<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 8,
1996 (September 26, 1996)
SCB COMPUTER TECHNOLOGY, INC.
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(Exact name of registrant as specified in its charter)
Tennessee 0-27694 62-1201561
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(State or other (Commission File Number) (I.R.S. Employer
jurisdiction of Identification No.)
incorporation)
1365 West Brierbrook Road, Memphis, Tennessee 38138
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (901) 754-6577
Not Applicable
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(Former name or former address, if changed since last report)
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Item 2. Acquisition or Disposition of Assets.
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On September 26, 1996, SCB Computer Technology, Inc. (the
"Registrant") acquired Delta Software Systems, Inc., an information technology
consulting company and custom software programmer ("Delta"), pursuant to a
merger (the "Merger") of Delta with and into Delta Acquisition, Inc., a wholly
owned subsidiary of Registrant ("Merger Sub"). Pursuant to the Agreement and
Plan of Merger (the "Merger Agreement"), Merger Sub was the surviving
corporation in the Merger and changed its name upon consummation thereof to
Delta Software Systems, Inc. As a result of the Merger, all of the outstanding
capital stock of Delta, which was held by Richard T. Ely, Jr., Thomas Edward
Jordan, John Michael O'Guinn, and Larry W. Reed (collectively, the "Delta
Shareholders"), was converted into an aggregate of 461,538 shares of the
Registrant's Common Stock, par value $.01 per share (the "Common Stock").
Pursuant to an Indemnity and Escrow Agreement between the Registrant, the
Merger Sub, and the Delta Shareholders (the "Escrow Agreement"), 10% of the
aggregate consideration in the Merger, or 46,154 shares of Common Stock, were
delivered by the Registrant and the Delta Shareholders to Boatmen's Trust
Company, as escrow agent. The escrowed shares may be used to satisfy
indemnification claims by the Registrant for any breaches of representations
and warranties made in the Merger Agreement by the Delta Shareholders.
In connection with and as a condition to the Merger, each of Messrs.
Ely, Jordan, and O'Guinn entered into two-year employment agreements with
Merger Sub providing for an annual base salary of $120,000. The employment
agreements also contain covenants not to compete with the Registrant and its
subsidiaries for two years following the termination of employment. As an
additional condition to the Merger, the Registrant paid Mr. Reed $40,000 in
exchange for a one-year covenant not to compete. (Mr. Reed has the option to
require the Registrant to pay him an additional $40,000 in exchange for an
additional one-year noncompete agreement).
The consideration in the Merger was determined through arm's-length
negotiations among the parties with regard to Delta's earnings history and
estimated future profitability. Except as set forth herein, there is no
material relationship between any of the Delta Shareholders and the Registrant
or its affiliates, any director or officer of the Registrant, or any associate
of any director or officer.
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Item 7. Financial Statements and Exhibits
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(a) and (b) Financial Statements of Business Acquired and Pro Forma
Financial Information.
Independent Auditor's Report
Balance Sheet at December 31, 1995
Statement of Operations for the year ended December 31, 1995
Statement of Stockholders' Equity for the year ended December 31, 1995
Statement of Cash Flows for the year ended December 31, 1995
Notes to Financial Statements
The Registrant believes that, except for the financial statements
listed above and filed herewith, (i) it is impracticable prior to the filing of
this Form 8-K to complete preparation of the other financial statements
required to be filed pursuant to Rule 3-05 of Regulation S-X and the pro forma
financial information required to be filed pursuant to Article 11 of Regulation
S-X, and (ii) such information will be available, and will be filed by the
Registrant with the Securities and Exchange Commission as promptly as
practicable, within 60 days after this Form 8-K is required to be filed.
(c) Exhibits. See Exhibit Index following signature page.
3
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Board of Directors
Delta Software Systems, Inc.
Memphis, Tennessee
INDEPENDENT AUDITOR'S REPORT
We have audited the balance sheet of DELTA SOFTWARE SYSTEMS, INC. as of
December 31, 1995, and the related statements of operations, stockholders'
equity, and cash flows for the year 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 audit 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 misstatement. 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 that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Delta Software Systems, Inc.,
as of December 31, 1995, and the results of its operations and cash flows for
the year then ended in conformity with generally accepted accounting
principles.
/s/ Cannon & Company
Certified Public Accountants
Memphis, Tennessee
September 11, 1996
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DELTA SOFTWARE SYSTEMS, INC.
BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<S> <C>
ASSETS
CURRENT ASSETS
Cash $ 105,018
Accounts Receivable, Net of Allowance of $16,609 805,856
Accounts Receivable - Unbilled 158,247
Prepaids and Other Current Assets 6,000
-----------
Total Current Assets 1,075,121
FIXED ASSETS
Equipment - Data Processing 262,491
Furniture and Fixtures 68,628
Software 63,121
Accumulated Depreciation (287,031)
-----------
Net Fixed Assets 107,209
-----------
Total Assets $ 1,182,330
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable - Trade $ 69,345
Taxes Payable 34,290
Deferred Income Tax Liability 59,961
Accrued Franchise and Excise Tax 2,253
-----------
Total Current Liabilities 165,849
STOCKHOLDERS' EQUITY
Common Stock, $0 Par Value, 2,000 Shares Authorized, 400 Shares Issued 1,600
and Outstanding
Additional Paid-in Capital 1,953
Retained Earnings 1,012,928
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Total Stockholders' Equity 1,016,481
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$ 1,182,330
===========
</TABLE>
The accompanying notes form an integral part of these financial statements.
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DELTA SOFTWARE SYSTEMS, INC.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
REVENUES $6,636,435
COST OF SALES 1,241,454
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GROSS PROFIT 5,394,981
OPERATING EXPENSES
Compensation - Key Executives 772,000
Other Selling, General and Adminstrative Expenses 4,199,549
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Total Operating Expenses 4,971,549
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INCOME FROM OPERATIONS 423,432
OTHER INCOME (EXPENSES)
Interest Income 2,390
Interest Expense (3,247)
Other, Net 49,275
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Total Other Income (Expenses) 48,418
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INCOME BEFORE INCOME TAXES 471,850
INCOME TAX EXPENSE 21,269
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NET INCOME $ 450,581
===========
</TABLE>
The accompanying notes form an integral part of these financial statements.
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DELTA SOFTWARE SYSTEMS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
COMMON STOCK $ 1,600
ADDITIONAL PAID-IN CAPITAL 1,953
RETAINED EARNINGS
Beginning Balance 562,347
Net Income 450,581
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Ending Balance 1,012,928
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TOTAL STOCKHOLDERS' EQUITY $1,016,481
==========
</TABLE>
The accompanying notes form an integral part of these financial statements.
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DELTA SOFTWARE SYSTEMS, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $450,581
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH PROVIDED BY
(USED IN) OPERATING ACTIVITIES
Depreciation 56,852
Amortization 6,860
Deferred Income Taxes 20,759
(Increase) Decrease In
Accounts Receivable
Trade (6,749)
Unbilled (116,112)
Inventory 6,897
Prepaid Expenses 6,000
(Increase) Decrease In
Accounts Payable (58,013)
Accrued Taxes (28,192)
Accrued Franchise and Excise Taxes 655
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Total Adjustments (111,043)
Net Cash Provided by (Used in) Operating Activities $339,538
INVESTING ACTIVITIES
Purchases of Fixed Assets (74,130)
Disposals of Fixed Assets 3,735
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Cash Used in Investing Activities (70,395)
FINANCING ACTIVITIES
Payments on Line-of-Credit (436,500)
Borrowings on Line-of-Credit 370,500
--------
Cash Used in Financing Activities (66,000)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 203,143
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR (98,125)
--------
CASH AND CASH EQUIVALENTS AT END OF YEAR $105,018
========
SUPPLEMENTAL DISCLOSURES
Interest Paid $3,247
Interest Received $2,390
</TABLE>
The accompanying notes form an integral part of these financial statements.
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DELTA SOFTWARE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Delta Software Systems, Inc. provides professional consulting,
programming, and equipment sales services.
These financial statements reflect the accrual basis of accounting
which requires recognition of revenues when earned and expenses when incurred
without regard to the exchange of cash. For income tax purposes, the Company
uses cash basis of accounting.
It is the Company's policy to classify all highly liquid investments
with a maturity of three months or less as cash equivalents. All cash and cash
equivalents are deposited in Nashoba Bank. In total those financial investments
exceed the maximum amount ($100,000) that is federally insured.
Property and equipment is stated at cost. Additions, renewals and
betterments that add materially to productive capacity or extend the life of an
asset are capitalized. Expenditures for maintenance and repairs which do not
extend the life of the applicable assets are charged to expense as incurred.
Upon retirement or disposal of an asset, the asset and accumulated depreciation
accounts are adjusted accordingly. Any resulting gain or loss is included in
income.
Depreciation on furniture and equipment is provided for using double
declining balance method over the estimated useful lives of three to seven
years. Software is amortized straight-line over three years.
Software revenue is recognized when the services are provided
regardless of whether the customer has implemented the programs.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 2 - INCOME TAXES
No federal income taxes are included in these statements. The Company
is an S corporation and all federal income flows through the Corporation to the
stockholders. State income taxes are provided on all revenue and expense items
included in income, regardless of the period in which such items are recognized
for tax purposes, except for items representing a permanent difference between
pre-tax accounting income and taxable income. The provision for income taxes
as of December 31, 1995 consists of the following:
<TABLE>
<S> <C>
Current Provision for Income Taxes $ 510
Deferred Portion 20,759
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$21,269
=======
</TABLE>
The deferred tax asset and liability are a result of the difference
between the cash basis tax return and the accrual basis financial statements.
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DELTA SOFTWARE SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
YEAR ENDED DECEMBER 31, 1995
NOTE 3 - LEASES
The Company leases office space under operating leases with minimum
annual payments due as follows:
<TABLE>
<CAPTION>
Years Ending September 30,
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<S> <C>
1996 $36,000
</TABLE>
The lease expired on June 30, 1996 and was not renewed. The Company
moved to a new building and has obtained a new lease. Rent expense for the year
ended December 31, 1995 was $72,000.
NOTE 4 - EMPLOYEE BENEFIT PLANS
The Company sponsors a 401(k) Profit Sharing Plan (the "401(k) Plan")
under Section 401(k) of the Internal Revenue Code. This plan covers all
employees of the Company who have reached the age of 21. The Company elected to
match $.20 for each $1.00 of employee deferral, with the Company's contribution
not to exceed 8% of an employee's salary, subject to limitations imposed by the
Internal Revenue Service. The Company's contributions to the 401(k) Plan
totaled $26,579 for the year ended December 31, 1995.
NOTE 5 - SUBSEQUENT EVENTS
The owners of the Company are currently negotiating an exchange of
100% of the stock of Delta Software Systems, Inc. for a minority interest in a
company in substantially the same industry. It is anticipated that operations
of the Company will not be significantly effected by this transfer of
ownership.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SCB COMPUTER TECHNOLOGY, INC.
Date: October 7, 1996 By: /s / Gordon L. Bateman
---------------------------------
Gordon L. Bateman
Executive Vice President of
Finance and Administration and
Chief Financial Officer
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EXHIBIT INDEX
<TABLE>
<CAPTION>
No. Exhibit
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<S> <C>
2 Agreement and Plan of Merger by and among SCB Computer
Technology, Inc., Delta Software Systems, Inc., the shareholders
of Delta Software Systems, Inc., and Delta Acquisition, Inc.,
dated as of September 20, 1996, including Form of Indemnity and
Escrow Agreement (Exhibit B). (Schedules and other exhibits are
omitted from this filing but the Registrant will furnish
supplemental copies of the omitted materials to the Securities
and Exchange Commission upon request.)
</TABLE>
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EXHIBIT 2
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Exhibit 2
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AGREEMENT AND PLAN OF MERGER
AMONG
SCB COMPUTER TECHNOLOGY, INC.,
DELTA ACQUISITION, INC.,
DELTA SOFTWARE SYSTEMS, INC.,
AND
THE SHAREHOLDERS OF
DELTA SOFTWARE SYSTEMS, INC.
DATED AS OF SEPTEMBER 20, 1996
================================================================================
<PAGE> 3
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (the "Agreement"), is executed as of
the 20th day of September, 1996, by and among SCB Computer Technology, Inc., a
Tennessee corporation ("SCB"), Delta Acquisition, Inc., a newly formed
Tennessee corporation and wholly owned subsidiary of SCB ("Merger Sub"), Delta
Software Systems, Inc., a Tennessee corporation ("Delta"), and each of the
shareholders of Delta as identified on the signature pages hereto
(individually, a "Delta Shareholder," and, collectively, the "Delta
Shareholders").
RECITALS
A. The Boards of Directors of SCB, Merger Sub and Delta each have
determined that a business combination between SCB and Delta is in the best
interests of their respective companies and shareholders and presents an
opportunity for their respective companies to achieve long-term strategic and
financial benefits, and accordingly have agreed to effect the merger provided
for herein upon the terms and subject to the conditions set forth herein.
