assessments, interest, remediation liability, warranty claims, accounts payable, claims or penalties and, to the best knowledge of the Company and the Management Shareholders, no basis exists for the creation or imposition of any such debts, liabilities, obligations or claims. To the best knowledge of the Company and Management Shareholders, the Company has not experienced any warranty, service or product claims which are unresolved or likely to result in litigation. 3.1.20 Material Changes. Except as disclosed in Section 3.1.20 of the Disclosure Schedule, since September 30, 1994, there has not been (1) any material adverse change in the financial condition, results of operation, assets, liabilities, business or prospects of the Company, (2) any liability or obligation of any nature whatsoever (contingent or otherwise) incurred by the Company other than liabilities incurred in the ordinary course of business, and no such liabilities are material to the financial condition or operating results of the Company, (3) any liability or obligation of any nature whatsoever (contingent or otherwise) that is not required under generally accepted accounting principles to be reflected in the Financial Statements of the Company, (4) any asset or property of the Company made subject to a lien, claim, security interest or encumbrance of any kind or nature except as disclosed in Section 3.1.14 of the Disclosure Schedule, (5) any waiver of any valuable right of the Company or any cancellation of any debt or claim held by the Company, (6) any declaration or payment of dividends on or other distributions with respect to, or any direct or indirect redemption or acquisition of, any shares of capital stock of the Company, or any resolution, agreement or commitment therefore, (7) any issuance of any capital stock, (8) any issuance or grants of any options or rights to acquire capital stock or assets of the Company which have not been canceled prior to the date hereof, (9) any sale, assignment or transfer of any tangible or intangible assets of the Company except for the licensing of Company software in the ordinary course of the Company's business, (10) any loan by the Company to any officer, director, employee, consultant or Shareholder of the Company, or any agreement or commitment therefor except as described in Section 3.1.12 of the Disclosure Schedule and except for routine travel advances, or any loan or commitment to make a loan to any other third party, (11) any damage, destruction or loss (whether or not covered by insurance) affecting the assets, property, or business of the Company, (12) any other transactions with any Shareholder or any affiliate of any Shareholder, (13) any change in the accounting methods, practices or policies followed by the Company, including any change in the depreciation or amortization policies, any material change in the method in which the Company conducts business or any other significant and material changes applicable to the Company, and/or (14) any material change in the compensation paid to any employee of the Company. 3.1.21 Company Products. Section 3.1.21 of the Disclosure Schedule lists the products and services of the Company and those products and services of the Company that are currently under development. The products and services of the Company which are currently being sold or licensed by the Company conform in all material respects to the representations and warranties made by the Company to its customers with regard to such products and services. The Company's products and services are applied in diverse applications with rapidly changing requirements which constantly require the Company and its customers to share the cost of modifying the products to serve the needs of the customers. The Company has not experienced any material difficulties in connection with the development of its products and services currently under development and the Company and the Management Shareholders have no reason to believe that the Company will be unable to complete the development of the Company's products and services currently under development, except as set out on Schedule 3.1.21. 3.1.22 Accounts Receivable and Matters Regarding Customer Claims. The accounts receivable balance of the Company as of September 30, 1994 was $831,677.64 and, to the best knowledge of the Company, except for $59,309.44 owed by Jones Hill, all of such receivables are collectible, subject to any reserve for doubtful accounts that is consistent with past Financial Statement practice. No customer of the Company has canceled any contract or order and there are no current or pending customer claims, requests for returns or credits, or complaints with respect to any products of the Company. The backlog of orders (unearned revenue and customer deposits) for the Company's products as of August 30, 1994 was $468,844.05. The Company, over the past 12 months, has not experienced a material amount of customer claims, returns, credits, complaints or warranty service, and the total spent by the Company on such matters for the 12-month period ended September 30, 1994 did not exceed $40,092.00 plus the expense of programming and support in respect to customer requests. 3.1.23 Violation of Third Party Agreements. To the best knowledge of the Company and the Management Shareholders, no third party has claimed to the Company or the Management Shareholders or to any other employee of the Company that such shareholder or employee has, with respect to his or her activity on behalf of the Company, violated any of the terms or conditions of any contract, employment or otherwise, he or she had with any third party, or disclosed or utilized any trade secret or proprietary information or documentation of any third party. To the best knowledge of the Company and the Management Shareholders, no person employed by the Company has wrongfully employed, used or disclosed any trade secrets or any confidential information or proprietary or intellectual property of any third person or entity and no person employed by the Company has violated any contractual or other legal obligations that he or she may have had with any third party. 3.2 Representations of NRC. NRC hereby represents and warrants to the Company and the Shareholders as follows: 3.2.1 Due Diligence Investigation. NRC has had an opportunity to discuss the Company's business, management and financial affairs with the Management Shareholders and has had the opportunity to inspect the Company's facilities, assets and properties. In making its decision to purchase the Preferred Stock, NRC has relied solely upon the information, representations, warranties and covenants furnished, made or made available by the Company and the Management Shareholders as contained in this Agreement. NRC has made its own independent investigation of the Company and has been furnished by the Company and the Management Shareholders with such information relating to the Company as NRC has requested. Such investigation shall not change, modify or reduce the effect of the representations and warranties set forth in Section 3.1 hereof. 3.2.2 Preferred Stock Not Registered; Legend. NRC is acquiring the Preferred Stock and any Class B Common Stock into which the Preferred Stock may be converted for investment for its own account and not with the view to, or for resale in connection with, any distribution thereof. NRC understands that it must bear the economic risk of an investment in the Preferred Stock for an indefinite period of time because the Preferred Stock and the other capital stock of the Company have not been registered under the Securities Act of 1933 or the Alabama Securities Act (the "Security Acts"), and therefore, cannot be sold unless such stock is either subsequently registered under the Securities Acts or an exemption from registration is available. NRC understands that the Preferred Stock and any Class B Common Stock into which the Preferred Stock may be converted shall contain a legend indicating that the securities are not registered under the Securities Acts and may only be sold pursuant to registration under the Securities Acts (and the state securities laws of other applicable jurisdictions) or an exemption therefrom. 3.2.3 Organization. NRC is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and NRC is duly qualified to do business and is in good standing under the laws of the State of Alabama. 3.2.4 Authority. NRC has full legal right, power and authority to execute, deliver and perform this Agreement and the other agreements and transactions contemplated hereby. All corporate and other acts or proceedings required to be taken by NRC to authorize the execution, delivery and performance of this Agreement and the other agreements and transactions contemplated hereby have been duly and properly taken. 3.2.5 Approvals. No approval, authorization, consent, order or action of, or filing with, any person, entity, court, administrative agency or other governmental authority as required for the execution and delivery by NRC of this Agreement or the other agreements and transactions contemplated hereby. 3.2.6 Validity. This Agreement has been, and the documents to be delivered by NRC at Closing will be duly executed and delivered and constitute lawful, valid, and binding obligations of NRC enforceable in accordance with their terms, subject to bankruptcy, insolvency, reorganization, moratorium, and other laws affecting the rights of creditors generally and to the discretion of a court in granting equitable relief. 3.2.7 No Breach. The execution and delivery of this Agreement and the other agreements and transactions contemplated hereby are not prohibited by, will not violate or conflict with any provision of, and will not constitute a default under, or a breach of (1) the charter or by-laws of NRC, (2) any contract, agreement or other instrument to which NRC is a party, (3) any order, writ, injunction, decree or judgment of any court or governmental agency, or (4) any law, rule or regulation applicable to NRC. 4. Conditions to Closing. 4.1 Conditions to NRC's Obligation. The obligation of NRC to purchase the Preferred Stock and to otherwise close and consummate this Agreement and the other agreements are subject to the fulfillment on or before the Closing of each of the following conditions by the Company, the Shareholders and the Management Shareholders, the waiver of which shall not be effective against NRC unless in writing: 4.1.1 Truth of Representations. The representations and warranties of the Company and the Management Shareholders contained in Section 3.1 and elsewhere in this Agreement and the other agreements shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of such Closing, and the President and Secretary of the Company and each Shareholder shall execute and deliver to NRC a certificate to this effect. 4.1.2 Performance of Covenants. The Company and the Shareholders shall have performed and complied with all agreements, obligations and conditions contained in this Agreement and the other agreements that are required to be performed or complied with by them on or before the Closing, and the President and Secretary of the Company and each and every Shareholder shall deliver to NRC at Closing a certificate to this effect. 4.1.3 Miscellaneous Deliveries. The Company and/or the Management Shareholders shall have delivered to NRC at the Closing such other certificates, instruments and agreements as NRC or its counsel shall deem reasonably necessary to insure the legal validity of this Agreement and the other agreements, to insure that the conditions set forth herein have occurred and been fulfilled and to otherwise provide for the closing and consummation of this Agreement. 4.1.4 Articles Filed. The Articles of Amendment to the Articles of Incorporation of the Company attached as Exhibit A shall have been duly and properly filed in the Office of the Probate Court of Jefferson County, Alabama prior to Closing and said Probate Court shall have issued a certificate confirming that said Articles of Amendment have been duly filed in full accordance with applicable law. 4.1.5 Execution of Employment Agreements. Each Management Shareholder and the Company shall have executed and delivered his Employment Agreement attached as Exhibit C to this Agreement prior to Closing. 4.1.6 Amendment of By-laws. The By-laws of the Company shall be amended to conform with the requirements of this Agreement and the related agreements herein and shall be in a form substantially similar to Exhibit D. 4.1.7 Execution of Stock Purchase Option Agreement. The Company, NRC and each Shareholder shall have executed and delivered the Stock Purchase Option Agreement attached as Exhibit E at or before Closing. 4.1.8 Legal Opinion. NRC shall have received the legal opinion of Ritchie & Rediker, counsel to the Company and the Shareholders, in the form of the opinion attached as Exhibit F to this Agreement. 4.1.9 No Change in Stock Ownership. There shall have been no change in the stock ownership of the Shareholders. The Company shall not have made any issuances or sold any stock of the Company or granted option, warrant or other right with respect to any stock of the Company. 4.1.10 Fairness Opinion. NRC shall have received a fairness opinion from The Robinson-Humphrey Company at or before Closing to the effect that the transaction is fair from a financial point of view. 4.1.11 NRC Board Approval. The execution, delivery and consummation of this Agreement and the other agreements to which NRC is a party shall have been approved by the Board of Directors of NRC. 4.1.12 Due Diligence Results. NRC and its investment banking firm shall have completed a due diligence review of the Company and its Business, financial information and prospects and shall be reasonably satisfied that the business, financial condition and prospects of the Company have not materially and adversely changed from the date of the execution of this Agreement. 4.1.13 Settlement of Pending Suit. The Company shall have settled that current lawsuit filed against the Company by HRH in the Circuit Court of Jefferson County, Alabama, Case No. CV94-1591, or such lawsuit must have otherwise been dismissed upon terms approved in the sole and arbitrary discretion of NRC. 4.1.14 Exchange of Common Stock for Class A Common Stock or Options with Respect Thereto. All Shareholders have surrendered their certificates for Common Stock for a like number of shares of Class A Common Stock. 4.1.15 Board of Directors. The Board of Directors of the Company shall consist of three directors of which Michael J. Mruz shall constitute the director NRC is entitled to elect pursuant to the Articles of Amendment. The by-laws of the Company shall be amended to provide for three directors and to conform the by-laws to the requirements of this Agreement and the agreements related hereto. 4.1.16 Certified Copies of Resolutions. Certified copies of the resolutions adopted by the Board of Directors and Shareholders of the Company approving this Agreement and transactions contemplated hereby shall be delivered to NRC at Closing. 4.2 Conditions to Company's Obligation. The obligation of the Company and the Shareholders to sell the Preferred Stock and to otherwise close and consummate this Agreement and the other agreements are subject to the fulfillment on or before the Closing of each of the following conditions by NRC, the waiver of which shall not be effective unless in writing: 4.2.1 Truth of Representations. The representations and warranties of NRC contained in Section 3.2 and elsewhere in this Agreement and the other agreements shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of such Closing, and the Chief Executive Officer, President or any Vice- President of NRC shall execute and deliver to the Company a certificate to this effect. 4.2.2 Performance of Covenants. NRC shall have performed and complied with all agreements, obligations and conditions contained in this Agreement and the other agreements that are required to be performed or complied with by it on or before the Closing, and the Chief Executive Officer, President or any Vice-President of NRC shall deliver to the Company at Closing a certificate to this effect. 4.2.3 Miscellaneous Deliveries. NRC shall have delivered at the Closing such other certificates, instruments and agreements as the Company or the Management Shareholders or their counsel shall deem reasonably necessary to insure the legal validity of this Agreement and the other agreements, to insure that the conditions set forth herein have occurred and been fulfilled and to otherwise provide for the closing and consummation of this Agreement. 4.2.4 Articles Filed. The Articles of Amendment to the Articles of Incorporation of the Company attached as Exhibit A shall have been duly and properly filed in the Office of the Probate Court of Jefferson County, Alabama and said Probate Court shall have issued a certificate confirming that said Articles of Amendment have been duly filed in full accordance with applicable law. This is not only a condition of the Company and the Management Shareholders, but a covenant, as well, and any failure of this condition shall be deemed a breach of this Agreement by the Company and the Management Shareholders. 4.2.5 Employment Agreements. It shall be a condition to the Management Shareholders' obligations hereunder that the Employment Agreements attached as Exhibit C be executed and delivered by the Company and NRC. 4.2.6 Stock Purchase Option Agreement. The Company, NRC and each and every Shareholder shall have executed and delivered the Stock Purchase Option Agreement attached as Exhibit E. 4.2.7 Legal Opinion. The Company shall have received the Legal Opinion of Lanier Ford Shaver & Payne, counsel to NRC, in the form of the opinion attached as Exhibit G. 4.2.8 Bank Loan. The Company shall have obtained a bank loan or bank line of credit which is reasonably satisfactory to the Company. The bank loan or line of credit must not require the pledge of personal assets of any Shareholder of the Company but may require the personal guaranty of any of the Management Shareholders. The Company shall not be entitled to reject any bank loan or line of credit for reasons related to interest rate so long as the interest rates offered are no greater than the commercial base rate or prime rate of the lending institution plus 2%. The Company may not reject the bank loan or bank line of credit on the grounds that the repayment terms are unsatisfactory if the repayment terms offered are amortized over a period of at least five years, with no balloon payment until the expiration of one year after the date of the loan. 5. Post-Closing Covenants of the Parties. The covenants and agreements made in this Section 5 by the Company shall also be deemed made jointly and severally by the Management Shareholders. 5.1 Independent Accounting Firm. Effective with the Closing, the Company shall employ the independent accounting firm of Ernst & Young to prepare audited year-end financial statements as long as NRC owns any capital stock of the Company. The Company may employ another accounting firm with the consent of NRC if Ernst & Young refuses to audit the financial statements of the Company, provided the Company employs another independent accounting firm acceptable to NRC. The Company shall maintain such accounting systems, engage in such practices and maintain such records as shall be necessary, in the judgment of the Company's independent accounting firm, to provide audited financial statements for each fiscal year of the Company commencing with the year ending June 30, 1995. 5.2 Financial Reports. For so long as NRC is the holder of any shares of capital stock of the Company and Management Shareholders, the Company will cause the Company to provide to NRC the financial statements, reports and rights described below in this Section 5.2. (a) As soon as practicable after the end of each calendar month and each fiscal quarter, respectively, and in any event within 20 days after the end of each month and 20 days after the end of each fiscal quarter, consolidated balance sheets of the Company and any subsidiaries of the Company, as at the end of each such month and quarter, and consolidated statements of income and of sources and applications of funds of the Company and its subsidiaries, if any, for each such month and quarter, and for the current fiscal year to date, prepared by the Company in accordance with generally accepted accounting principles, all in reasonable detail and certified, subject to changes resulting from year-end audit adjustments, provided, however, that such financial statements need not include all footnotes required under generally accepted accounting principles. (b) As soon as practicable after the end of each fiscal year, and in any event within 60 days thereafter, consolidated balance sheets of the Company and its subsidiaries, if any, as at the end of such fiscal year, and consolidated statements of income and of sources and applications of funds of the Company and its subsidiaries, if any, for such year, prepared in accordance with generally accepted accounting principles and setting forth in each case in comparative form the financial statements for the previous fiscal year, all in reasonable detail and audited and delivered to NRC directly by the Company's independent accounting firm, and the audit report and the working papers of such accountant shall also be furnished to NRC. (c) Within ten days of its adoption from time to time by the Board of Directors of the Company, and in any event before 30 days prior to the beginning of a fiscal year, an annual budget plan for the next fiscal year which shall include projected reserves, margins, expenses, net profits, capital expenditures, cash flow and balance sheets. In addition, the Company shall each year and as often as circumstances warrant update its business plan for the next five years. The annual budget and updated business plan shall be delivered to NRC in such detail as NRC may reasonably determine. (d) The right to visit and inspect any of the properties of the Company or any of its subsidiaries, including its and their books of account, and to take extracts therefrom, and to discuss its and their affairs, finances and accounts with its and their officers, all at such times and as often as NRC may reasonably request. (e) Such other information as NRC may reasonably request from time to time. (f) The Company shall furnish NRC promptly, from time to time, such other reports regarding the operations, business, affairs and financial condition of the Company or its subsidiaries, if any, as the Company or its Board of Directors may prepare for use by the Company's management, such materials to be delivered at least within three days after such materials are delivered to management of the Company. 