B. For federal income tax purposes, it is intended that the
merger provided for herein shall qualify as a reorganization within the meaning
of Section 368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the
"Code"), and for financial accounting purposes it is intended that the merger
shall be accounted for as a "pooling of interests."
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants, and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1.
THE MERGER
1.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as defined in Section 1.3), Delta shall be
merged with and into Merger Sub in accordance with this Agreement and the
separate corporate existence of Delta shall thereupon cease (the "Merger").
Merger Sub shall be the surviving corporation in the Merger (sometimes
hereinafter referred to as the "Surviving Corporation") and shall be a wholly
owned subsidiary of SCB. The Merger shall have the effects specified in
Section 48-21-108 of the Tennessee Business Corporation Act ("TBCA").
2
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1.2 The Closing. Subject to the terms and conditions of this
Agreement, the closing of the Merger (the "Closing") shall take place at the
offices of Bass, Berry & Sims PLC, 2700 First American Center, Nashville,
Tennessee, at 9:00 a.m., local time, on the first business day immediately
following the day on which the last to be fulfilled or waived of the conditions
set forth in Article 7 shall be fulfilled or waived in accordance herewith or
at such other time, date, or place as SCB and Delta may agree. The date on
which the Closing occurs is hereinafter referred to as the "Closing Date."
1.3 Effective Time. If all the conditions to the Merger set forth
in Article 7 shall have been fulfilled or waived in accordance herewith and
this Agreement shall not have been terminated as provided in Article 8, the
parties hereto shall cause Articles of Merger, in the form attached hereto as
Exhibit A-1, and a Plan of Merger, in the form attached hereto as Exhibit A-2,
to be properly executed and filed in accordance with the applicable provisions
of the TBCA on the Closing Date. The Merger shall become effective at the time
of filing of the Articles of Merger with the Tennessee Secretary of State or at
such later time that the parties hereto shall have agreed upon and designated
in such filing as the effective time of the Merger (the "Effective Time").
ARTICLE 2.
CHARTER, BYLAWS,
AND OFFICERS AND DIRECTORS OF THE SURVIVING CORPORATION
2.1 Charter. The Charter of Merger Sub in effect immediately prior
to the Effective Time shall, except as provided in the Plan of Merger attached
as Exhibit A-2, be the Charter of the Surviving Corporation, until duly amended
in accordance with applicable law.
2.2 Bylaws. The Bylaws of Merger Sub in effect immediately prior
to the Effective Time shall be the Bylaws of the Surviving Corporation, until
duly amended in accordance with applicable law.
2.3 Directors. The directors of Merger Sub immediately prior to
the Effective Time shall be the directors of the Surviving Corporation as of
the Effective Time.
2.4 Officers. The officers of Merger Sub immediately prior to the
Effective Time shall be the officers of the Surviving Corporation as of the
Effective Time.
3
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ARTICLE 3.
CONVERSION OF DELTA STOCK
3.1 Conversion of Delta Shares in the Merger. At the Effective
Time, by virtue of the Merger and without any action on the part of the
shareholders of Delta, each issued and outstanding share of capital stock, no
par value per share, of Delta (the "Delta Common Stock") shall be converted
into, and become exchangeable for, the right to receive the number of shares of
validly issued, fully paid, and nonassessable common stock, par value $.01 per
share, of SCB (the "SCB Common Stock"), determined by dividing the Aggregate
Issuable SCB Shares (as defined below) by the outstanding shares of Delta
Common Stock. The aggregate number of shares of SCB Common Stock issuable in
connection with the Merger is sometimes referred to herein as the "Merger
Consideration." For purposes of this Agreement, the capitalized terms shall
have the definitions set forth below:
(a) "Aggregate Issuable SCB Shares" shall mean that
number of whole shares of SCB Common Stock equal to the quotient of
$8,400,000 divided by the Average Price (as defined below); provided,
however, if the Average Price is less than $16.00, the Aggregate
Issuable SCB Shares shall be determined as if the Average Price were
$16.00 and if the Average Price is greater than $18.20, the Aggregate
Issuable SCB Shares shall be determined as if the Average Price were
$18.20.
(b) The "Average Price" of SCB Common Stock shall mean
the average of the closing sales prices of SCB Common Stock as
reported on The Nasdaq Stock Market ("Nasdaq") for the ten trading
days immediately preceding the day prior to the Closing Date.
3.2 Escrow Shares.
(a) At the Closing, pursuant to an Indemnity and Escrow
Agreement, substantially in the form attached hereto as Exhibit B (the
"Escrow Agreement"), the parties shall establish an escrow (the
"Escrow Fund") comprised of that number of shares of SCB Common Stock
(the "Escrow Shares") representing 10% of the Merger Consideration
issuable to the Delta Shareholders at the Effective Time pursuant to
Section 3.1. The Escrow Shares shall be maintained in escrow for the
purposes of satisfying claims by SCB for indemnification under Article
9 and the Escrow Agreement until such time (but in no event later than
July 29, 1997, except as provided in the Escrow Agreement) as the
independent public accounting firm for SCB shall have issued its audit
report on the SCB financial statements as of and for the fiscal year
ending April 30, 1997 (the "Escrow Period").
(b) Upon expiration of the Escrow Period, and subject to
the terms of Section 3.2(c) and Article 9 and the Escrow Agreement,
the escrow agent under the
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Escrow Agreement (the "Escrow Agent") shall deliver or cause to be
delivered to each Delta Shareholder a certificate representing the
number of shares of SCB Common Stock comprising such Delta
Shareholder's portion of the Escrow Shares determined pro rata in
proportion to the number of shares of SCB Common Stock received by
such Delta Shareholder in the Merger (the "Pro Rata Portion").
(c) If, upon expiration of the Escrow Period, SCB shall
have asserted a claim for indemnity in accordance with the Escrow
Agreement and such claim is pending or unresolved at the time of such
expiration, the Escrow Agent shall retain in escrow, and withhold from
delivery to each Delta Shareholder, each Delta Shareholder's Pro Rata
Portion of the value of the asserted amount of the claim until such
matter is resolved. If it is finally determined that SCB is entitled
to recover on account of such claim, the Escrow Agent shall deliver or
cause to be delivered to SCB that number of Escrow Shares equal to the
amount due and payable with respect to such claim (applied against
each Delta Shareholder's Pro Rata Portion). The remainder of each
Delta Shareholder's Pro Rata Portion, if any, following any delivery
of Escrow Shares to SCB in accordance with this Section 3.2(c) and the
Escrow Agreement, shall be delivered to each Delta Shareholder
pursuant to this Agreement, without interest. For purposes of this
Section 3.2(c), a final determination with respect to a claim will
occur only as provided in the Escrow Agreement. For purposes of this
Section 3.2 and Article 9, each Escrow Share shall be deemed to have a
value equal to the Average Price, and such value shall apply
throughout the duration of the Escrow Period.
(d) The right to receive Escrow Shares upon expiration of
the Escrow Period is an integral part of the Merger Consideration, and
shall not be transferable or assignable by, but shall inure to the
benefit of the heirs, representatives, or estate of, any Delta
Shareholder.
3.3 Fractional Shares. In lieu of the issuance of fractional
shares of SCB Common Stock, each Delta Shareholder, upon surrender of a
certificate which immediately prior to the Effective Time represented Delta
Common Stock, shall be entitled to receive a cash payment (without interest)
equal to the fair market value of any fraction of a share of SCB Common Stock
to which such holder would be entitled under Section 3.1, but for this
provision. For purposes of calculating such payment, the fair market value of a
fraction of a share of SCB Common Stock shall be such fraction multiplied by
the Average Price.
3.4 Status of Merger Sub Shares. At the Effective Time, each
issued and outstanding share of common stock of Merger Sub shall continue
unchanged and remain outstanding as a share of common stock of the Surviving
Corporation.
3.5 Exchange of Certificates. After the Effective Time, each
holder of an outstanding certificate or certificates theretofore representing
Delta Common Stock, upon surrender thereof to SCB, shall be entitled to receive
in exchange therefor any payment due in lieu of fractional
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shares and a certificate or certificates representing the number of whole
shares of SCB Common Stock into which such holder's Delta Common Stock was
converted, less such Delta Shareholder's Pro Rata Portion. Until so
surrendered, each outstanding certificate representing Delta Common Stock shall
be deemed for all purposes to represent the number of whole shares of SCB
Common Stock into which the Delta Common Stock theretofore represented shall
have been converted. SCB may, at its option, refuse to pay any dividend or
other distribution, if any, payable to the holders of shares of SCB Common
Stock to the holders of certificates representing Delta Common Stock until such
certificates are surrendered for exchange; provided, however, that, subject to
the rights of SCB under its charter, upon surrender and exchange of such Delta
Common Stock certificates there shall be paid to the record holders of the SCB
stock certificate or certificates issued in exchange therefor the amount,
without interest, of dividends and other distributions, if any, which have
become payable with respect to the number of whole shares of SCB Common Stock
into which the Delta Common Stock theretofore represented thereby shall have
been converted and which have not previously been paid.
3.6 Stock Splits, Etc. of SCB Common Stock. In the event SCB
changes the number of shares of SCB Common Stock issued and outstanding
following the date of this Agreement but prior to the Effective Time as a
result of a stock split, stock dividend, recapitalization, reorganization, or
any other transaction in which any security of SCB or any other entity or cash
is issued or paid in respect of the outstanding shares of SCB Common Stock and
the record date therefor is after the date of this Agreement and prior to the
Effective Time, the Merger Consideration shall be proportionately adjusted.
3.7 Consent to Merger; Waiver of Dissenters' Rights. By their
execution of this Agreement each Delta Shareholder (a) consents to the terms of
the Merger and to the taking of shareholder action to approve the Merger
without a meeting, (b) acknowledges that he is aware of his rights to dissent
to the Merger and demand payment for his shares of Delta Common Stock in
accordance with the TBCA and Delta's bylaws, and (c) waives such rights to
dissent and demand payment.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF DELTA AND THE
DELTA SHAREHOLDERS
Except as set forth in the disclosure letter delivered prior to the
execution hereof to SCB (the "Delta Disclosure Letter"), Delta and the Delta
Shareholders, jointly and severally, represent, warrant, and agree as follows:
4.1 Existence; Good Standing; Corporate Power and Authority. Delta
is a corporation duly organized, validly existing, and in good standing under
the laws of the State of Tennessee. Delta is qualified to do business as a
foreign corporation and is in good standing under the laws
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of any state of the United States in which the character of the properties
owned or leased by it therein or in which the transaction of business makes
such qualification necessary, except where the failure to be so qualified would
not have a material adverse effect on the business, results of operations, or
financial condition of Delta (a "Delta Material Adverse Effect"). Delta has all
requisite corporate power and authority to own, operate, and lease its
properties and to carry on its business as now conducted. Delta has provided to
SCB complete and correct copies of its charter and bylaws, each of which is in
full force and effect.
4.2 Authorization, Validity, and Effect of Agreements. Delta has
the full corporate power and authority to execute and deliver this Agreement
and all agreements and documents contemplated hereby. This Agreement and the
Merger have been approved by Delta's Board of Directors and shareholders and
the consummation by Delta of the transactions contemplated hereby has been duly
authorized by all requisite corporate action. This Agreement constitutes, and
all agreements and documents contemplated hereby (when executed and delivered
pursuant hereto) will constitute, the valid and legally binding obligations of
Delta and the Delta Shareholders, enforceable in accordance with their
respective terms.
4.3 Capitalization. The authorized capital stock of Delta consists
of 2,000 shares of Delta Common Stock, 400 shares of which are issued and
outstanding as of the date of this Agreement and owned beneficially and of
record by the Delta Shareholders as set forth in the Delta Disclosure Letter.
Delta has no outstanding capital stock, bonds, debentures, notes, or other
obligations the holders of which have the right to vote (or which are
convertible into or exercisable for securities having the right to vote) with
the shareholders of Delta on any matter. All issued and outstanding shares of
Delta Common Stock are duly authorized, validly issued, fully paid,
nonassessable, and free of preemptive rights. There are no options, warrants,
calls, subscriptions, convertible securities, or other rights, agreements, or
commitments that obligate Delta to issue, transfer, or sell any shares of its
capital stock. None of the outstanding shares of Delta Common Stock are subject
to any voting trust agreement, lien, encumbrance, security interest,
restriction, or claim.
4.4 Other Interests. Delta does not own, directly or indirectly,
or have any obligation to acquire any interest or investment in any
corporation, partnership, joint venture, business, trust, or other entity.
4.5 No Violation. Neither the execution and delivery by Delta and
the Delta Shareholders of this Agreement nor the consummation by Delta and the
Delta Shareholders of the transactions contemplated hereby in accordance with
the terms hereof, will: (i) conflict with or result in a breach of any
provisions of the charter or bylaws of Delta; (ii) conflict with, result in a
breach of any provision of or the modification or termination of, constitute a
default under, or result in the creation or imposition of any lien, security
interest, charge, or encumbrance upon any of the assets of Delta or any Delta
Shareholder pursuant to any material commitment, lease, contract, or other
material agreement or instrument to which Delta or any Delta Shareholder is a
party; or (iii) violate or result in a change in any rights or obligations
under any governmental
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permit or license or any order, arbitration award, judgment, writ, injunction,
decree, statute, rule, or regulation applicable to Delta or any Delta
Shareholder.