5.3 Certain Voting Requirements; No Amendment to Articles of Incorporation. The Shareholders shall not vote their capital stock to amend the Articles of Incorporation or the By-Laws of the Company or to merge, consolidate or reorganize without the prior written consent of NRC, which consent may be withheld in the sole and arbitrary discretion of NRC (except as provided in 5.11 below). The Board of Directors of NRC shall be entitled to nominate and have elected at least one-third of the Company's Board of Directors. Each Shareholder hereby agrees to vote each and every share of his capital stock to nominate and elect NRC's nominees for at least one-third of the members of the Company's Board of Directors. The Shareholders hereby agree to amend this Agreement and the Stock Purchase Option Agreement and to take such other actions as shall insure the continued applicability of this Section 5.3 in the event any provision of applicable law would render void or ineffectual this Section (for example, the 10 year limitation on voting trusts or voting agreements) or otherwise, and they shall vote such capital stock and take such actions prior to any date that this Section would be deemed void or ineffectual. 5.4 Use of Proceeds. The Company agrees and the Management Shareholders hereby agree to cause the Company to apply the proceeds from the sale of the Preferred Stock only for expenditures that, under generally accepted accounting principles, must be capitalized on the books and records of the Company, including, without limitation, research and development expenditures to complete development of that certain software project known as "TXEN Two-Step," the purchase of new computers and certain other capital expenditures approved by NRC in its reasonable discretion. Specifically, the Company shall be prohibited from using any part of the proceeds to reduce bank debt, reduce any debt owed by the Company to its Shareholders or to any other party or for daily operations. There is hereby excepted from the following restrictions on the use of proceeds the right of the Company to pay $33,333 per year up to $100,000 over three years in reduction of accrued but unpaid salaries due officers of the Company. Upon the Closing of the purchase of stock pursuant to the exercise of NRC's option under the Stock Purchase Option Agreement attached as Exhibit E hereto, all accrued but unpaid salary owed Company employees and all debts owed the Shareholders of the Company shall be paid in full. 5.5 Special Covenants of Management Shareholders. Each Management Shareholder shall use his best efforts to cause the Company to comply fully with and shall take no action to cause the Company to breach the terms, provisions, restrictions, limitations, representations and warranties contained in this Agreement, the Stock Purchase Option Agreement, Software Development Agreement, Employment Agreements and the other agreements contemplated hereby. Each Management Shareholder hereby covenants and agrees to vote, as a director and shareholder, to insure the Company's performance and NRC's rights hereunder and under the other agreements. The Company agrees to enforce the terms and provisions of the Employment Agreements attached as Exhibit C hereto and shall not waive or amend any provision thereof without the written consent of NRC. 5.6 Interested Transactions. The Company shall not enter into any Interested Transactions (as herein defined) with the Management Shareholders or Affiliates (as herein defined) without NRC's prior written consent, which may be withheld in the sole discretion of NRC. Notwithstanding the foregoing, this Section shall not prohibit any contract by and between the Company, Management Shareholders or its Affiliates with NRC, such as the Software Design Contract or the other agreements, so long as the Board of Directors of the Company approves the execution thereof by a majority vote, with the NRC Board appointees abstaining. For purposes of this Agreement, the terms "Affiliate" and "Interested Transactions" shall have the following meanings: (a) "Affiliate" shall mean (i) any relative, by blood or marriage, or any spouse, child or dependent of any officer, director, shareholder or employee of the Company or (ii) any corporation (including the Company and its Affiliates), partnership, limited liability company or other entity in which any officer, director, shareholder or employee of the Company (or any of their relatives or Affiliates) has any equity interest or employment or compensation arrangement, whether or not the equity interest is a controlling equity interest, except for the ownership of less than 1% of the outstanding capital stock of a reporting company under the Securities Exchange 1934 Act (the "1934 Act"), and (iii) each and every corporation, partnership, limited liability company and other entity that is controlled by or under common control with the Company or with any director, officer, shareholder, employee or any Affiliate of the Company. "Affiliate" shall also mean any subsidiary of the Company or its Affiliates. "Affiliate" shall not mean NRC and its officers, directors, employees and representatives for any purpose under this Agreement or the other agreements contemplated hereby. (b) "Interested Transactions" shall mean any interested or self-dealing transactions by, between and among any officers, directors, employees and option holders of the Company and their respective Affiliates with the Company or its Affiliates, including, without limitation, transactions covered by Section 10-2A-63 of the Code of Alabama, transactions and conflicting interests described in Division F of Article 8 of the new Alabama Business Corporation Act to become effective January 1, 1995 (including, without limitation, Section 8.60 thereof and any similar sections) and any other transactions, agreements or actions by, between and among the officers, directors, shareholders and employees of the Company (or their respective Affiliates or relatives) with the Company or with any Affiliates of the Company except NRC. A transaction that is otherwise defined herein as an "Interested Transaction" shall not lose its status as an Interested Transaction simply because the Company or its Board of Directors met any applicable standards of conduct or procedures set forth in the current Alabama Business Corporation Act or the Alabama Business Corporation Act to be effective January 1, 1995. Interested Transactions shall not include any transactions between the Company or its Affiliates with NRC or its Affiliates, such as the Software Design Contract. 5.7 Participation by Patterson in NRC Business Meetings. Beginning January 1, 1995, Thomas L. Patterson agrees to participate in NRC information technology strategic meetings at least three times per calendar year or fiscal year, as determined by NRC. One of the purposes of his participation in these meetings will be to provide advice and consultation, free of charge, to NRC in connection with NRC's information services business. Mr. Patterson's obligation under this Section shall continue until the termination of Mr. Patterson's employment with the Company or any successor in interest to the Company. Such meetings shall be held in Huntsville, Alabama or at any other office location of NRC, as determined by NRC. 5.8 NRC's Board of Directors Nomination. If NRC exercises and closes its option to purchase all of the capital stock of the Company, pursuant to the Stock Purchase Option Agreement attached as Exhibit E, NRC's Board of Directors and/or management, if legally permissible, will, in good faith, consider nominating Mr. Patterson as an NRC Board member, but only for so long as Mr. Patterson remains an employee of the Company or its successors in interest and so long as his employment with the Company is on a full-time basis. The NRC Board and/or management shall, in good faith, take such actions as shall be reasonably practicable to submit Mr. Patterson's name to the NRC shareholders as a potential Board member of NRC. The obligations of NRC's Board and management under this Section shall be dependent upon the determination of NRC's Board and management, in good faith, that Mr. Patterson qualifies to serve on the Board of NRC. 5.9 Fees and Expenses. Each party to this Agreement shall pay his or its own legal, accounting and any other expenses and fees in connection with the negotiation, execution and consummation of this Agreement and the other agreements. No party has used or contracted for the services of a broker, finder, or other representations in connection with these transactions for whom a fee or commission is due. 5.10 Press Releases. The parties shall coordinate any publicity or press releases and other disclosures to third parties concerning this Agreement, the Stock Purchase Option Agreement and the other agreements and matters referenced herein and therein. The Company and the Management Shareholders understand that NRC shall be entitled to make such public disclosures as NRC deems necessary or advisable to fulfill its obligations as a publicly-held Company under the 1934 Act. 5.11 Authorization and Sale of Addition Shares of Class A Common Stock. In the event the Board of Directors of the Company in good faith recommends to the Shareholders of the Company that the Company should raise additional equity to meet the Company's budget or business plan as prepared in accordance with Section 5.2(c) hereof, NRC will vote its capital stock of the Company in favor of an amendment to the Articles of Incorporation to authorize additional shares of capital stock to be sold to one or more investors, subject, however, to the following conditions: (a) Shares authorized for sale to additional investors shall be shares of Class A Common Stock. (b) NRC shall have a right to purchase all or any part of the additional shares of Class A Common Stock authorized and offered for sale at the same price and terms as such stock may be offered to any prospective investor. This right of purchase shall be in lieu of the right contained in Section 3(d) of Article IV of the Amended Articles of Incorporation with respect to the additional shares of Class A Common Stock authorized by the amendment and sold pursuant to this Section 5.11. (c) If NRC does not exercise its purchase right with respect to such additional shares authorized, such shares may be sold to one or more investors but only upon condition that the shares are subject to purchase by NRC at the price and upon the terms and conditions as set forth in the Stock Purchase Option Agreement. In this regard, the share certificates issued to any such investor shall bear the restrictive legend referred to in Section 7 of the Stock Purchase Option Agreement. In addition, any such investor shall also be required to agree to the terms and conditions of the Stock Purchase Option Agreement which shall apply to the shares of stock purchased by such investor. 