4.6 Regulatory Consents. No consent, approval, order, or
authorization of, or registration, declaration, or filing with, any
governmental entity, is required by or with respect to Delta or any Delta
Shareholder in connection with the execution and delivery of this Agreement by
Delta or any Delta Shareholder, or the consummation by Delta or any Delta
Shareholder of the transactions contemplated hereby, which the failure to
obtain would have a Delta Material Adverse Effect.
4.7 Financial Statements. Prior to the date hereof, Delta has
delivered to SCB its unaudited financial statements for the years ended
December 31, 1993, 1994, and for the six months ended June 30, 1996, and its
financial statements for the year ended December 31, 1995, audited by
independent public accountants. Each of the balance sheets provided to SCB by
Delta (including the related notes and schedules) fairly presents the financial
position of Delta as of their respective dates and each of the statements of
income, stockholders' equity, and cash flows provided to SCB by Delta
(including any related notes and schedules) fairly presents the results of
operations, stockholders' equity, and cash flows of Delta for the periods set
forth therein (subject, in the case of unaudited statements, to normal year-end
audit adjustments, none of which will be material in amount or effect), in each
case in accordance with generally accepted accounting principles consistently
applied, except as may be noted therein. Such financial statements have been
prepared from the books and records of Delta which accurately and fairly
reflect the transactions and the acquisitions and dispositions of the assets of
Delta. As of June 30, 1996, or any subsequent date for which a balance sheet is
provided, Delta did not have any liabilities, contingent or otherwise, whether
due or to become due, known or unknown, other than as indicated on the balance
sheet of such date.
4.8 No Material Adverse Changes. Since December 31, 1995, there
has not been (i) any material adverse change in the financial condition,
results of operations, business, assets, or liabilities (contingent or
otherwise, whether due or to become due, known or unknown) of Delta; (ii) any
dividend declared or paid or distribution made on the capital stock of Delta,
or any capital stock thereof redeemed or repurchased; (iii) any incurrence by
Delta of long term debt; (iv) any salary, bonus, or compensation increases to
any officers, employees, or agents of Delta; (v) any pending or threatened
labor disputes or other labor problems against or potentially affecting Delta;
or (vi) any other transaction entered into by Delta, except in the ordinary
course of business and consistent with past practice.
4.9 Tax Matters.
(a) For purposes of this Agreement, (i) "Tax" means any
federal, state, local, or foreign income, gross receipts, license,
payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Section 59A of
the Internal Revenue Code of 1986, as amended (the "Code")), customs
duties, capital
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stock, franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on
minimum, estimated, or other tax of any kind whatsoever, including any
interest, penalty, or addition thereto, whether disputed or not, and
(ii) "Tax Return" means any return, report, information return, or
other document (including any related or supporting information) filed
or required to be filed with any taxing authority in connection with
its determination, assessment, collection, administration, or
imposition of any Tax.
(b) Delta has duly and timely filed all Tax Returns and
has duly and timely paid all Taxes and other charges (whether or not
shown on any Tax Return) due or claimed to be due from it by federal,
foreign, state, or local taxing authorities or has set up an adequate
reserve for all Taxes payable by Delta. True and correct copies of all
Tax Returns relating to federal taxes and state income and sales taxes
and other charges for the period from organization through December
31, 1995 have been heretofore delivered to SCB. The accruals and
reserves for Taxes contained in the financial statements and carried
on the books of Delta (other than any reserve for deferred taxes
established to reflect timing differences between book and tax income)
are adequate to cover all Tax liabilities. Since December 31, 1995,
Delta has not incurred any Tax liabilities other than in the ordinary
course of business. There are no Tax liens (other than liens for
current Taxes not yet due) upon any properties or assets of Delta
(whether real, personal, or mixed, tangible or intangible), and,
except as reflected in the financial statements, there are no pending
or, to Delta's knowledge, threatened audits or examinations relating
to, or claims asserted for, Taxes or assessments against Delta, and
Delta is aware of no substantial basis for any such claims. Delta has
not granted or been requested to grant any extension of the limitation
period applicable to any claim for Taxes or assessments with respect
to Taxes. Delta is not a party to any Tax allocation or sharing
agreement. Delta has no liability for the Taxes of any Affiliated
Group under Treasury Regulation 1.1502-6 (or any similar provision of
state, local, or foreign law). Delta has withheld and paid all Taxes
required to have been withheld and paid in connection with amounts
paid or owing to any employee, independent contractor, creditor, or
shareholder, where failure to do so would have a Delta Material
Adverse Effect.
(c) The Delta Disclosure Letter lists each jurisdiction
in which Delta files Tax Returns for each period or portion thereof
ending on or before the Closing Date. Except as set forth in the Delta
Disclosure Letter, there is no claim outstanding against Delta by any
taxing authority in a jurisdiction where Delta does not file Tax
Returns that it is or may be subject to taxation by that jurisdiction.
(d) All material elections with respect to Taxes
affecting Delta as of the date hereof are set forth in the Delta
Disclosure Letter.
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(e) All joint ventures, partnerships, or other
arrangements or contracts to which Delta is a party and that could be
treated as a partnership for federal income tax purposes are set forth
in the Delta Disclosure Letter.
(f) Delta (i) has not filed a consent pursuant to Section
341(f) of the Code nor agreed to have Section 341(f)(2) apply to any
disposition of a subsection (f) asset (as such term is defined in
Section 341(f) of the Code) owned by Delta; (ii) has not agreed, and
is not required, to make any adjustment under Section 481(a) of the
Code by reason of a change in accounting method or otherwise that will
affect the liability of Delta for Taxes; (iii) has not made an
election, and is not required, to treat any asset of Delta as owned by
another person pursuant to the provisions of former Section 168(f)(8)
of the Code or as tax-exempt bond financed property or tax-exempt use
property within the meaning of Section 168 of the Code; and (iv) has
not made any of the foregoing elections and is not required to apply
any of the foregoing rules under any comparable state or local tax
provision.
(g) As soon as practicable following the Effective Time,
the Delta Shareholders shall, on behalf of Delta, timely file all Tax
Returns for, and pay all Taxes due with respect to, the short period
in 1996 ending on the Closing Date. The Delta Shareholders shall close
Delta's books on the Closing Date and shall report on Delta's federal
corporate income Tax Return for the short period ending on the Closing
Date all items of income, loss, deduction, and credit arising during
the short period under Delta's method of accounting.
4.10 Employees and Fringe Benefit Plans.
(a) The Delta Disclosure Letter sets forth the names,
ages, and titles of all members of the Board of Directors and officers
of Delta and all employees of Delta earning in excess of $30,000 per
year, and the annual rate of compensation (including bonuses) being
paid to each such officer and employee as of the most recent
practicable date.
(b) The Delta Disclosure Letter lists each employment,
bonus, deferred compensation, pension, stock option, stock
appreciation right, profit-sharing or retirement plan, arrangement, or
practice, each medical, vacation, retiree medical, severance pay plan,
and each other agreement or fringe benefit plan, arrangement, or
practice, of Delta, whether legally binding or not, that affects one
or more of Delta's employees, including all "employee benefit plans"
as defined by Section 3(3) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA") (collectively, the "Plans"). Delta
neither has nor sponsors, nor participates in any Plan that is subject
to Title IV of ERISA or the minimum funding standards of Section 412
of the Code.
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(c) For each Plan that is an "employee benefit plan"
under Section 3(3) of ERISA, Delta has delivered to SCB correct and
complete copies of the plan documents and summary plan descriptions,
the most recent determination letter received from the Internal
Revenue Service, the most recent Form 5500 Annual Report, and all
related trust agreements, insurance contracts, and funding agreements
that implement each such Plan.
(d) Delta has no commitment, whether formal or informal
and whether legally binding or not, (i) to create any additional Plan;
(ii) to modify or change any Plan; or (iii) to maintain for any period
of time any Plan. The Delta Disclosure Letter contains an accurate and
complete description of the funding policies (and commitments, if any)
with respect to each existing Plan.
(e) Delta has no unfunded past service liability in
respect of any of its Plans; neither Delta, nor any Plan nor any
trustee, administrator, fiduciary, or sponsor of any Plan has engaged
in any prohibited transaction as defined in Section 406 of ERISA or
Section 4975 of the Code for which there is no statutory exemption in
Section 408 of ERISA or Section 4975 of the Code; all filings,
reports, and descriptions as to such Plans (including Form 5500 Annual
Reports, summary plan descriptions, and summary annual reports)
required to have been made or distributed to participants, the
Internal Revenue Service, the United States Department of Labor, and
other governmental agencies have been made in a timely manner or will
be made on or prior to the Closing Date; there is no material
litigation, disputed claim, governmental proceeding, or investigation
pending or threatened with respect to any of the Plans, the related
trusts, or any fiduciary, trustee, administrator, or sponsor of the
Plans; the Plans have been established, maintained, and administered
in all material respects in accordance with their governing documents
and applicable provisions of ERISA and the Code and Treasury
Regulations promulgated thereunder; and each Plan that is intended to
be a qualified plan under Section 401(a) of the Code has received a
favorable determination letter from the Internal Revenue Service with
respect to the current terms of the Plan.
(f) Except where failure to do so would not have a Delta
Material Adverse Effect, Delta and its subsidiaries have complied in
all respects with all applicable federal, state, and local laws,
rules, and regulations relating to employees' employment and
employment relationships, including, without limitation, wage related
laws, anti-discrimination laws, employee safety laws, and COBRA
(defined herein to mean the requirements of Code Section 4980B,
Proposed Treasury Regulation Section 1.162-26 and Part 6 of Subtitle B
of Title I of ERISA).
(g) The consummation of the transactions contemplated by
this Agreement will not (i) result in the payment or series of
payments by Delta to any employee or other person of an "excess
parachute payment" within the meaning of Section 280G of the Code;
(ii) entitle any employee or former employee of Delta to severance
pay, unemployment compensation, or any other payment; or (iii)
accelerate the time of payment or vesting of
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any stock option, stock appreciation right, deferred compensation, or
other employee benefits under any Plan (including vacation and sick
pay).
(h) None of the Plans that are "welfare benefit plans,"
within the meaning of Section 3(1) of ERISA, provide for continuing
benefits or coverage after termination or retirement from employment,
except for COBRA rights under a "group health plan" as defined in Code
Section 4980B(g) and ERISA Section 607.
(i) Neither Delta nor any member in a "controlled group"
with Delta (as defined in ERISA) has ever contributed to, participated
in, or withdrawn from a multi-employer plan as defined in Section
4001(a)(3) of Title IV of ERISA, and Delta has not incurred and does
not owe any liability as a result of any partial or complete
withdrawal by any employer from such a multi-employer plan as
described under Section 4201, 4203, or 4205 of ERISA.
4.11 Assets. Delta owns the assets reflected in the June 30, 1996
balance sheet, including the leasehold estates, with good and marketable title,
free and clear of any and all claims, liens, mortgages, security interests, or
encumbrances whatsoever, and free and clear of any rights or privileges capable
of becoming claims, liens, mortgages, securities interests, or encumbrances.
The buildings, plants, structures, and equipment owned or leased by Delta are
in good operating condition and repair, and are adequate for the uses for which
they are being put, and none of such buildings, plants, structures, or
equipment is in need of maintenance or repairs except for ordinary and routine
maintenance and repairs that are not material in nature or cost. The assets of
the business of Delta reflected in the June 30, 1996 balance sheet are
sufficient for the continued conduct of the business of Delta after the Closing
Date in substantially the same manner as conducted prior to the Closing Date.
4.12 Accounts Receivable. All accounts receivable of Delta that are
reflected on the balance sheet dated June 30, 1996, or on the accounting
records of Delta as of the Closing Date (collectively, the "Accounts
Receivable") represent or will represent valid obligations arising from sales
actually made or services actually performed in the ordinary course of
business. Unless paid prior to the Closing Date, the Accounts Receivable are or
will be as of the Closing Date current and collectible net of the respective
reserves shown on the balance sheet dated June 30, 1996, or on the accounting
records of Delta as of the Closing Date (which reserves are adequate and
calculated consistent with past practice and, in the case of the reserve as of
the Closing Date, will not represent a greater percentage of the Accounts
Receivable as of the Closing Date than the reserve reflected in the balance
sheet dated June 30, 1996, and will not represent a material adverse change in
the composition of such Accounts Receivable in terms of aging). Subject to such
reserves, each of the Accounts Receivable either has been or will be collected
in full, without any set-off, within one hundred and twenty (120) days after
the day on which it first becomes due and payable. There is no contest, claim,
or right of set-off with any maker of an Accounts Receivable relating to the
amount or validity of such Accounts Receivable.