5.12 Operate in Ordinary Course. From the date hereof and until NRC no longer owns any capital stock of the Company or until the closing of the exercise of NRC's purchase option under Stock Purchase Option Agreement, the Company and each Management Shareholder, as long as such Shareholder is employed by the Company, shall exert its and his best efforts to operate the Business in the ordinary course and preserve the value and good will of the Business and take no action to impair the rights or benefits of NRC intended by this Agreement and the other agreements contemplated hereby. 5.13 Indemnification by NRC. NRC hereby covenants and agrees to indemnify and hold the Company and the Shareholders harmless from and against any damages, losses, costs, expenses and attorneys' fees arising out of (i) any breach by NRC of any of its representations and warranties set forth in this Agreement and the other agreements contemplated hereby to which it is a party, or (ii) any breach by NRC of its promises, agreements and covenants contained in this Agreement and the other agreements contemplated hereby to which it is a party. 5.14 Indemnification by Company Shareholders. (a) The Company and the Management Shareholders shall jointly and severally indemnify and hold NRC harmless from and against any and all damages, losses, costs, expenses and attorneys' fees arising out of (i) any breach by the Company and/or any Management Shareholder(s) of any of their representations and warranties set forth in this Agreement and the other agreements to which they are a party, or (ii) any breach by the Company and/or any Management Shareholder(s) of their promises, agreements and covenants contained in this Agreement and the other agreements to which they are a party. Notwithstanding the foregoing, in the event of a breach of the representations and warranties set forth in Section 3.1 of this Agreement, the exclusive remedy of NRC for such breach by the Management Shareholders or the Company shall be to rescind the transaction and receive from the Company the entire purchase price of $1,500,000 together with interest from the date of Closing, except that if such breach is by reason of fraud or intentional misrepresentation by the Management Shareholders, NRC, in addition to rescission of the transaction, shall be entitled to recover damages against a Management Shareholder guilty of such fraud or intentional misrepresentation. (b) Each Shareholder, separately, but not jointly, shall indemnify and hold NRC harmless from and against any and all losses, liabilities, claims, costs, expenses and attorneys' fees incurred by NRC as a result of (i) any breach by such Shareholder of the terms and provisions of this Agreement, or (ii) any breach by such Shareholder of the terms and provisions of the Stock Purchase Option Agreement. 5.15 Stock Sales to Company Employees. Subsequent to the Closing, the Management Shareholders may recontribute to the Company 856,500 shares of their Class A Common Stock which may in turn be sold by the Company to employees of the Company pursuant to a Company stock purchase plan for employees. Alternatively, the Management Shareholders may sell up to 856,500 shares of their Class A Common Stock to the employees of the Company. Any such sales shall be in accordance with the restrictions set forth in the Stock Purchase Option Agreement. The stock sale agreements between the Company or the Management Shareholders and the employees of the Company shall be in a form reasonably satisfactory to NRC and each employee who purchases stock of the Company shall be required to sign an agreement obligating him to sell such stock to NRC on terms and conditions set forth in the Stock Purchase Option Agreement. Sales to employees by the Company shall be pursuant to a written agreement substantially in the form of Exhibit H attached hereto and the agreement of each employee to be bound by the Stock Purchase Option Agreement shall be substantially in the form of Exhibit I attached hereto. If stock sales to employees are made instead by the Management Shareholders, appropriate agreements similar to Exhibits H and I shall be executed by the parties. No stock options or other rights pertaining to the capital stock of the Company shall be granted by the Company and no additional stock shall be issued by the Company except as permitted by this Section and Section 5.11 without the written consent of NRC (which consent may arbitrarily be withheld). Sales of Class A Common Stock to the employees of the Company shall be either by the Company or by the Management Shareholders, but such sales shall not be permitted by both the Company and the Management Shareholders. 5.16 Software Design Services. The Company shall employ NRC to render software design services during the two year period after the date hereof. NRC shall be paid reasonable compensation for such services and shall receive a minimum of $300,000 for such services. The parties shall exert their best efforts to enter into a contract for such services within 180 days after the date hereof. If the parties are unable to enter into such a contract reasonably satisfactory to both parties, the Company shall pay to NRC the sum of $50,000 as liquidated damages. 6. Term, Termination and Dispute Resolution. 6.1 Term. This Agreement and the agreements, covenants, warrants and representations shall survive the Closing and shall continue for a period of three years after the earlier to occur of the following: (i) NRC ceases to hold any capital stock in the Company or (ii) NRC consummates its purchase option under the Stock Purchase Option Agreement. 6.2 Cross-Breach Provisions. Any breach of this Agreement shall constitute a breach of the Stock Purchase Option Agreement and any breach of the Stock Purchase Option Agreement shall be deemed a breach of this Agreement. No breach of this Agreement or the Stock Purchase Option Agreement shall constitute a breach of the Software Design Contract unless the parties otherwise mutually agree. No breach by NRC or the Company of this Agreement or the Stock Purchase Option Agreement shall constitute a breach of any Employment Agreement justifying a release of any Management Shareholder of his obligations thereunder. 6.3 Dispute Resolution. (a) Any disputes concerning financial calculations such as (i) the calculation of purchase prices, (ii) conversion rate, (iii) redemption prices, (iv) amounts due under the promissory notes or other monetary obligations owed by the Company or the Management Shareholders and (v) any calculation of any liquidation preference, dividend or distribution payable to the Shareholders and NRC hereunder, under this Agreement, the Stock Purchase Option Agreement, the Articles of Amendment, and any other agreement among the parties shall be determined by the independent accounting firm referred to in Section 5.1 hereof, whose decision made in good faith shall be final and binding on the parties, absent manifest error. Any other legal proceedings or claims arising out of, related to or in connection with this Agreement, the Stock Purchase Option Agreement and the other agreements shall be brought in any federal or state court of competent jurisdiction in Madison County, Alabama, as determined by the party initiating the proceeding, and the other party hereby consents to the personal jurisdiction of such state and federal courts, waives any objections to the venue thereof and waives any objections as to the convenience of the forum. 7. Miscellaneous. 7.1 Applicable Law. The validity, interpretation and legal effect of this Agreement shall be governed by the internal substantive laws and not the choice of law rules of the State of Alabama. The parties agree that a substantial part of this Agreement will be performed in Alabama and that this choice of law provision is reasonable. 7.2 Time of Essence. Time is of the essence hereof. 7.3 Notices. All notices, requests, demands and other communications under or in connection with this Agreement shall be in writing, shall be delivered by hand, telecopied or sent by next-day air or by certified mail, return receipt requested, to the following addresses: If to NRC: Nichols Research Corporation 404 Memorial Parkway South Huntsville, AL 35802 Attention: President Facsimile #205/880-0367 With a Copy to: John R. Wynn, Esq. Lanier Ford Shaver & Payne P.C. P.O. Box 2087 Huntsville, AL 35804 Facsimile #205/533-9322 If to the Company TXEN, Inc. or the Sharehol- Attention: President ders: 10 Inverness Center Parkway Suite 140 Birmingham, Alabama 35242 Facsimile #205/980-3648 or 995-8640 With a copy to: Thomas A. Ritchie Ritchie & Rediker 312 23rd Street, North Birmingham, Alabama 35203-3878 Any of the names and addresses given above may be changed by notice given as provided above. Notices by hand delivery or telecopied shall be deemed received on the date of delivery, provided that notices by hand delivery must be made to an executive officer of the Company or NRC, and provided that notices telecopied must be confirmed received by telephone and followed up by certified mail. Notices sent by next-day air shall be deemed received on the next business day and notices sent by certified mail shall be deemed received on the third business day after posting, even if such next-day air or certified mail is unsuccessful because of an uncommunicated change of address, unclaimed, or refused. 7.4 Entire Agreement. This Agreement, together with the other agreements, constitute the entire Agreement of the parties and supersedes all prior and contemporaneous oral or written agreements among the parties with respect to the subject matter hereof and thereof and may not be amended or modified except in writing signed by all parties to each agreement. 7.5 Schedules. Each and every schedule referred to or otherwise mentioned in this Agreement is attached to this Agreement and is and shall be construed to be made a part of this Agreement by such reference or other mention at each point at which such reference or other mention occurs, in the same manner and with the same effect as if each schedule were set forth in full and at length every time it is referred to or otherwise mentioned. 7.6 Waivers and Amendments. This Agreement or any term hereof may be amended, waived, discharged or terminated only in writing signed by the Company, NRC and the Shareholders or their respective successors and permitted assigns. A waiver of any breach or failure to enforce any of the terms or conditions of this Agreement must be in writing and shall not in any way affect, limit or waive a party's rights hereunder at any time to enforce strict compliance thereafter with every term or condition of this Agreement, including the provision(s) that were waived on any prior occasion. 7.7 Counterparts. This Agreement may be executed in more than one counterpart and each counterpart shall be deemed an original and one in the same instrument. 7.8 Headings and Construction. The headings in this Agreement are for convenience of reference only and are not part of the substance of this Agreement. The parties acknowledge and agree that this Agreement has been negotiated at arm's length between parties equally sophisticated and knowledgeable in the matters dealt with herein. Each party has been represented by counsel of its or his own choosing. Accordingly, any rule of law, legal decision or rule of construction that would require any ambiguities in this Agreement to be interpreted against the party that drafted it is not applicable and is waived. 7.9 Business Days. If the time period by which any right, option, or election provided under this Agreement must be exercised or by which any acts or payments required hereunder must be performed or paid, or by which the Closing must be held, expires or occurs on a Saturday, Sunday, or legal or bank holiday, then such time period shall be automatically extended to the close of business on the next regularly scheduled business day. 7.10 Survival. This Agreement and the representations, warranties, covenants and promises of the parties herein shall survive the consummation of the transaction contemplated herein and shall survive the execution and delivery of the documents and instruments referenced herein or executed by the parties. 7.11 Assignment and Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. No assignment of this Agreement shall relieve the assigning party of its representations, warranties, covenants and agreements hereunder and no assignment or delegation of the other agreements referenced herein shall be permitted except as authorized under such other agreements. Notwithstanding the foregoing, this Agreement and the other agreements may not be assigned, in whole or in part, and no party's duties may be delegated, in whole or in part, without the consent of the other parties hereto, which may be arbitrarily withheld, except that this Agreement may be assigned to any successor in interest to NRC by way of merger, consolidation or a sale of all or substantially all of its assets. 7.12 Access to Information and Confidentiality. Each party will hold and cause their respective representatives to hold in strict confidence, unless compelled to disclose by judicial or administrative process, or in the opinion of its counsel, by other requirements of law, all documents and information concerning the parties in connection with the transactions contemplated by this Agreement, except, in connection with the foregoing, to the extent that such information can be shown to have been (i) previously known by a party prior to its disclosure by the other party, (ii) in the public domain through no fault of either party, or (iii) later lawfully acquired by any party from other sources. No party will release or disclose such information to any other person, except in connection with this Agreement to its auditors, financial advisors, other consultants and advisors. 7.13 Invalidity; Deemed Amendment. It is the desire and intent of the parties to this Agreement that the provisions of this entire Agreement shall be enforced to the fullest extent permissible under the laws of public policies of each jurisdiction in which enforcement is sought. If any particular provision of this Agreement shall be adjudicated to be invalid or unenforceable, such provision shall be deemed amended to provide provisions and/or restrictions to the fullest extent permissible and consistent with applicable law and policies, and such amendment shall apply only with respect to the particular jurisdiction in which such adjudication is made. If such amendment is not allowed by the adjudicating body, the offending provision, only, shall be deleted and the remainder of this Agreement shall not be affected. IN WITNESS WHEREOF, the parties have executed this Agreement as of the date and year first above written. NICHOLS RESEARCH CORPORATION By: Louis Rachmeler -------------------------------- Its: Vice President Acquisitions ---------------------------- TXEN, INC. By: Thomas L. Patterson -------------------------------- Its: President -------------------------- SHAREHOLDERS: Thomas L. Patterson ----------------------------------- THOMAS L. PATTERSON Paul D. Reaves ----------------------------------- PAUL D. REAVES Chris H. Horgen ----------------------------------- CHRIS H. HORGEN EX-10.24 10 STOCK PURCHASE OPTION AGREEMENT This Stock Purchase Option Agreement is made and entered into by and among NICHOLS RESEARCH CORPORATION, a Delaware corporation ("NRC"), TXEN, INC., an Alabama corporation (the "Company") and all of the current shareholders of the Company, namely, THOMAS L. PATTERSON, PAUL D. REAVES AND CHRIS H. HORGEN (collectively referred to as the "Shareholders"). W I T N E S S E T H: The authorized capital stock of the Company consists of one share of $.002 par value convertible preferred stock (the "Preferred Stock"), 5,000,000 shares of $.002 par value Class A Common Stock (the "Class A Common Stock") and 1,250,000 shares of $.002 par value Class B Common Stock (the "Class B Common Stock"). NRC owns the one share of Preferred Stock and the Shareholders own 5,000,000 shares of Class A Common Stock which represents all of the issued and outstanding capital stock of the Company. None of the shares of Class B Common Stock is outstanding and all of such shares have been reserved for issuance upon conversion of the Preferred Stock into shares of Class B Common Stock. This Agreement is executed and delivered by the parties as a condition concurrent to the purchase by NRC of such Preferred Stock from the Company pursuant to that certain Convertible Preferred Stock Purchase Agreement of even date herewith. Capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the Convertible Preferred Stock Purchase Agreement. The Shareholders desire to grant NRC an option to purchase all of the issued and outstanding Class A Common Stock owned by them presently or subsequently issued to the Shareholders and other persons. NRC desires to obtain such an option, subject to the terms and conditions set forth herein. Upon exercise of such option and the purchase of the Class A Common Stock pursuant to such option, NRC will own all of the issued and outstanding capital stock of the Company. Therefore, in consideration of the mutual covenants herein contained, and for other good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows: 1. NRC OPTION TO PURCHASE. As used herein the term "Shareholders" shall include not only the persons identified above, but also all persons who subsequently acquire any capital stock of the Company. Provided NRC has converted the Preferred Stock to Class B Common Stock, NRC shall have the option for a period of 30 days after release and delivery to NRC of the Company's audited financial statements for the period ending June 30, 1998 to elect to purchase from the Shareholders all outstanding shares of Class A Common Stock of the Company at a price per share determined as follows: First, determine the average of the high and low price to earnings ("PE") ratios of the NRC stock as quoted by the National Association of Securities Dealers Automated Quotation System ("NASDAQ") for the eight NRC fiscal quarters ended during the two year period ended June 30, 1998. Next, multiply the average NRC PE ratio as thus determined by the "Applicable Percentage" as defined below. The number resulting from such multiplication shall be known as the "Multiplier" and it shall be not less than 11 (thus establishing a minimum price) nor more than 14 (thus establishing a maximum price). To arrive at the per share purchase price, the product of the Multiplier times the average annual net after tax earnings of the Company for its fiscal years ended June 30, 1997 and 1998 shall be divided by the total number of shares of capital stock of the Company then outstanding (including Class B Common Stock owned by NRC). The Applicable Percentage shall mean 90%, except that it shall mean 85% if the Management Shareholders sell Class A Common Stock to the employees pursuant to Section 5.15 of the Convertible Preferred Stock Purchase Agreement. Notwithstanding the foregoing, if the average net after tax earnings of the Company for the two years ended June 30, 1997 and June 30, 1998 exceed $1,680,000, the Applicable Percentage shall mean 95% and the Multiplier shall be not less than 11 (thus establishing a minimum price) nor more than 14 1/2 (thus establishing a maximum price), even though the Management Shareholders may have sold Class A Common Stock to employees pursuant to Section 5.15 of the Convertible Preferred Stock Purchase Agreement. The net after tax earnings of the Company for purposes of this Agreement shall be the net income of the Company as shown on the audited financial statements of the Company as prepared by the independent accounting firm referred to in Section 5.1 of the Convertible Preferred Stock Purchase Agreement. There shall be added to such net income bonuses not in excess of $100,000 in any fiscal year paid to employees of the Company which are to repay employee loans, the proceeds of which were used to purchase Class A Common Stock of the Company, except that no bonus adjustment shall be made to net income when determining whether or not average net after tax earnings for the years ending June 30, 1997 and 1998 exceeds $1,680,000. The closing of the sale shall occur at the offices of the Company in Birmingham, Alabama not more than 60 days after the election to purchase, at which time NRC shall pay the Shareholders the per share price. The per share price shall be paid by NRC at the closing as follows: 1.1 to each Shareholder who owns 1% or less of the then outstanding capital stock of the Company, NRC shall pay the per share price in immediately available funds; and 1.2 to every other Shareholder, NRC shall pay the per share purchase in unregistered and restricted shares of NRC common stock, and for the purpose of this exchange, the NRC shares of common stock shall have a value equal to the average of the daily weighted sale price of such stock as quoted by NASDAQ for the 10 day period immediately preceding the closing; and 1.3 in no event shall NRC be required to issue its Common Stock under 1.2 above to more than 35 Shareholders of the Company, and if there are more than 35 Shareholders who own or have the option to purchase more than 1% of the capital stock of the Company, those Shareholders with the lowest percentage ownership may be required by NRC to accept cash or immediately available funds as provided in 1.1 until NRC reduces the number of Shareholders entitled to receive NRC Common Stock to 35. Notwithstanding Section 1.2 above, the parties may agree that the purchase price shall be paid wholly or partly in cash. Furthermore, if the price is to be paid in stock of NRC, NRC shall deliver to the Shareholders its most recent Form 10-K, Annual Report and Forms 10-Q filed since the last Form 10-K. Each such Shareholder shall sign an investment letter acknowledging that the Shareholder is not acquiring the NRC Common Stock with a view toward subsequent resale or distribution, the NRC Shares are unregistered under applicable securities laws and may not be transferred absent registration or an exemption from registration, the share certificates will bear a restrictive securities legend, the investment in the shares represents an illiquid investment and the Shareholder is able to bear the risk of loss of his investment in the securities. In the event a transfer of the NRC Common Stock