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4.13 Lawful Operations. Delta has been and currently is conducting
its business, and each of the premises leased or owned by Delta have been and
now are being used and operated, in compliance with all statutes, regulations,
orders, covenants, restrictions, and plans of federal, state, regional, county,
or municipal authorities, agencies, or boards applicable to the same, except
where the failure to so comply would not have a Delta Material Adverse Effect.
4.14 Litigation. There is no suit, action, or proceeding pending
or, to the knowledge of Delta or any of the Delta Shareholders, threatened
against or affecting Delta, which, if adversely determined, is reasonably
likely to have a Delta Material Adverse Effect. Delta is not subject to any
currently existing order, writ, injunction, or decree relating to its
operations.
4.15 Corporate Records; Other Information. The minute books of
Delta, copies of which have been provided to SCB, reflect all meetings of the
boards of directors, committees of the boards of directors, and the
shareholders thereof at which actions required by applicable law or otherwise
material to the operations of Delta were taken. To Delta's and each of the
Delta Shareholder's knowledge, all documents and other written information as
to existing facts relating to Delta and its assets and liabilities which have
been provided to SCB in connection with this Agreement are true, correct, and
complete in all material respects except to the extent that any such documents
or other written information was later specifically supplemented or corrected
prior to the date of this Agreement with additional documents or written
information that were provided to SCB.
4.16 Intellectual Property Rights. Delta owns or possesses the
right to use all trademarks, service marks, trade names, slogans, copyrights in
published and unpublished works, patents, patent applications, inventions and
discoveries that may be patentable, rights in mask works, and all trade secrets
including, but not limited to, customer lists, software, and technical
information, it currently uses without any conflict or alleged conflict with
the rights of others, except where any such conflict would not have a Delta
Material Adverse Effect. All copyrights [HAVE BEEN REGISTERED AND] are
currently in compliance with formal legal requirements, are valid and
enforceable, and are not subject to any maintenance fees, taxes, or actions
falling due within ninety days after the Closing Date. No copyright is
infringed or has been challenged or threatened in any way. None of the subject
matter of any copyright infringes or is alleged to infringe any copyright of
any third party or is a derivative work based on the work of a third party. All
works encompassed by a copyright have been marked with the proper copyright
notice.
4.17 Hazardous Substances.
(a) Delta has not authorized nor conducted nor has
knowledge of the generation, transportation, storage, presence, use, treatment,
disposal, release, or handling of (in an amount or of a type that has been or
must be reported to any governmental agency, violates any Environmental Law (as
defined below), or has required or could require remediation expenditures) any
hazardous substance, asbestos, radon, polychlorinated biphenyls ("PCBs"),
petroleum product, or waste (including crude oil or any fraction thereof),
natural gas, liquefied gas, synthetic
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gas or other material defined, regulated, controlled, or potentially subject to
any remediation requirement under any environmental law (collectively,
"Hazardous Materials"), on, in, or under any real property owned, leased, or by
any means controlled by it;
(b) Delta is in compliance with all federal, state, and
local laws, ordinances, rules, regulations, and other governmental requirements
relating to pollution, control of chemicals, management of waste, discharges of
materials into the environment, health, safety, natural resources, and the
environment (collectively, "Environmental Laws");
(c) Delta has, and is in compliance with, all licenses,
permits, registrations, and government authorizations necessary to operate
under all applicable Environmental Laws;
(d) Delta has not received any written or oral notice
from any governmental entity or any other person and there is no pending or, to
Delta's or any Delta Shareholder's knowledge, threatened claim, litigation or
any administrative agency proceeding that: alleges a violation of any
Environmental Law by Delta; alleges Delta is a liable party or a potentially
responsible party under the Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. Section 9601, et seq., or any state superfund law;
has resulted in or could result in the attachment of an environmental lien on
any real property owned, leased, or controlled by Delta; or alleges the
occurrence of contamination of any of such real property, damage to natural
resources, property damage, or personal injury based on its activities or the
activities of Delta's predecessors or third parties (whether at the real
property or elsewhere) involving Hazardous Materials, whether arising under the
Environmental Laws, common law principles, or other legal standards.
4.18 Certain Business Practices and Regulations. Neither Delta nor
to Delta's knowledge any of its executive officers, directors, or employees,
has (i) made or agreed to make any contribution, payment, or gift to any
customer, supplier, landlord, political candidate, governmental official,
employee, or agent where either the contribution, payment, or gift or the
purpose thereof was illegal under any law or regulation; (ii) established or
maintained any unrecorded fund or asset for any purpose or made any false
entries on its respective books and records for any reason; (iii) made or
agreed to make any contribution, or reimbursed any political gift or
contribution made by any other person, to any candidate for federal, state, or
local public office in violation of any law or regulation; or (iv) submitted
any claim for services rendered or reimbursement for expenses to any person
where the services were not actually rendered or the expenses were not actually
incurred.
4.19 Insurance. All policies and binders of insurance for
professional liability, directors and officers, fire, liability, workers'
compensation, and other customary matters held by or on behalf of Delta
("Insurance Policies") are described in the Delta Disclosure Letter and have
been made available to SCB. The Insurance Policies (which term shall include
any insurance policy entered into after the date of this Agreement in
replacement of an Insurance Policy provided that such replacement policy shall
insure against risks and liabilities, and in amounts and under terms
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and conditions, substantially the same as those provided in such replaced
policy or binder) are in full force and effect. Delta is not in default with
respect to any material provision contained in any Insurance Policy. Delta has
not failed to give any notice of any claim under any Insurance Policy in due
and timely fashion, nor has any coverage for current claims been denied.
4.20 No Brokers. Delta has not entered into any contract,
arrangement, or understanding with any person or firm that may result in the
obligation of Delta or SCB to pay any finder's fees, brokerage or agent's
commissions, or other like payments in connection with the negotiations leading
to this Agreement or the consummation of the transactions contemplated hereby.
4.21 SCB Stock Ownership; Investment Intent.
(a) Neither Delta nor any of the Delta Shareholders owns,
beneficially or otherwise, any shares of SCB Common Stock.
(b) The shares of SCB Common Stock issuable in the Merger are
being acquired by the Delta Shareholders for investment and not with a view to
the distribution thereof, and each of the Delta Shareholders acknowledges and
understands that the certificate(s) representing such shares of SCB Common
Stock (including the Escrow Shares) will bear a legend in substantially the
following form:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY
STATE SECURITIES ACT AND CANNOT BE SOLD, TRANSFERRED, OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER SUCH ACTS OR UNLESS EXEMPTIONS
FROM REGISTRATION ARE AVAILABLE.
THE COMPANY WILL FURNISH THE HOLDER HEREOF INFORMATION REGARDING THE
DESIGNATIONS, RELATIVE RIGHTS, PREFERENCES, AND LIMITATIONS APPLICABLE
TO EACH CLASS AND THE VARIATIONS AND RIGHTS, PREFERENCES, AND
LIMITATIONS DETERMINED FOR EACH SERIES OF STOCK ISSUED BY THE COMPANY
(AND THE AUTHORITY OF THE BOARD OF DIRECTORS TO DETERMINE VARIATIONS
FOR FUTURE SERIES) UPON REQUEST IN WRITING AND WITHOUT CHARGE.
(c) Each Delta Shareholder, severally and not jointly, represents
and warrants as follows:
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(i) Each of the Delta Shareholders is an "accredited
investor" as defined under Rule 501 of Regulation D promulgated under the
Securities Act of 1933, as amended (the "Securities Act").
(ii) Each of the Delta Shareholders has received and
reviewed copies of SCB's Annual Report on Form 10-K for the fiscal year ended
April 30, 1996 and SCB's Quarterly Report on Form 10-Q for the fiscal quarter
ended July 31, 1996 (collectively, the "SEC Reports"), which contains certain
information regarding SCB and its business. Each of the Delta Shareholders
confirms that SCB has made available to him or to his representatives the
opportunity to ask questions of SCB's officers and directors and to acquire
such information about the shares of SCB Common Stock and the business and
financial condition of SCB as the Delta Shareholders have requested, which
additional information has been received.
(iii) In deciding to acquire shares of SCB Common Stock
pursuant to Article 3 hereof, the Delta Shareholders have consulted with their
legal, financial, and tax advisers with respect to the Merger and the nature of
the investment together with additional information concerning SCB set forth in
the SEC Reports and any additional information provided under subsection (ii)
above.
(iv) Each Delta Shareholder has adequate means of
providing for his current needs and personal contingencies and has no need for
liquidity in his investment in SCB. Each of the Delta Shareholders, either
alone or with his representatives, has such knowledge and experience in
financial and business matters that he is capable of evaluating the merits and
risks of an investment in SCB.
(v) No Delta Shareholder has a present plan or intention
to sell, exchange, or otherwise dispose of more than fifty percent (50%) of the
shares of SCB Common Stock (excluding the Escrow Shares) to be received by that
Delta Shareholder in the Merger, nor does any Delta Shareholder have a present
plan or intention to exercise his or her registration rights pursuant to
Article 10 hereof, and then to sell, exchange, or otherwise dispose of an
amount of such registered shares equal to fifty percent (50%) or more of the
shares of SCB Common Stock (excluding the Escrow Shares) received by that Delta
Shareholder in the Merger.
4.22 Pooling of Interests. To the knowledge of the officers of
Delta and the Delta Shareholders, after consulting with independent
accountants, Delta has not taken or failed to take any action that would
prevent the accounting for the Merger as a pooling of interests in accordance
with Accounting Principles Board Opinion No. 16 ("APB 16"), the interpretive
releases issued pursuant thereto, and the pronouncements of the Securities and
Exchange Commission (the "SEC").
4.23 Full Disclosure. All of the information provided by Delta and
its representatives herein or in the Delta Disclosure Letter is true, correct,
and complete in all material respects, and no representation, warranty, or
statement made by Delta or the Delta Shareholders in or pursuant
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to this Agreement or the Delta Disclosure Letter contains or will contain any
untrue statement of a material fact or omits or will omit to state any material
fact necessary to make such representation, warranty, or statement not
misleading.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF SCB AND MERGER SUB
Except as set forth in the disclosure letter delivered at or prior to
the execution hereof to Delta (the "SCB Disclosure Letter"), SCB and Merger
Sub, jointly and severally, represent, warrant and agree as follows:
5.1 Existence; Good Standing; Corporate Authority. Each of SCB and
Merger Sub is duly incorporated, validly existing, and in good standing under
the laws of the State of Tennessee. SCB is duly licensed or qualified to do
business as a foreign corporation and is in good standing under the laws of any
other state of the United States in which the character of the properties owned
or leased by it therein or in which the transaction of its business makes such
qualification necessary, except where the failure to be so qualified would not
have a material adverse effect on the business, results of operations, or
financial condition of SCB (an "SCB Material Adverse Effect"). SCB has all
requisite corporate power and authority to own, operate, and lease its
properties and carry on its business as now conducted.
5.2 Authorization, Validity, and Effect of Agreements. Each of SCB
and Merger Sub has the requisite corporate power and authority to execute and
deliver this Agreement and all agreements and documents contemplated hereby.
The consummation by SCB and Merger Sub of the transactions contemplated hereby
has been duly authorized by all requisite corporate action. This Agreement
constitutes, and all agreements and documents contemplated hereby (when
executed and delivered pursuant hereto) will constitute, the valid and legally
binding obligations of SCB and Merger Sub, enforceable in accordance with their
respective terms. The issuance and delivery by SCB of shares of SCB Common
Stock in connection with the Merger and this Agreement have been duly and
validly authorized by all necessary corporate action on the part of SCB. The
shares of SCB Common Stock to be issued in connection with the Merger and this
Agreement, when issued in accordance with the terms of this Agreement, will be
validly issued, fully paid, and nonassessable.
5.3 Capitalization. The authorized capital stock of SCB consists
of 1,000,000 shares of preferred stock, none of which is issued and
outstanding, and 20,000,000 shares of SCB Common Stock, of which 7,015,583
shares were issued and outstanding as of September 16, 1996. SCB has no
outstanding bonds, debentures, notes, or other obligations the holders of which
have the right to vote (or which are convertible into or exercisable for
securities having the right to vote) with the shareholders of SCB on any
matter. All issued and outstanding shares of SCB Common Stock are duly
authorized, validly issued, fully paid, nonassessable, and free of
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preemptive rights. Other than pursuant to this Agreement, there are no options,
warrants, calls, subscriptions, convertible securities, or other rights,
agreements, or commitments that obligate SCB to issue, transfer, or sell any
shares of capital stock of SCB.
5.4 Subsidiaries. The SCB Disclosure Letter sets forth the
outstanding capital stock of Merger Sub and each corporation, partnership, or
other entity of which at least a majority of the voting interest is owned
directly or indirectly by SCB (an "SCB Subsidiary"). Merger Sub has not engaged
in any activity other than in connection with the transactions contemplated by
this Agreement.
5.5 Other Interests. Neither SCB nor Merger Sub owns directly or
indirectly any interest or investment (whether equity or debt) in any
corporation, partnership, joint venture, business, trust, or other entity,
except for the SCB Subsidiaries.