would, in the opinion of counsel to NRC, violate any applicable securities laws, NRC may pay the purchase price in cash. The transaction may be structured as a reverse triangular merger with a wholly owned subsidiary of NRC. If the parties agree to structure the transaction as a reverse triangular merger, the parties shall adopt a Plan of Merger and take such other actions as may be reasonably necessary to effect such merger. The option herein granted NRC shall be irrevocable during its term. If the option is not exercised by NRC within 30 days after release and delivery to NRC of the Company's audited financial statements for the fiscal year ending June 30, 1998, the option granted NRC herein shall lapse and become null and void. 2. CONDITIONS TO EXERCISE OF NRC PURCHASE OPTION. Notwithstanding any of the foregoing, the Shareholders will not be required to sell their stock to NRC if the aggregate purchase price to all of the Shareholders (other than NRC) is less than $7,000,000, provided, however, that: 2.1 NRC may elect to pay $7,000,000 even if the formula price is less; or 2.2 If the Shareholders who own 90% or more of all outstanding Class A Common Stock desire to accept a price of less than $7,000,000, such Shareholders may enforce a mandatory take-along obligation on the other Shareholders and in such event the other Shareholders shall sell their capital stock to NRC. 3. PIGGYBACK REGISTRATION RIGHTS OF SHAREHOLDERS. The rights provided for in this section (the "Piggyback Rights") shall apply to those Shareholders who receive NRC unregistered and restricted common stock in exchange for their stock pursuant to the NRC purchase option. As used in this section, the term "NRC Stock" shall mean the common stock of NRC outstanding as of the date of the execution of the definitive agreements and shall not include any preferred stock or other special class of stock that may be registered under the Securities Act of 1933 (the "Act"). If (but without any obligation to do so) NRC proposes to register any NRC Stock under the Act in connection with the public offering of such NRC Stock solely for cash (other than a registration relating solely to the sale of securities to employees of NRC pursuant to a stock option, stock purchase or similar plan, relating to a Rule 145 transaction, relating to a merger or other NRC acquisition, or a registration on any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of the NRC Stock owned by the Shareholders), NRC shall, at such time, promptly give each Shareholder who owns NRC Stock pursuant to an exchange under NRC's purchase option written notice of such registration. Upon NRC's receipt of the written request of each such Shareholder given within 20 days after NRC's mailing of such notice, NRC shall, subject to the other provisions of this section, cause to be registered under the Act all of the NRC Stock that each such Shareholder has requested to be registered, provided, however, that each such Shareholder may only request registration for those shares of NRC Stock acquired in exchange for stock pursuant to the NRC purchase option (the "Registerable Securities"). NRC shall pay all costs for registering the Registerable Securities. When required under the terms of this section to effect the registration of the Registerable Securities, NRC shall, as expeditiously as reasonably possible: 3.1 prepare and file with the Securities and Exchange Commission (the "Commission") a registration statement with respect to such Registerable Securities and use its best efforts to cause such registration statement to become effective. 3.2 prepare and file with the Commission such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement. 3.3 furnish to the Shareholders who acquired NRC Stock pursuant to NRC's purchase option such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as they may reasonably request in order to facilitate the distribution of the Registerable Securities owned by them. 3.4 use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky Laws of such jurisdictions as shall be reasonably requested by the underwriters, provided, however, that the holders of the Registerable Securities shall not be required to cause NRC to register and qualify the Registerable Securities under any particular security or Blue Sky Law of any particular state or jurisdiction. 3.5 in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement with terms generally satisfactory to the managing underwriter of such offering. Each holder of Registerable Securities participating in the underwriting shall also enter into and perform his or her respective obligations, as reasonably requested by the managing underwriter, under such an agreement. It shall be a condition precedent to the obligations of NRC to register the Registerable Securities that the holders of the Registerable Securities shall furnish to NRC such information regarding themselves, the Registerable Securities held by them, and the intended method of disposition of such Registerable Securities as shall be required to effect the registration of such Registerable Securities. Notwithstanding any of the foregoing, NRC shall have the right, in its sole discretion, to terminate the registration of the Registerable Securities and the registration of the other NRC Stock which triggered the Piggyback Rights if, at such time, the underwriters are of the opinion that a registration at such time would not be advisable, or if there has been a material adverse change in the condition, business or prospects of NRC or if, for any good and sufficient reason, NRC determines to terminate the registration causing the existence of the Piggyback Rights. The holders of the Registerable Securities must bear and pay their prorata portion of any underwriting discounts and commissions. In connection with any offering involving an underwriting, NRC shall not be required to include any of the holders of Registerable Securities in such underwriting unless such holders accept the terms of the underwriting as agreed upon between NRC and the underwriters selected by NRC, and then only in such quantity as will not, in the opinion of the underwriters, jeopardize the success of the offering by NRC or the NRC Shareholders demanding such registration. If the total amount of Registerable Securities that all Shareholders with Piggyback Rights under this section request to be included in such offering exceeds (when combined with the securities being offered by NRC or its other shareholders) the amount of securities that the underwriters reasonably believe compatible with the success of the offering, then NRC shall be required to include in the offering only that number of Registerable Securities which the underwriters believe will not jeopardize the success of the offering and the Registerable Securities so included shall be apportioned, prorata, among the Shareholders in accordance with their respective ownership percentages or in such other proportions as they shall mutually agree. However, in no event shall the amount of Registerable Securities of the Shareholders included in an offering by NRC of its shares under this section be reduced below 20% of the total amount of securities included in such offering. The definitive agreements shall contain such other provisions as the parties may require and agree in connection with the Piggyback Rights, to include provisions requiring the Shareholders to indemnify NRC or any underwriter in connection with any untrue statement of material fact or the omission to state material facts committed or omitted by the Shareholders in connection with the offering. The Piggyback Rights may be assigned by a Shareholder owning Registerable Securities to any proper transferee or assignee of the Registerable Securities owned by the Shareholder, provided that such assignment or transfer relates to all and not less than all of the Registerable Securities owned by such Shareholder and NRC is, within five days after the transfer, furnished with written notice of the name and address of the transferee or assignee who will acquire the Piggyback Rights and the securities with respect to which such Piggyback Rights are being assigned. The assignment shall be effective only if immediately following such transfer the further disposition of the Registerable Securities is restricted under the Act and such Piggyback Rights may not be assigned to any person or entity which, in NRC's reasonable judgment, is a competitor of NRC. Each Shareholder with Piggyback Rights will agree that he or she will not, to the extent requested by NRC and/or any underwriter, sell, make any short sale of, loan, grant any option for the purchase of or otherwise transfer or dispose of any Registerable Securities (other than those included in the pending registration) without the prior written consent of NRC and/or such underwriter, as the case may be, during the 90 day period following the effective date of the Registration Statement of NRC filed under the Act. In order to enforce the foregoing covenant, NRC may impose stop-transfer instructions with respect to the Registerable Securities until the end of such 90 day period. These Piggyback Rights under this section shall terminate two years after the exercise of the purchase option by NRC, and thereafter, no Shareholder shall have any right to require registration of his or her Registerable Securities. 4. SUBSEQUENT STOCK ISSUED BY COMPANY. In the event the Company issues any additional shares of capital stock (other than to NRC) such stock shall be subject to the purchase option herein granted NRC set forth in Section 1 above and share certificates evidencing such stock shall bear the restrictive legend set forth in Section 7 hereof. In the event any Shareholder transfers his capital stock, whether voluntarily or involuntarily, the transferee shall take such capital stock subject to the purchase option herein granted NRC and the restrictive legend set forth in Section 7 hereof shall be placed on any new stock certificate evidencing the transferred stock. Any person not presently a Shareholder who subsequently becomes a Shareholder shall agree to be bound by this Agreement by executing and delivering an instrument in form reasonably satisfactory to NRC and shall have all of the rights and duties hereunder of a Shareholder without any further consent by TXEN or the other Shareholders. Any additional shares of capital stock of TXEN acquired by a Shareholder shall be subject to all of the terms and provisions of this Agreement. 5. CONSENT TO TRANSFER. Prior to the expiration of the option granted NRC under Section 1 hereof, no Shareholder shall transfer his capital stock of the Company without the prior written consent of NRC which consent may be withheld in its sole discretion. 6. NO IMPAIRMENT. The Company will not, by amendment of its Articles of Incorporation or by-laws or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in carrying out all of the provisions of this Agreement and in taking all of the action that may be reasonably necessary or appropriate in order to protect the preferences and rights of the holder of the Preferred Stock and the holders of the Class B Common Stock, including but not limited to the purchase option set forth in Section 1, against impairment unless the same is approved by NRC. The Company shall not issue or grant any stock options, warrants or other rights to acquire any of its capital stock. 7. LEGEND. The certificates evidencing the shares of capital stock of the Company (except for the certificates issued to NRC) shall bear the following restrictive legend: "The shares of stock evidenced by this certificate may not be transferred without the prior written consent of Nichols Research Corporation and are subject to a purchase option in favor of Nichols Research Corporation, a copy of which is available for inspection at the offices of the Company." 8. REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS. Each Shareholder represents and warrants as to the capital stock of the Company owned by him on the date hereof, as of the date any new shareholder becomes a party to this Agreement and as of the date NRC purchases such stock pursuant to exercise of the option in Section 1 hereof that: 8.1 He has good and marketable title to such stock and the stock is free and clear of any encumbrance, mortgage, lien, pledge, charge or claim or restriction on or condition to transfer or assignment of any nature whatsoever. Delivery of the stock by such Shareholder to NRC in accordance with this Agreement will vest good and marketable title to the stock in NRC free and clear of any encumbrance, mortgage, lien, pledge, claim or restriction on or condition to transfer or assignment of any nature whatsoever. 8.2 He has full legal power and capacity to execute, deliver and perform this Agreement and has full legal power to sell his capital stock to NRC pursuant to exercise of NRC's option in accordance with this Agreement. This Agreement constitutes a valid and legally binding obligation of the Shareholder. 8.3 The Shareholder is not a party to any contract or agreement, including without limitation, subscriptions, options, warrants or rights other than this Agreement, whereby the Shareholder has granted to any person or entity an absolute or contingent right to purchase, obtain or acquire any rights or interest in any of such stock. 8.4 The Shareholder does not have any subscriptions, options, warrants or rights to acquire any common stock of the Company. 9. CLOSING. The Closing of the sale pursuant to the exercise of NRC's exercise of the option granted in Section 1 hereof, shall occur at the offices of the Company at a date and time mutually convenient, but in no event later than 30 days after notice of exercise is given by NRC. At the Closing, NRC shall deliver the purchase consideration to the Shareholders and the Shareholders shall deliver to NRC their certificates evidencing their capital stock properly endorsed for transfer to NRC. At the Closing, the Shareholders shall be deemed to have made the representations and warranties of Section 8. 10. NOTICES. All notices, including the exercise of NRC's purchase option herein granted, and other communications hereunder shall be in writing and shall be deemed to have been given if delivered personally, transmitted by facsimile or sent by regular certified mail (return receipt requested) postage prepaid, to the parties to this Agreement at the following addresses or at such other address for a party as shall be specified by like notice: If to the Company: TXEN, Inc. Attention: President 10 Inverness Center Parkway Suite 140 Birmingham, Alabama 35242 Facsimile #205/980-3648 or 995-8640 If to the Shareholders: TXEN, Inc. Attention: President 10 Inverness Center Parkway Suite 140 Birmingham, Alabama 35242 Facsimile #205/980-3648 or 995-8640 If to NRC: Nichols Research Corporation Attention: President 404 Memorial Parkway South Huntsville, AL 35802 Facsimile #205/880-0367 Notices shall be deemed effective on the date of delivery or on the date of transmission by facsimile. The parties may change the address to which notices are to be sent by use of this section. 11. APPOINTMENT OF SHAREHOLDER REPRESENTATIVE. For purposes of giving notices to the Shareholders pursuant to this Agreement and for purposes of acting as a liaison between NRC and the Shareholders, the Shareholders hereby appoint the Company as their representative. Upon receipt of any notice from NRC pursuant to the terms and provisions of this Agreement, the Company shall communicate such notice to the Shareholders at their addresses as appearing on the books and records of the Company. Failure of the Company to communicate such notices to the Shareholders shall not affect the validity of any notice given by NRC pursuant to the terms and provisions of this Agreement duly given to the Company as the representative of the Shareholders. 12. SURVIVAL OF COVENANTS, EFFECT. This Agreement and the representations, warranties, covenants and promises of the parties herein shall survive the consummation of the transaction contemplated herein and shall survive the execution and delivery of the documents and instruments referenced herein or executed by the parties. 13. APPLICABLE LAW JURISDICTION. This Agreement has been negotiated and executed in the State of Alabama, and it shall be governed by, construed and enforced in accordance with the internal substantive laws and not the choice of law rules of the State of Alabama. 14. SEVERABILITY. If any of the articles, sections, paragraphs, clauses or provisions of this Agreement shall be held by a court of last resort to be invalid, the remainder of this Agreement shall not be affected thereby. 15. ENTIRE AGREEMENT. The foregoing contains the entire agreement between the parties relating to the subject matter of this Agreement, and may not be altered or amended except by an instrument in writing approved by the Company and NRC and signed by the parties hereto, and this Agreement supersedes all prior understandings and agreements. The parties acknowledge that any prior oral or written agreements between the parties, if any, are hereby terminated. The parties have also entered into a separate Convertible Preferred Stock Purchase Agreement which shall be in addition to and not in lieu of the provisions of this Agreement. IN WITNESS WHEREOF, NRC and the Company have caused this Agreement to be executed by their duly authorized officers and the Shareholders have hereunto set their hands as of the 16 day of December, 1994. NICHOLS RESEARCH CORPORATION By: Louis Rachmeler -------------------------------- Its: Vice President Acquisitions ---------------------------- TXEN, INC. By: Thomas L. Patterson -------------------------------- Its: President -------------------------- SHAREHOLDERS: Thomas L. Patterson ----------------------------------- THOMAS L. PATTERSON Paul D. Reaves ----------------------------------- PAUL D. REAVES Chris H. Horgen ----------------------------------- CHRIS H. HORGEN EX-10.25 11 RESTRICTED STOCK PURCHASE AGREEMENT THIS AGREEMENT is made and entered into on September 1, 1994, by and between NICHOLS RESEARCH CORPORATION, a Delaware corporation having its principal offices in Huntsville, Alabama (the "Company"), and MICHAEL J. MRUZ (the "Purchaser"). W I T N E S S E T H: WHEREAS, the Purchaser has been employed as President of the Company pursuant to an Employment Agreement dated June 6, 1994; WHEREAS said Employment Agreement granted to Purchaser an option to purchase 70,000 shares of the $.01 par value common stock of the Company (the "Common Stock") commencing on September 1, 1994; and WHEREAS Purchaser desires to exercise the aforesaid option and purchase the Common Stock, and the Company is willing to issue the Common Stock to Purchaser upon receipt of the entire specified purchase price and the Purchaser's compliance with the other terms of this Agreement. THEREFORE in consideration of the mutual covenants herein contained, the parties hereby agree as follows: 1. EXERCISE OF OPTION; SALE OF SHARES. The Purchaser hereby exercises the option granted to him under his Employment Agreement with the Company and elects to purchase 70,000 shares of the Common Stock (the "Shares"). The Company hereby agrees to issue and deliver to Purchaser, and Purchaser agrees to purchase and accept from Company, the Shares. The purchase price for the Shares shall be ninety percent (90%) of the fair market value of the Shares on the date hereof, and shall be paid by Purchaser in immediately available funds simultaneously with the execution of this Agreement. For this purpose, "fair market value" shall mean the closing sale price of the Common Stock as reported on NASDAQ. The Company shall deliver to Purchaser a certificate evidencing the Shares within ten (10) business days (excluding legal holidays) of execution of this Agreement. 2. COMPANY'S REPRESENTATIONS AND WARRANTIES. The Company represents and warrants to the Purchaser as follows: (a) Company has full legal power and authority to execute, deliver and perform this Agreement, to issue the Shares to the Purchaser pursuant to this Agreement, and to deliver the certificate representing the Shares. This Agreement constitutes a valid and legally binding obligation of the Company. (b) The Shares shall be issued to Purchaser pursuant to an exemption from the registration requirements of the Securities Act of 1933 (the "Act"), the Virginia Securities Act (the "Virginia Act"), and the Alabama Securities Act (the "Alabama Act"). The certificate evidencing the Shares shall bear a legend restricting the transfer of the Shares unless such Shares are registered or exempt from registration under the Act and any applicable state securities laws. 3. PURCHASER'S REPRESENTATIONS AND WARRANTIES. The Purchaser represents and warrants to the Company as follows: (a) The Purchaser has received and examined the Company's Annual Report on Form 10-K for the year ended August 31, 1993; the Company's Quarterly Reports on Form 10-Q for the quarters ended November 30, 1993, February 28, 1994, and May 31, 1994; and the Company's 1993 Annual Report to Shareholders, and Purchaser has had the opportunity to make whatever investigations and obtain such other information concerning the Company deemed relevant in order to make an informed judgment on whether or not to purchase the Shares. (b) The Shares have not been registered under the Act, the Virginia Act or the Alabama Act and are sold to Purchaser in reliance upon an exemption from such registration. Purchaser is purchasing the Shares for his own account for investment purposes only and not with a view toward resale or other distribution. The certificate evidencing the Shares will bear a legend restricting the sale of the Shares unless registered or exempt from registration under the Act and any applicable state securities laws. (c) Because such Shares are not registered and are subject to other restrictions on the transfer described herein, the Purchaser understands he may have to retain such Shares for several years. The Purchaser does not anticipate any need to dispose of the Shares in the immediate future. Purchaser is fully able to bear the economic risks associated with his investment, including the risk that the Purchaser may lose his entire investment in the Shares. Purchaser has such knowledge, information and experience in financial, business and investment matters necessary for him to evaluate the risks and merits of acquiring the Shares. (d) The Company has no obligation to register the Shares. (e) The Purchaser understands that the difference between the purchase price and the fair market value of the Shares at the time the Shares become transferable or no longer subject to a substantial risk of forfeiture (a "Tax Event") will be taxed under Section 83 of the Internal Revenue Code (the "Code") as ordinary income upon the occurrence of a Tax Event, unless the Purchaser elects pursuant to Section 83(b) and within thirty (30) days hereof to be taxed currently on the difference between the purchase price and the fair market value of the Shares on the date hereof. The Purchaser shall be responsible for and pay all federal, state and local taxes associated with the exercise of the option, the receipt of the Shares and any future sale or other disposition of the Shares. (f) Purchaser is a bona fide resident of the State of Virginia. (g) The Purchaser understands the meaning and legal consequences of the representations and warranties contained in this Section 3 and agrees to indemnify and hold harmless the Company, its officers, directors and representatives from and against any and all loss, damage or liability due to or arising out of breach of any such representation or warranty. (h) As President of the Company, the Purchaser is subject to Section 16 of the Securities Exchange Act of 1934 and is an "affiliate" of the Company as that term is defined in Rule 144 promulgated by the Securities and Exchange Commission. 