5.6 No Violation. Neither the execution and delivery by SCB and
Merger Sub of this Agreement, nor the consummation by SCB and Merger Sub of the
transactions contemplated hereby in accordance with the terms hereof, will: (i)
conflict with or result in a breach of any provisions of the charter or bylaws
of SCB or Merger Sub; (ii) conflict with, result in a breach of any provision
of or the modification or termination of, constitute a default under, or result
in the creation or imposition of any lien, security interest, charge, or
encumbrance upon any of the assets of SCB or Merger Sub pursuant to any
material commitment, lease, contract, or other material agreement or instrument
to which SCB or Merger Sub is a party; or (iii) violate or result in a change
in any rights or obligations, under any governmental permit or license or any
order, arbitration award, judgment, writ, injunction, decree, statute, rule, or
regulation applicable to SCB or Merger Sub.
5.7 SEC Documents. Prior to the date hereof, SCB has delivered to
Delta and the Delta Shareholders copies of the SEC Reports. The SEC Reports (i)
were prepared in all material respects in accordance with the applicable
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations promulgated thereunder, and (ii) as of
their respective dates, did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements made therein, in the light of the circumstances under which
they were made, not misleading. The consolidated balance sheets included in the
SEC Reports (including the related notes and schedules) fairly present, in all
material respects, the consolidated financial position of SCB as of their
respective dates and each of the consolidated statements of income,
shareholders' equity, and cash flows included in the SEC Reports (including any
related notes and schedules) fairly present, in all material respects, the
results of operations, shareholders' equity, and cash flows of SCB for the
periods set forth therein, in each case in accordance with generally accepted
accounting principles consistently applied during the periods involved, except
as may be noted therein.
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5.8 Litigation. As of the date of this Agreement, except as set
forth in the SEC Reports, there is no action, suit, or proceeding pending
against SCB or any SCB Subsidiary or, to the knowledge of SCB or any SCB
Subsidiary, threatened against or affecting SCB or any SCB Subsidiary, at law
or in equity, or before or by any federal or state commission, board, bureau,
agency, or instrumentality, that is reasonably likely to have an SCB Material
Adverse Effect.
5.9 Taxes. SCB has duly and timely filed all Tax Returns and has
duly and timely paid (or accrued) all Taxes and other charges (whether or not
shown on any Tax Return) due or claimed to be due from it by federal, foreign,
state, or local taxing authorities. Since July 31, 1996, SCB has not incurred
any Tax liabilities other than in the ordinary cause of business.
5.10 Employment Practices. Except where the failure to do so would
not have an SCB Material Adverse Effect, SCB has complied in all material
respects with all applicable federal, state, and local laws, rules, and
regulations relating to "employee benefit plans" as defined under ERISA, and to
employees' employment and employment relationships including, without
limitation, wage related laws, anti-discrimination laws, employment safety
laws, and COBRA.
5.11 Absence of Certain Changes. Since July 31, 1996, there has not
been any material adverse change in the financial condition, results of
operations, business, assets or liabilities (contingent or otherwise, whether
due or to become due, known or unknown), of SCB, except for changes in the
ordinary course of business.
5.12 No Brokers. SCB has not entered into any contract,
arrangement, or understanding with any person or firm that may result in the
obligation of SCB to pay any finder's fees, brokerage or agent's commissions,
or other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated hereby, except
that SCB has retained Mercer Capital as its financial advisor (the fees and
expenses of which shall be the sole responsibility of SCB). Other than the
foregoing arrangement, SCB is not aware of any claim for payment of any
finder's fees, brokerage or agent's commissions, or other like payments in
connection with the negotiations leading to this Agreement or the consummation
of the transactions contemplated hereby.
5.13 Pooling of Interests. To the knowledge of the officers of SCB,
after consulting with independent accountants and other advisors, SCB has not
taken or failed to take any actions that would prevent the accounting for the
Merger as a pooling of interests in accordance with APB 16, the interpretive
releases issued pursuant thereto, and the pronouncements of the SEC.
5.14 Certain Business Practices and Regulations. Neither SCB nor to
SCB's knowledge any of its executive officers, directors, or employees, has (i)
made or agreed to make any contribution, payment, or gift to any customer,
supplier, landlord, political candidate, governmental official, employee, or
agent where either the contribution, payment, or gift or the purpose thereof
was illegal under any law or regulation; (ii) established or maintained any
unrecorded fund or asset for any purpose or made any false entries on its
respective books and
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records for any reason; (iii) made or agreed to make any contribution, or
reimbursed any political gift or contribution made by any other person, to any
candidate for federal, state, or local public office in violation of any law or
regulation; or (iv) submitted any claim for services rendered or reimbursement
for expenses to any person where the services were not actually rendered or the
expenses were not actually incurred.
ARTICLE 6.
COVENANTS
6.1 Covenants of SCB and Delta. During the period from the date
hereof and continuing until the Effective Time (except as expressly
contemplated or permitted hereby, or to the extent that the other parties shall
otherwise specifically consent in writing) each of SCB and Delta covenants with
the other that, insofar as the obligations relate to it:
(a) Each of SCB and Delta shall carry on their respective
businesses in the usual, regular, and ordinary course in substantially
the same manner as heretofore conducted and shall use all reasonable
efforts to preserve intact their present business organizations,
maintain their rights and franchises, and preserve their relationships
with customers, suppliers, and others having business dealings with
them to the end that their goodwill and ongoing businesses shall not
be impaired in any material respect.
(b) From the date hereof to the Effective Time, each of
SCB and Delta shall allow all designated officers, attorneys,
accountants, and other representatives of the other access at all
reasonable times during regular business hours to the records and
files, correspondence, audits, and properties, as well as to all
information relating to commitments, contracts, titles, and financial
position, or otherwise pertaining to the business and affairs, of SCB
and Delta.
(c) Each of SCB and Delta will promptly file or submit
and diligently prosecute any and all applications or notices with
public authorities, federal, state, or local, domestic or foreign, and
all other requests for approvals of any private persons, the filing or
granting of which is necessary or appropriate, or is deemed necessary
or appropriate by any party hereto, for the consummation of the
transactions contemplated hereby.
(d) Except as and to the extent required by law, each of
SCB and Delta hereby agrees not to disclose or use, and each shall
cause its representatives not to disclose or use, any confidential
information with respect to any other party hereto furnished, or to be
furnished, by such other party or its representatives in connection
herewith at any time or in any manner other than in connection with
their respective evaluations of the Merger. Neither Delta nor any of
the Delta Shareholders or representatives shall make any public
statements regarding the Merger or this Agreement without the prior
written approval of
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SCB. In the event the Merger does not occur for any reason, the
parties shall continue to be bound by the terms of the Confidentiality
Agreement, dated September 3, 1996, between SCB and Delta.
6.2 Covenants of Delta and the Delta Shareholders. Delta and the
Delta Shareholders covenant and agree that between the date hereof and
continuing until the Effective Time (except as expressly contemplated or
permitted hereby, or to the extent that SCB shall otherwise specifically
consent in writing):
(a) (i) they shall, and shall direct and use their best
efforts to cause Delta's directors, officers, employees, advisors,
accountants, and attorneys (the "Representatives"), not to, initiate,
solicit, or encourage, directly or indirectly, any inquiries or the
making or implementation of any proposal or offer with respect to a
merger, acquisition, consolidation, or similar transaction involving,
or any purchase of all or any significant portion of the assets or any
equity securities of Delta (any such proposal or offer being
hereinafter referred to as an "Acquisition Proposal") or engage in any
negotiations concerning, or provide any confidential information or
data to, or have any discussions with, any person relating to an
Acquisition Proposal, or otherwise facilitate any effort or attempt to
make or implement an Acquisition Proposal; (ii) they will immediately
cease and cause to be terminated any existing activities, discussions,
or negotiations with any parties conducted heretofore with respect to
any of the foregoing and will take the necessary steps to inform the
individuals or entities referred to above of the obligations
undertaken in this Section 6.2(a); and (iii) they will notify SCB
immediately if any such inquiries or proposals are received by, any
such information is requested from, or any such negotiations or
discussions are sought to be initiated or continued with, it.
(b) Delta will make all normal and customary repairs,
replacements, and improvements to its facilities, properties, and
equipment and, without limiting the generality of the covenants set
forth in Section 6.1(a), will not:
(i) change its charter, bylaws, or capitalization
or merge or consolidate with or into or otherwise acquire any
interest in any entity;
(ii) declare, set aside, or pay any cash dividend
or other distribution on or in respect of shares of its
capital stock, or any redemption, retirement, or purchase with
respect to its capital stock or issue any additional shares or
rights or options or agreements to acquire shares of its
capital stock;
(iii) discharge or satisfy any lien, charge,
encumbrance, or indebtedness outside the ordinary course of
business, except those required to be discharged or satisfied;
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(iv) authorize, guarantee, or incur indebtedness
aggregating in excess of $50,000;
(v) make any capital expenditures or capital
additions or betterments, or commitments therefor, aggregating
in excess of $100,000;
(vi) loan funds to any person;
(vii) institute, settle, or agree to settle any
litigation, action, or proceeding before any court or
governmental body;
(viii) sell, lease, mortgage, pledge, or subject to
any other encumbrance or otherwise dispose of any of its
property or assets, tangible or intangible, other than in the
ordinary course of business;
(ix) except in the ordinary course of business
consistent with past practice, authorize any compensation
increases of any kind whatsoever for any employee (provided
Delta shall pay owing or accrued deferred compensation) or
adopt or amend any existing severance plan or other Plan;
(x) make any new elections with respect to Taxes,
or any changes in current elections with respect to Taxes; or
(xi) enter into any contract, agreement,
commitment, or arrangement to do any of the foregoing.
(c) neither Delta nor the Delta Shareholders shall take
any action that would cause or tend to cause the conditions upon the
obligations of the parties hereto to effect the transactions
contemplated hereby not to be fulfilled including, without limitation,
taking, causing to be taken, or permitting or suffering to be taken or
to exist any action, condition, or thing that would cause the
representations and warranties made by them herein not to be true,
correct, complete, and accurate as of the Closing Date.
(d) prior to the Effective Time, Delta shall promptly
provide to SCB monthly and quarterly unaudited financial statements of
Delta for periods from and after June 30, 1996, prepared in accordance
with generally accepted accounting principles consistently applied;
provided, that, notes to unaudited financial statements will not be
required.
(e) prior to and after the Effective time, Delta shall
not (i) knowingly take any action, or knowingly fail to take any
action, that would jeopardize the treatment of the Merger as a
"pooling of interests" for accounting purposes; (ii) knowingly take
any action, or knowingly fail to take any action, that would
jeopardize qualification of the Merger as a reorganization within the
meaning of Section 368(a)(2)(D) of the Code; or (iii) enter into
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any contract, agreement, commitment, or arrangement with respect to
either of the foregoing.
6.3 Covenants of SCB. SCB covenants and agrees that between the
date hereof and continuing until the Effective Time (except as expressly
contemplated or permitted hereby, or to the extent that Delta shall otherwise
consent in writing),
(a) it will promptly prepare and submit to Nasdaq a
notification for listing additional shares covering the shares of SCB
Common Stock issuable in the Merger, and shall use its best efforts to
obtain, prior to the date such shares are transferable by the Delta
Shareholders, approval for the listing of such SCB Common Stock,
subject, if applicable, to official notice of issuance.
(b) prior to and after the Effective time, SCB shall not
(i) knowingly take any action, or knowingly fail to take any action,
that would jeopardize the treatment of the Merger as a "pooling of
interests" for accounting purposes; (ii) knowingly take any action, or
knowingly fail to take any action, that would jeopardize qualification
of the Merger as a reorganization within the meaning of Section
368(a)(2)(D) of the Code, or (iii) enter into any contract, agreement,
commitment, or arrangement with respect to either of the foregoing.
ARTICLE 7.
CONDITIONS
7.1 Conditions to Each Party's Obligations to Effect the Merger.
The respective obligations of each party to effect the Merger shall be subject
to the fulfillment at or prior to the Closing Date of the following conditions:
(a) No action or proceeding shall have been instituted
before a court or other governmental body by any governmental agency
or public authority to restrain or prohibit the transactions
contemplated by this Agreement or to obtain an amount of damages or
other material relief in connection with the execution of the
Agreement or the related agreements or the consummation of the Merger;
and no governmental agency shall have given notice to any party hereto
to the effect that consummation of the transactions contemplated by
this Agreement would constitute a violation of any law or that it
intends to commence proceedings to restrain consummation of the
Merger.
(b) SCB and the Delta Shareholders each shall have
received an opinion of Bass, Berry & Sims PLC generally to the effects
that (i) the Merger qualifies as a reorganization under Section
368(a)(2)(D) of the Code, (ii) no material gain or loss for federal
income tax purposes will be recognized by Delta or SCB as a result of
the Merger,
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and (iii) the Delta Shareholders will recognize no gain or loss for
federal income tax purposes with respect to the SCB Common Stock
received in the Merger; provided that the failure to satisfy the
requirements of clause (ii) of this subsection shall constitute a
condition to consummation of the Merger only if asserted by SCB, and
the failure to satisfy the requirements of clause (iii) of this
subsection shall constitute a condition to consummation of the Merger
only if asserted by the Delta Shareholders.
(c) All consents, authorizations, orders, and approvals
of (or filings or registrations with) any governmental commission,
board, or other regulatory body required in connection with the
execution, delivery, and performance of this Agreement shall have been
obtained or made, except for filings in connection with the Merger and
any other documents required to be filed after the Effective Time, and
except where the failure to have obtained or made any such consent,
authorization, order, approval, filing, or registration would not have
a material adverse effect on the business of SCB and Delta, taken as a
whole, following the Effective Time.
(d) SCB shall have received from Delta copies of all
resolutions adopted by the Board of Directors and shareholders of
Delta in connection with this Agreement and the transactions
contemplated hereby. Delta shall have received from SCB and Merger Sub
copies of all resolutions adopted by the Board of Directors and
shareholders of each respective company in connection with this
Agreement and the transactions contemplated hereby.
7.2 Conditions to Obligations of Delta and the Delta Shareholders
to Effect the Merger. The obligations of Delta and the Delta Shareholders to
effect the Merger shall be subject to the fulfillment at or prior to the
Closing Date of the following conditions:
(a) SCB shall have performed its agreements contained in
this Agreement required to be performed on or prior to the Closing
Date and the representations and warranties of SCB and Merger Sub
contained in this Agreement and in any document delivered in
connection herewith shall be true and correct as of the Closing Date,
and Delta shall have received a certificate of the President or the
Chief Financial Officer of SCB, dated the Closing Date, certifying to
such effect.
(b) From the date of this Agreement through the Effective
Time, there shall not have occurred any change in the financial
condition, business, or operations of SCB, that would have or would be
reasonably likely to have an SCB Material Adverse Effect.
(c) Delta and the Delta Shareholders shall have received
a written opinion, dated as of the Closing Date, from Bass, Berry &
Sims PLC substantially in the form of Exhibit C attached hereto.
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7.3 Conditions to Obligations of SCB and Merger Sub to Effect the
Merger. The obligations of SCB and Merger Sub to effect the Merger shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) Delta and the Delta Shareholders shall have performed
their respective agreements contained in this Agreement required to be
performed on or prior to the Closing Date and the representations and
warranties of Delta and the Delta Shareholders contained in this
Agreement and in any document delivered in connection herewith shall
be true and correct as of the Closing Date to the same extent as if
made on the Closing Date, and SCB shall have received a certificate of
the Chief Executive Officer and Chief Financial Officer of Delta dated
the Closing Date, certifying to such effect.
(b) From the date of this Agreement through the Effective
Time, there shall not have occurred any change in the financial
condition, business, operations, or prospects of Delta, that would
have or would be reasonably likely to have a Delta Material Adverse
Effect.
(c) SCB shall be satisfied that the Merger will qualify
for accounting by SCB as a pooling of interests under generally
accepted accounting principles and under applicable rules and
regulations of the Securities and Exchange Commission. In connection
therewith, SCB shall have received, on or before the Closing Date, a
letter from Ernst & Young, LLP (or any other accountants of SCB's
choosing), dated as of the Closing Date to the effect that the
transactions contemplated by this Agreement may be treated by SCB as a
"pooling of interests" for accounting purposes.
(d) SCB shall have received a written opinion, dated as
of the Closing Date, from Baker, Donelson, Bearman & Caldwell, a
Professional Corporation, substantially in the form of Exhibit D
attached hereto.
(e) Each of Messrs. Jordan, Ely, and O'Guinn shall have
executed Employment Agreements, substantially in the form of Exhibit E
attached hereto, Mr. Reed shall have executed the Noncompetition
Agreement, substantially in the form of Exhibit F attached hereto, and
Mr. David Rea shall have executed the Employment Agreement,
substantially in the form of Exhibit G attached hereto.
ARTICLE 8.
TERMINATION
8.1 Termination by Mutual Consent. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, by the mutual consent of SCB and Delta.
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8.2 Termination by Either SCB or Delta. This Agreement may be
terminated and the Merger may be abandoned by action of the Board of Directors
of either SCB or Delta if (a) the Merger shall not have been consummated by
September 30, 1996, or (b) a United States federal or state court of competent
jurisdiction or United States federal or state governmental, regulatory, or
administrative agency or commission shall have issued an order, decree, or
ruling or taken any other action permanently restraining, enjoining, or
otherwise prohibiting the transactions contemplated by this Agreement and such
order, decree, ruling, or other action shall have become final and
non-appealable; provided, that the party seeking to terminate this Agreement
pursuant to this clause (b) shall have used all reasonable efforts to remove
such injunction, order, or decree.
8.3 Termination by Delta. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time by action of
the Board of Directors of Delta, if (a) there has been a breach by SCB or
Merger Sub of any representation or warranty contained in this Agreement which
would have or would be reasonably likely to have an SCB Material Adverse
Effect, or (b) there has been a material breach of any of the covenants or
agreements set forth in this Agreement on the part of SCB, which breach is not
curable or, if curable, is not cured within 30 days after written notice of
such breach is given by Delta to SCB.
8.4 Termination by SCB. This Agreement may be terminated and the
Merger may be abandoned at any time prior to the Effective Time, by action of
the Board of Directors of SCB, if (a) there has been a breach by Delta or the
Delta Shareholders of any representation or warranty contained in this
Agreement which would have or would be reasonably likely to have a Delta
Material Adverse Effect, or (b) there has been a material breach of any of the
covenants or agreements set forth in this Agreement on the part of Delta or the
Delta Shareholders, which breach is not curable or, if curable, is not cured
within 30 days after written notice of such breach is given by SCB to Delta.
8.5 Effect of Termination and Abandonment. Upon termination of
this Agreement pursuant to this Article 8, this Agreement shall be void and of
no other effect, and there shall be no liability by reason of this Agreement or
the termination thereof on the part of any party hereto (other than for breach
of a covenant contained herein), or on the part of the respective directors,
officers, employees, agents, or shareholders of any of them.
8.6 Extension; Waiver. At any time prior to the Effective Time,
any party hereto, by action taken by its Board of Directors, may, to the extent
legally allowed, (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties made to such party contained
herein or in any document delivered pursuant hereto, and (c) waive compliance
with any of the agreements or conditions for the benefit of such party
contained herein. Any agreement on the part of a party hereto to any such
extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party.
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ARTICLE 9.
SURVIVAL OF REPRESENTATIONS AND
WARRANTIES; INDEMNIFICATION
9.1 Survival of Representations and Warranties. The
representatives and warranties of the parties contained in Articles 3 and 4 of
this Agreement shall survive the Merger for a period expiring on July 29, 1997.
9.2 Indemnity Obligations of the Delta Shareholders. Subject to
the provisions of this Article 9 and the Escrow Agreement, the Delta
Shareholders, jointly and severally, in accordance with the Escrow Agreement,
agree to indemnify and hold SCB harmless from, and to reimburse SCB for, any
losses, costs, expenses, obligations, liabilities, damages, remedies and
penalties, including interest, and attorneys' fees and expenses actually
incurred (collectively "Losses") arising in connection with or attributable to
the inaccuracy or breach of any representation, warranty, or covenant made by
Delta or Delta's Shareholders in this Agreement.
9.3 Indemnification by SCB. Subject to the provisions of this
Article 9, SCB will indemnify, defend, and hold harmless the Delta Shareholders
from, and reimburse the Delta Shareholders for, any Losses arising in
connection with or attributable to the inaccuracy or breach of any
representation, warranty, or covenant made by SCB or Merger Sub in this
Agreement. The Delta Shareholders' exercise of their rights to indemnification
pursuant to this Article 9 will not constitute an election of remedies or
otherwise limit them in the enforcement of any other remedies that may be
available to them.
9.4 Limitation. Except as expressly provided in Section 2(a) of
the Escrow Agreement, liability of Delta Shareholders for indemnification
claims by SCB shall be limited to the Escrow Fund.
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ARTICLE 10.
REGISTRATION AND SALE OF MERGER SHARES
10.1 Registration Rights.
(a) If, at any time on or after February 15, 1997, SCB is and
continues to be eligible to effect a Registration Statement on Form S-3
covering resales of SCB Common Stock by SCB shareholders, and one or more of
the Delta Shareholders shall notify SCB in writing that it or they desire to
offer or cause to be offered for public sale shares of SCB Common Stock
received (including the Escrow Shares) in the Merger (the "Merger Shares") with
a fair market value in excess of $1,000,000, then SCB will (i) advise the other
Delta Shareholders in writing of the receipt of such notice, and (ii) use its
best efforts to cause the filing of and, subject to the provisions of Section
10.1(c), maintain for a period of up to the second anniversary of the Closing
Date an effective registration statement pursuant to Rule 415 (or any successor
or similar rule of the Securities Act), including, without limitation, filing
post-effective amendments, appropriate qualifications under applicable blue sky
or other state securities laws, for the purpose of effecting sales of the
Merger Shares requested to be registered by any of the Delta Shareholders. SCB
shall be obligated to take action to comply with this Section 10.1(a) on only
two occasions.
(b) During the period ending two years after the Closing Date,
each time that SCB proposes to file a registration statement under the
Securities Act with respect to an underwritten offering for cash by SCB of its
equity securities on a form that would also permit the registration of the
Merger Shares, SCB will give written notice of such proposal to the Delta
Shareholders; provided, however, that, if there is an effective registration
statement covering the Merger Shares, no such notice pursuant to this Section
10.1(b) shall be required. In such event, each Delta Shareholder may, by
written request given within five business days after receipt by the Delta
Shareholder of any such notice by SCB, require SCB to cause not less than 50%
of the Delta Shareholder's remaining Merger Shares to be included in such
registration statement. Notwithstanding the foregoing, if the managing
underwriter or underwriters of such offering advise SCB that inclusion of the
Delta Shareholder's shares would (i) make it impracticable to conduct an
underwritten offering of the SCB Common Stock being registered at the price at
which such SCB Common Stock could be sold without such inclusion, or (ii)
materially interfere with the success of the offering by SCB, then the number
of the shares requested to be included in the registration by the Delta
Shareholder may be reduced or eliminated. Notwithstanding anything to the
contrary in this Section 10.1(b), SCB may, in its sole discretion and without
the consent of any Delta Shareholder, postpone the filing or effectiveness of
such registration statement or withdraw any such registration statement and
abandon any proposed offering.
(c) Notwithstanding the foregoing, SCB shall have no obligation to
register the resale of any Merger Shares on behalf of a Delta Shareholder or to
keep any previously filed registration
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statement effective pursuant to this Article 10 in the event such shares could
be sold by the Delta Shareholder pursuant to Rule 144 promulgated pursuant to
the Securities Act.
10.2 Expenses. Each Delta Shareholder shall bear all brokerage
fees, underwriting discounts, and commissions, if any, applicable to the sale
of its shares and the related fees and disbursements of its legal counsel and
accountants. SCB shall bear all other expenses in connection with any
registration of the shares pursuant to this Article 10.
10.3 SCB Indemnification. In the case of a registration effected by
or pursuant to this Article 10, SCB agrees to indemnify and hold harmless each
Delta Shareholder against any and all losses, claims, damages, or liabilities
to which the Delta Shareholder may become subject under the Securities Act or
any other statute or common law, and to reimburse the Delta Shareholder for any
reasonable legal or other expense actually and reasonably incurred by it in
connection with investigating any claim and defending any action, insofar as
such losses, claims, damages, liabilities, or actions arise out of or are based
upon: (i) any untrue statement, or alleged untrue statement, of a material fact
contained in the registration statement or any post-effective amendment
thereof, or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading; (ii) any untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus, if used prior to the effective
date of the registration statement, or contained in the prospectus (as amended
or supplemented if SCB shall have filed with the Securities and Exchange
Commission any amendment thereof or supplement thereto), if used within the
period during which SCB is required to keep the registration statement in which
such prospectus is contained current pursuant to the terms of this Article 10,
or the omission or alleged omission to state therein a material fact necessary
in order to make the statements contained therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the indemnification agreement contained in this Section 10.3 shall not
apply to such losses, claims, damages, liabilities, or actions arising out of,
or based upon, any such untrue statement or alleged untrue statement, or any
such omission or alleged omission, if such statement or omission was made in
reliance upon and in conformity with written information furnished to SCB by or
on behalf of the Delta Shareholder specifically for use in connection with the
preparation of the registration statement or any preliminary prospectus
contained in the registration statement or any such amendment thereof or
supplement thereto.