4. COMPANY'S RIGHT OF FIRST REFUSAL. The Purchaser agrees that should the Purchaser desire to sell any of the Shares within two (2) years after the date on which such Shares may be sold pursuant to Rule 144 promulgated by the Securities and Exchange Commission, he shall first offer in writing to sell such Shares to the Company at the purchase price paid by Purchaser for such Shares under this Agreement. If within thirty (30) days of receipt of such offer the Company declines to repurchase such Shares, the Purchaser shall have the right to sell such Shares, subject to applicable restrictions under the applicable federal and state securities laws. If the Company elects to purchase the Shares, the Company shall deliver to Purchaser simultaneously with its notice of election to purchase the Shares, a check for the purchase price and the Purchaser shall immediately execute and deliver to the Company a stock transfer power for the Shares and he shall also deliver the certificate representing the Shares, free and clear of any liens, encumbrances or other claims. The certificate evidencing such Shares shall bear an appropriate legend in accordance with this Section 4. The price per share to be paid by the Company shall be adjusted in the event of any stock split, stock dividend or other recapitalization of the Company involving the receipt of shares without additional considerations, and all shares resulting from any such stock split, stock dividend or other recapitalization shall be subject to the Company's right of first refusal under this Section 4 to the same extent as the original Shares involved in such stock split or recapitalization or on the basis of which the stock dividend is made. The total price to be paid by the Company for the Shares and any resulting shares shall remain the same, i.e., the price Purchaser paid hereunder for the Shares. 5. SURVIVAL OF WARRANTIES. The representations and warranties set forth in Sections 2 and 3 above and Section 6 below shall survive the consummation of the transaction contemplated by this Agreement, and shall continue in effect notwithstanding any investigation made by the parties hereto. 6. NO BROKER. Purchaser and Company each represent to the other that neither they nor their agents, servants, officers, directors, or shareholders have employed any broker, finder, or intermediary, including, without limitation, any employee of Purchaser or Company in connection with this transaction. Purchaser and Company each agree to indemnify and hold harmless one another against any claim for such fee or commission based on any alleged agreement or understanding with the indemnifying party. 7. MISCELLANEOUS. (a) EXPENSES. All legal and other costs and expenses incurred in connection with this Agreement and consummation of the transaction contemplated hereby shall be paid by the party incurring such expense. (b) GOVERNING LAW; SEVERABILITY. This Agreement shall be construed in accordance with, and governed by, the laws of the State of Alabama. (c) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between Company and Purchaser with respect to the Shares, is independent of and separate from all other agreements and understanding between Company and Purchaser, and supercedes all prior agreements and understandings between Company and Purchaser with respect to the Shares. (d) AMENDMENTS. This Agreement shall not be modified or amended except by an instrument, in writing, signed by Company and Purchaser or their duly authorized representatives. (e) WAIVER. The failure of either party to insist, in one or more instances, on the performance by the other party in strict accordance with any term or condition of this Agreement shall not be deemed a waiver or relinquishment of any right granted hereunder or of any right to demand future performance of any such term or condition of this Agreement, unless such waiver is set forth in a written instrument signed by the waiving party or a duly authorized representative of the waiving party. No waiver of any provision or provisions of this Agreement shall be deemed to constitute a waiver of any other provision. (f) COUNTERPARTS- This Agreement may be executed simultaneously in any number of counterparts, each of which shall be deemed an original, but all of which shall constitute one and the same instrument. (g) TITLES AND HEADINGS. Titles and headings to Sections herein are for purposes of reference only, and shall in no way limit, define or otherwise affect the meaning or interpretation of any of the provisions of this Agreement. (h) ASSIGNS. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs, beneficiaries, administrators, executors, guardians, conservators, trustees, other personal representatives, successors and assigns. (i) Notices. All notices or other communications given or made hereunder shall be in writing and shall be personally delivered or mailed by registered or certified mail, return receipt requested and postage prepaid, to the Purchaser or the Company at his or its address set forth below. (j) Counsel. Purchaser acknowledges and agrees that Lanier Ford Shaver & Payne P.C. represents only the Company in connection with this Agreement and the consummation of the transaction contemplated hereby. Purchaser further acknowledges that Purchaser has had the opportunity to be represented at all times by an attorney of Purchaser's own choosing in connection with this Agreement and the consummation of the transaction contemplated hereby. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day and year first above written. NICHOLS RESEARCH CORPORATION By: Chris H. Horgen -------------------------------- Its Chief Executive Officer Address: 4040 Memorial Parkway, S. "Company" Huntsville, Alabama 35802 Michael J. Mruz ----------------------------------- MICHAEL J. MRUZ Address: 9465 Deramus Farm Court "Purchaser" Vienna, Virginia 22182 EX-11 12 NICHOLS RESEARCH CORPORATION EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
Year Ended August 31, -------------------------------------------- Primary: 1993 1994 1995 -------------------------------------------- Weighted average common shares outstanding 5,935,027 6,054,503 6,112,576 Net common shares issuable on exercise of 317,202 150,806 166,533 certain stock options (1) -------------------------------------------- Average common and common equivalent shares 6,253,129 6,205,309 6,279,109 outstanding ============================================ Net income $7,049,000 $6,506,000 $7,202,000 ============================================ Per share amount $1.13 $1.05 $1.15 ============================================
(1) Net common shares issuable on exercise of certain stock options is calculated based upon the treasury stock method using the average market price. EX-21 13 SUBSIDIARIES OF REGISTRANT State of Name of Subsidiary Incorporation ------------------ ------------- 1) Communications Systems & Specialists, Inc. Delaware 2) Computer Services Corporation Alabama 3) Nichols Research Corporation Technical Services Corporation Alabama 4) Conway Computer Group, Inc. Alabama EX-23 14 Consent of Independent Auditors We consent to the incorporation by reference in this Annual Report (Form 10-K) of Nichols Research Corporation of our report dated October 12, 1995, included in the 1995 Annual Report to Shareholders of Nichols Research Corporation. We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-13464) pertaining to the Nichols Research Corporation 1984 Incentive Stock Option Plan and in the related Prospectus of our report dated October 12, 1995, with respect to the financial statements of Nichols Research Corporation incorporated by reference in this Annual Report on Form 10-K for the year ended August 31, 1995. We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-26909) pertaining to the Nichols Research Corporation 1988 Employees Stock Purchase Plan and in the related Prospectus of our report dated October 12, 1995, with respect to the financial statements of Nichols Research Corporation incorporated by reference in this Annual Report on Form 10-K for the year ended August 31, 1995. We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-38568) pertaining to the Nichols Research Corporation Non Employee Officer and Director Stock Option Plan and in the related Prospectus of our report dated October 12, 1995, with respect to the financial statements of Nichols Research Corporation incorporated by reference in this Annual Report on Form 10-K for the year ended August 31, 1995. We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-44409) pertaining to the Nichols Research Corporation 1989 Incentive Stock Option Plan and in the related Prospectus of our report dated October 12, 1995, with respect to the financial statements of Nichols Research Corporation incorporated by reference in this Annual Report on Form 10-K for the year ended August 31, 1995. We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 33-55454) pertaining to the Nichols Research Corporation 1991 Stock Option Plan and in the related Prospectus of our report dated October 12, 1995, with respect to the financial statements of Nichols Research Corporation incorporated by reference in this Annual Report on Form 10-K for the year ended August 31, 1995. Our audits also included the financial statement schedule of Nichols Research Corporation listed in Item 14(a)(2). This schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. Ernst & Young LLP Birmingham, Alabama November 28, 1995 EX-27 15
5 0000806388 ALLEN E. DILLARD 1,000 YEAR AUG-31-1995 AUG-31-1995 17,196 0 53,103 0 0 73,243 22,893 11,434 100,879 26,470 5,366 64 0 0 67,784 100,879 170,331 170,331 147,584 147,584 0 0 114 11,318 4,116 7,202 0 0 0 7,202 1.15 1.15
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