10.4 Delta Shareholder Indemnification. Each Delta Shareholder
agrees to indemnify and hold harmless SCB and each person, if any, who controls
SCB within the meaning of Section 15 of the Securities Act, its directors, and
those officers of SCB who shall have signed the registration statement or any
post-effective amendment thereof or any preliminary prospectus or prospectus
(as amended or as supplemented, if amended or supplemented as aforesaid)
contained in the registration statement against losses, claims, damages,
liabilities, or actions which arise out of or are based upon: (i) any untrue
statement, or alleged untrue statement, of a material fact contained in the
registration statement or any post-effective amendment thereof, or the omission
or alleged omission to state therein a material fact required to be stated
therein or
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necessary to make the statements therein not misleading; (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
preliminary prospectus, if used prior to the effective date of the registration
statement, or contained in the prospectus (as amended or supplemented if SCB
shall have filed with the Securities and Exchange Commission any amendment
thereof or supplement thereto), if used within the period during which SCB is
required to keep the registration statement in which such prospectus is
contained current pursuant to the terms of this Article 10, or the omission or
alleged omission to state therein a material fact necessary in order to make
the statements contained therein, in light of the circumstances under which
they were made, not misleading, if such statement or omission was made in
reliance upon and in conformity with information furnished to SCB by or on
behalf of the Delta Shareholder in writing specifically for use in connection
with the preparation of the registration statement or any such amendment
thereof or supplement thereto.
10.5 Indemnification Procedure. Each indemnified party shall
promptly after the receipt of notice of the commencement of any action against
such indemnified party in respect of which indemnity may be sought from an
indemnifying party on account of an indemnity agreement contained in this
Article 10, notify the indemnifying party in writing of the commencement
thereof; provided, however, that the omission to so notify the indemnifying
party shall not relieve the indemnifying party from any other liability which
it may have to such indemnified party. In case any such action shall be brought
against any indemnified party and it shall notify any indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it may wish, jointly and with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party, and after notice
from the indemnifying party to such indemnified party of its election so to
assume the defense thereof, the indemnifying party shall be responsible for any
reasonable legal or other expenses subsequently actually incurred by the
indemnifying party in connection with the defense thereof; provided further,
that if any indemnified party shall have reasonably concluded that there may be
one or more legal defenses available to such indemnified party that are
different from or additional to those available to the indemnifying party, or
that such claim or litigation involves or could have an effect upon matters
beyond the scope of the indemnity agreement provided in this Article 10, the
indemnifying party shall not have the right to assume the defense of such
action on behalf of such indemnified party, and such indemnifying party shall
be required to reimburse such indemnified party and any person controlling such
indemnified party for that portion of the reasonable fees and expenses of any
counsel retained by the indemnified party that are related to such different or
additional defenses, but not for matters that are beyond the scope of the
indemnity agreement provided in this Article 10; and provided further, that no
such action shall be settled without the consent of the indemnifying party and
the indemnified party, which consent neither party shall unreasonably withhold.
10.6 Contribution. If the indemnification provided for in this
Article 10 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage or expense
referred to herein, then the indemnifying party, in lieu of indemnifying such
indemnified party hereunder, shall contribute to the amount paid or payable
30
<PAGE> 32
by such indemnified party as a result of such loss, liability, claim, damage or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the
other in connection with the statements or omissions that resulted in such
loss, liability, claim, damage or expense as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and of
the indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative
intent, knowledge, access to information, and opportunity to correct or prevent
such statement or omission.
10.7 Orderly Disposition of Shares. Unless otherwise agreed in
writing in advance by SCB, the Delta Shareholders may not, during any 30-day
period, sell in the aggregate, whether through an effective registration
statement or otherwise, more than one-quarter of the total number of Merger
Shares. All sales of the Merger Shares shall be effected by one or more brokers
who are mutually agreeable to SCB and the Delta Shareholders. This Section 10.7
may be enforced by the delivery of "stop transfer" instructions by SCB to the
transfer agent for the SCB Common Stock. When and as the Merger Shares are sold
pursuant to the registration statement or otherwise, the Delta Shareholders
shall provide SCB with confirmations or other evidence of the sale thereof and
the price therefor.
10.8 Delta Shareholder Information. Each Delta Shareholder shall
promptly furnish SCB, upon request, with all information as may be reasonably
required for inclusion in the registration statement, or any amendment or
supplement thereto. Such information shall be furnished during the period
within which SCB is required to effect such registration pursuant to this
Article 10 and shall include, without limitation, a description of the nature
and method of the proposed offer and sale of the shares.
10.9 No Injunction. No Delta Shareholder shall have any right to
take any action to restrain, enjoin, or otherwise delay any registration as a
result of any controversy that might arise with respect to the interpretation
or implementation of this Article 10.
10.10 Nonassignable. The rights of the Delta Shareholders pursuant
to this Article 10 are not transferable or assignable to any person, except
that such rights shall inure to the benefit of the estate, heirs, or
beneficiaries (by will) of a deceased Delta Shareholder.
10.11 Other Registration Rights; Nonexclusivity. SCB will not,
without the prior written consent of at least three of the Delta Shareholders,
grant any rights to any person or register shares of SCB Common Stock if such
rights conflict with, are superior to, or otherwise materially adversely affect
the rights of the Delta Shareholders under this Article 10. Notwithstanding the
foregoing, nothing in this Article 10 shall prohibit SCB from including in the
registration statement subject to this Article 10 any shares of SCB Common
Stock it chooses to register on behalf of SCB or any holders other than the
Delta Shareholders, on substantially the same terms and conditions.
31
<PAGE> 33
ARTICLE 11.
GENERAL PROVISIONS
11.1 Notices. Any notice required to be given hereunder shall be
sufficient if in writing, by courier service (with proof of service), hand
delivery or certified or registered mail (return receipt requested and
first-class postage prepaid), addressed as follows:
<TABLE>
<S> <C>
If to SCB or Merger Sub: If to Delta or the Delta Shareholders:
Ben C. Bryant, Jr. John Michael O'Guinn
President and Chief Delta Software Systems, Inc.
Executive Officer 146 Timber Creek Drive
SCB Computer Technology, Inc. Suite 200
1365 West Brierbrook Road Memphis, Tennessee 38018
Memphis, Tennessee 38138
with a copy to: with a copy to:
J. Gentry Barden David T. Popwell
Bass, Berry & Sims, PLC Baker, Donelson, Bearman & Caldwell, P.C.
2700 First American Center 20th Floor, First Tennessee Building
Nashville, Tennessee 37238 165 Madison
Memphis, TN 38103
</TABLE>
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
personally delivered or mailed.
11.2 Assignment; Binding Effect; Benefit. Neither this Agreement
nor any of the rights, interests, or obligations hereunder shall be assigned by
any of the parties hereto (whether by operation of law or otherwise) without
the prior written consent of the other parties. Subject to the preceding
sentence, this Agreement shall be binding upon and shall inure to the benefit
of the parties hereto and their respective successors and assigns.
11.3 Entire Agreement. This Agreement, the Exhibits, the Delta
Disclosure Letter, the SCB Disclosure Letter, and any documents delivered by
the parties in connection herewith constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior and
contemporaneous agreements and understandings among the parties with respect
thereto. No addition to or modification of any provision of this Agreement
shall be binding upon any party hereto unless made in writing and signed by all
parties hereto.
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<PAGE> 34
11.4 Amendment. This Agreement may be amended by the parties
hereto, by action taken by their respective Boards of Directors, if applicable.
This Agreement may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
11.5 Governing Law. The validity of this Agreement, the
construction of its terms and the determination of the rights and duties of the
parties hereto shall be governed by and construed in accordance with the laws
of the State of Tennessee applicable to contracts made and to be performed
wholly within such state.
11.6 Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all of the parties
hereto.
11.7 Waivers. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including, without limitation, any investigation by
or on behalf of any party, shall be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties,
covenants, or agreements contained in this Agreement. The waiver by any party
hereto of a breach of any provision hereunder shall not operate or be construed
as a waiver of any prior or subsequent breach of the same or any other
provision hereunder.
11.8 Incorporation of Exhibits. The Delta Disclosure Letter, the
SCB Disclosure Letter, and the Exhibits attached hereto and referred to herein
are hereby incorporated herein and made a part hereof for all purposes as if
fully set forth herein.
11.9 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
11.10 Expenses. Each party to this Agreement shall bear its own
expenses in connection with the Merger and the transactions contemplated
hereby; provided, however, that all expenses of Delta in connection herewith in
excess of $25,000 shall be borne by the Delta Shareholders.
11.11 Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce
33
<PAGE> 35
specifically the terms and provisions hereof in any court of competent
jurisdiction, this being in addition to any other remedy to which they are
entitled by contract, at law, or in equity.
IN WITNESS WHEREOF, the parties have executed this Agreement and
caused the same to be duly delivered on their behalf on the day and year first
written above.
SCB COMPUTER TECHNOLOGY, INC.
By: /s/ Ben C. Bryant, Jr.
---------------------------------
Title: President
------------------------------
DELTA ACQUISITION, INC.
By: /s/ Ben C. Bryant, Jr.
---------------------------------
Title: President
------------------------------
DELTA SOFTWARE SYSTEMS, INC.
By: /s/ Larry W. Reed
---------------------------------
Title: President
------------------------------
34
<PAGE> 36
THE DELTA SHAREHOLDERS:
/s/ Richard T. Ely, Jr.
---------------------------------
Richard T. Ely, Jr.
/s/ Thomas Edward Jordan
---------------------------------
Thomas Edward Jordan
/s/ John Michael O'Guinn
---------------------------------
John Michael O'Guinn
/s/ Larry W. Reed
---------------------------------
Larry W. Reed
35
<PAGE> 37
ATTACHMENTS AND EXHIBITS
Delta Disclosure Letter
SCB Disclosure Letter
Exhibit A-1 -- Articles of Merger
Exhibit A-2 -- Plan of Merger
Exhibit B -- Form of Indemnity and Escrow Agreement
Exhibit C -- Form of SCB Counsel Legal Opinion
Exhibit D -- Form of Delta Counsel Legal Opinion
Exhibit E -- Form of Employment Agreement
Exhibit F -- Form of Noncompetition Agreement
Exhibit G -- Form of David Rea Employment Agreement
<PAGE> 38
EXHIBIT B
<PAGE> 39
EXHIBIT B
INDEMNITY AND ESCROW AGREEMENT
THIS INDEMNITY AND ESCROW AGREEMENT (the "Escrow Agreement") is made
as of September 26, 1996, by and among SCB COMPUTER TECHNOLOGY, INC., a
Tennessee corporation ("SCB"), DELTA SOFTWARE SYSTEMS, INC., a Tennessee
corporation ("Delta"), the shareholders of Delta (the "Delta Shareholders") set
forth on Annex 1 hereto, and Boatmen's Trust Company (the "Escrow Agent"), as
contemplated by that certain Agreement and Plan of Merger, dated as of
September 20, 1996, by and between SCB, Delta, Delta Acquisition, Inc., a
Tennessee corporation ("Delta Acquisition"), and the Delta Shareholders (the
"Merger Agreement").
WHEREAS, SCB, Delta Acquisition, Delta, and the Delta Shareholders
have entered into the Merger Agreement to provide for the merger of Delta with
and into Delta Acquisition (the "Merger");
WHEREAS, the closing of the transactions contemplated by the Merger
Agreement are taking place as of the date hereof and the execution of this
Escrow Agreement by the parties is an express condition thereto; and
WHEREAS, SCB has relied upon the representations, warranties, and
covenants of Delta and the Delta Shareholders provided in the Merger Agreement
and in schedules, certificates, and other documents delivered pursuant to the
Merger Agreement.
NOW, THEREFORE, to induce SCB to proceed with the Closing and the
Merger and in consideration of such Closing and Merger, and in further
consideration of the mutual covenants and agreements contained herein and in
the Merger Agreement, and intending to be legally bound, the parties hereto do
hereby agree as follows:
12. INDEMNIFICATION. (a) The Delta Shareholders, jointly and
severally, hereby agree to indemnify, defend, and hold harmless, or will
reimburse, SCB, and its shareholders, officers, directors, controlling persons,
and affiliates for any and all losses, costs, expenses, obligations,
liabilities, damages, remedies and penalties, including interest, and
attorneys' fees and expenses actually incurred, whether or not involving a
third party claim (collectively, "Losses"), which arise from or are
attributable to the inaccuracy or breach of any representation, warranty, or
covenant made by Delta or the Delta Shareholders in the Merger Agreement or any
certificate delivered thereunder. Except as expressly provided in Section 2(a)
of this Escrow Agreement, liability of the Delta Shareholders for claims for
indemnification hereunder shall be limited to the Escrow Fund.
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<PAGE> 40
(b) Except as otherwise provided in this Escrow Agreement, all
representations, warranties, covenants, and agreements of Delta and the Delta
Shareholders contained in or made pursuant to the Merger Agreement, and the
right of SCB to seek indemnification, reimbursement, or other remedy with
respect thereto, shall survive for the Escrow Period (as defined in Section 3
hereof).
13. ESCROW FUND.
(a) That number of shares of SCB Common Stock (the
"Escrow Shares") representing 10% of the Merger Consideration to be received by
the Delta Shareholders pursuant to the Merger Agreement shall, without any
further act of any such Delta Shareholder, be deposited with the Escrow Agent,
such deposit to constitute an escrow fund (the "Escrow Fund") to be governed by
the terms set forth herein. Upon compliance with the terms hereof, SCB shall be
entitled to receive payment from the Escrow Fund for all Losses for which SCB
is entitled to indemnification under Section 1 of this Escrow Agreement.
Liability of the Delta Shareholders for claims for which SCB is entitled to
indemnification shall be limited as set forth in Section 1 of this Escrow
Agreement; provided, that, notwithstanding any provision in this Escrow
Agreement or the Merger Agreement to the contrary, the liability of the Delta
Shareholders to SCB for fraud shall not be limited to the Escrow Fund.
(b) The Escrow Agent shall hold, safeguard and dispose of
the Escrow Fund in accordance with the terms hereof, and shall treat such
Escrow Fund as an escrow fund in accordance with the terms hereof and not as
the property of the Delta Shareholders or SCB.
(c) For purposes of this Escrow Agreement, each Escrow
Share shall have a value equal to the Average Price (as defined below), and
such valuation shall apply throughout the duration of the Escrow Period.
"Average Price"shall mean the average of the closing sales prices of SCB Common
Stock as reported on The Nasdaq Stock Market for the ten trading days
immediately preceding the day prior to the date of this Escrow Agreement.
14. ESCROW PERIOD. The Escrow Fund shall remain in existence for a
period ending on the date of issuance by the independent public accountants for
SCB of their report on the Company's financial statements as of and for the
fiscal year ending April 30, 1997, but in no event later than July 29, 1997
(the "Escrow Period"); provided, however, that the Escrow Fund shall continue
to be maintained, to the extent set forth in Section 9 hereof, in the event
that there exists any Claim (as defined in Section 5 hereof) that is pending or
not yet resolved pursuant to Section 7 hereof. Notwithstanding the foregoing,
the Escrow Fund shall cease to be maintained, this Agreement shall cease to be
of any continuing force or effect, and the Escrow Shares shall be distributed
no later than the fifth anniversary of the Effective Time (as defined below).
"Effective Time" shall mean the time of filing of Articles of Merger with the
Tennessee Secretary of State or such later time as the parties to the Merger
Agreement shall have agreed to upon and designated in such filing as the
effective time of the Merger.
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<PAGE> 41
15. DISTRIBUTIONS; VOTING.
(a) Any cash dividends, dividends payable in securities,
or other distributions of any kind (including, without limitation, any shares
received upon a stock split) made in respect of any securities in the Escrow
Fund shall be paid to the Delta Shareholders in accordance with their interests
in the Escrow Shares, as set forth in Annex 1.
(b) Each of the Delta Shareholders shall have voting
rights with respect to the Escrow Shares contributed by such Delta Shareholder
to the Escrow Fund (and on any voting securities added to the Escrow Fund) so
long as such Escrow Shares or other voting securities are held in the Escrow
Fund.
16. CLAIMS AGAINST ESCROW FUND.
(a) Upon receipt by the Escrow Agent on or before the
last day of the Escrow Period of a certificate signed by the President of SCB
("Officer's Certificate"):
(i) stating that SCB has paid, suffered, or
properly accrued, or in good faith reasonably anticipates that SCB will have to
pay, suffer, or accrue, Losses in an aggregate stated amount (including,
without limitation, any anticipated professional and other fees and costs
associated therewith) and stating that SCB is entitled to indemnification out
of the Escrow Fund pursuant to this Escrow Agreement and the Merger Agreement;
and
(ii) specifying in reasonable detail (a) the
individual items of Losses included in the amount so stated; (b) the date each
such item was paid or properly accrued or the basis for such anticipated
liability; (c) the nature of the unforeseen or undisclosed contingent
liability, misrepresentation, breach of warranty or covenant, or other matter
to which such item is related; and (d) the section of the Merger Agreement to
which such claim relates;
the Escrow Agent shall, subject to the provisions of Sections 6 and 7 hereof,
deliver to SCB, as promptly as practicable, out of the Escrow Fund, that number
of Escrow Shares (in whole shares, rounded to the nearest whole number of
shares) and, if the value of Escrow Shares is insufficient to satisfy the
Claims, such other available funds in the Escrow Fund, if any, having a value
equal to the amount of such Losses.
(b) Any claim by SCB against the Escrow Fund made in an
Officer's Certificate pursuant to this Section 5 shall be referred to herein as
a "Claim" or, if multiple, "Claims."
17. DELIVERY IF NO OBJECTION. At the time of delivery of an
Officer's Certificate to the Escrow Agent in accordance with Section 5, a
duplicate copy of such Officer's Certificate shall be delivered by the Escrow
Agent to the Shareholder Representative. For a period of 10 business days after
such delivery, the Escrow Agent shall make no delivery out of the Escrow Fund
pursuant to Section 5 hereof unless the Escrow Agent shall have received
written
B-3
<PAGE> 42
authorization from the Shareholder Representative to make such delivery. After
the expiration of such 10 business day period, the Escrow Agent may make
delivery out of the Escrow Fund in accordance with Section 5 hereof, provided
that no such delivery may be made to which the Shareholder Representative shall
in good faith object in a written statement delivered to the Escrow Agent and
to SCB prior to the expiration of such 10 business day period. If the
Shareholder Representative in good faith objects in the written statement to
only a portion of any delivery out of the Escrow Fund to be made to SCB under
Section 5 hereof, then the portion of the delivery not objected to shall be
made by the Escrow Agent to SCB.
18. RESOLUTION OF DISPUTES.
(a) If the Shareholder Representative shall object in
accordance with Section 6 hereof to the delivery to SCB of Escrow Shares or
other funds out of the Escrow Fund in respect of any Claim made in an Officer's
Certificate pursuant to Section 5, the Shareholder Representative and SCB shall
attempt in good faith to agree upon the rights of the respective parties with
respect to each such Claim. If the Shareholder Representative and SCB so agree,
a memorandum setting forth such agreement shall be prepared and signed by SCB
and the Shareholder Representative and shall be furnished to the Escrow Agent.
The Escrow Agent shall be entitled to rely on any such memorandum and
distribute Escrow Shares or other funds from the Escrow Fund in accordance with
the terms thereof.
(b) If no such agreement can be reached after good faith
negotiation, but in any event after 60 days after the Shareholder
Representative objects in accordance with Section 6 hereof, either SCB or the
Delta Shareholders may commence suit unless the amount of the damage or loss is
at issue in pending litigation with a third party, in which event suit shall
not be commenced until such amount is ascertained or both parties agree to
commence suit.
19. THIRD PARTY CLAIMS.
(a) Promptly after receipt by SCB of notice of any claim
asserted with respect to transactions, matters, or events occurring or existing
prior to the Effective Time as to which indemnification will be sought under
Section 1 of this Escrow Agreement (a "Third Party Claim"), SCB shall notify
the Shareholder Representative in writing of the commencement thereof. The
Delta Shareholders shall have the right (but not the duty) to participate in or
control any such proceeding at their own expense and SCB shall have the right
(but not the duty) to participate in the defense thereof, which shall be at the
Delta Shareholders' expense, unless it is finally determined that SCB was not
entitled to indemnification or reimbursement. Whether the Delta Shareholders
choose to control the defense of any SCB proceeding, each party hereto and
their respective successors and assigns agree to cooperate in the defense and
to take all actions in connection with such defense as may be reasonably
requested.
(b) Notwithstanding the foregoing, in the event that SCB
proposes to enter into a settlement regarding any Third Party Claim, SCB shall
promptly notify the Shareholder
B-4
<PAGE> 43
Representative in writing of the terms of such settlement prior to
entering into any such settlement. SCB may proceed with the settlement unless
the Shareholder Representative shall have provided notice to SCB within 10
calendar days of delivery of notice from SCB of the proposed settlement,
stating that the Delta Shareholders have elected to assume the defense of such
Third Party Claim and agree to pay in advance all anticipated professional and
other fees and costs of SCB and Delta associated therewith. In the event the
Delta Shareholders assume the defense of a Third Party Claim that SCB has
proposed to settle and defeat completely the Third Party Claim, SCB will
reimburse the Delta Shareholders for all costs and expenses, including
attorneys' fees, incurred in defeating such Third Party Claim.
20. EXPIRATION OF ESCROW PERIOD. If, upon expiration of the Escrow
Period, SCB shall have asserted a Claim in accordance with Section 5 and such
Claim is pending or unresolved at the time of such expiration, the Escrow Agent
shall retain in the Escrow Fund, and withhold from delivery to the Delta
Shareholders, Escrow Shares and other funds equal in value to the asserted
amount set forth in such Claim (including, without limitation, any anticipated
professional or other fees and costs associated therewith) until such matter is
resolved. If it is determined that SCB is entitled to recovery on account of
such Claim, the Escrow Agent shall deliver or cause to be delivered to SCB that
number of Escrow Shares (in whole shares) or other funds in the Escrow Fund
having a value equal to the amount due and payable with respect to such Claim.
The remainder of the Escrow Fund, if any, following any delivery of Escrow
Shares or other funds to SCB in accordance with this Section 9, shall be
delivered to the Delta Shareholders pursuant to this Escrow Agreement, without
interest. Any portion of the Escrow Fund delivered to the Delta Shareholders
pursuant to this Section 9 shall be delivered to the Delta Shareholders on a
pro rata basis according to the number of shares of SCB Common Stock received
by each such Delta Shareholder in the Merger, such pro rata portion to be
determined in accordance with Annex 1. If any amount is paid by the Escrow
Agent pursuant to a Claim and the actual Losses with respect to such Claim are
at any time determined to be less than such payment, SCB shall promptly return
such excess to the Escrow Agent to be deposited into the Escrow Fund, if this
Escrow Agreement is then in effect, or to the Shareholder Representative for
the benefit of the Delta Shareholders, if this Escrow Agreement is no longer in
effect.
21. DELTA SHAREHOLDERS' AGENT.
(a) The Delta Shareholders hereby appoint John Michael
O'Guinn, as the agent of the Delta Shareholders (the "Shareholder
Representative"), and Mr. O'Guinn, agrees to act as the Shareholder
Representative, under and pursuant to the terms of this Escrow Agreement. No
bond shall be required of the Shareholder Representative, and the Shareholder
Representative shall receive no compensation for service as agent hereunder.
(b) The resolution, action, decision, consent or
instruction of the Shareholder Representative shall be final, conclusive and
absolutely binding upon each of the Delta Shareholders, SCB, and the Escrow
Agent may rely upon any such resolution, action, decision, consent or
instruction of the Shareholder Representative as being the resolution, action,
decision,
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<PAGE> 44
consent or instruction of each and all of the Delta Shareholders. The Escrow
Agent, SCB, and Delta are hereby relieved from any liability for any acts done
by them in accordance with any such resolution, action, decision, consent or
instruction of the Shareholder Representative.
(c) In the event of the death, disability or resignation
of Mr. O'Guinn as Shareholder Representative, the holders of a majority in
interest of the shares of Delta Common Stock prior to the Merger shall
designate a successor member to fill each vacancy so created. Such appointment
and designation shall be binding on all other Delta Shareholders. The Delta
Shareholders holding a majority in interest of the shares of Delta Common Stock
prior to the Merger may remove the Shareholder Representative and appoint
another agent upon 30 days' written notice to SCB and the Escrow Agent.
(d) The Shareholder Representative is vested with the
authority, duty and responsibility to represent the interests of the Delta
Shareholders in the Escrow Fund as set forth herein, and the Shareholder
Representative agrees to manage and discharge his or her duties and
responsibilities as agent in accordance with the terms hereof. The Shareholder
Representative shall not be personally liable for actions or decisions taken or
made in good faith in managing and discharging his or her duties and
responsibilities in accordance with the terms hereof; provided, however, that
the foregoing shall not relieve the Shareholder Representative of any liability
he or she may have as a Delta Shareholder.
(e) In discharging his duties and responsibilities
hereunder, the Shareholder Representative shall have all rights and powers
necessary and incident to the proper discharge thereof, including, without
limitation, the right and power to engage and pay for professional and other
services. Without limiting the foregoing, the Shareholder Representative shall
have the duty and authority on behalf of the Delta Shareholders to do anything
required of the Shareholder Representative under this Escrow Agreement,
including without limitation:
(i) To interpret and construe the provisions of
this Escrow Agreement;
(ii) To determine and resolve any disputes that
may arise under this Escrow Agreement, using his or her best efforts to dispose
of all such disputes by agreed settlement;
(iii) To give any and all written instructions to
the Escrow Agent for disbursement of the Escrow Fund; and
(iv) To perform all other acts as deemed
appropriate by the Shareholder Representative on behalf of the Delta
Shareholders to fully effectuate and carry out the provisions of this Escrow
Agreement.
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f. All expenses of the Shareholder Representative in
connection with the performance of this Escrow Agreement shall be borne by the
Delta Shareholders pro rata. To the extent that any funds are held by the
Shareholder Representative after all of his duties hereunder are discharged,
such funds shall be distributed to the Delta Shareholders pro rata.
22. ESCROW AGENT'S RIGHTS AND RESPONSIBILITIES. To induce the
Escrow Agent to act hereunder, it is further agreed that:
a. The Escrow Agent shall not be under any duty to give
the property held hereunder any greater degree of care than it gives its own
similar property.
b. The Escrow Agent may act upon advice of counsel in
reference to any matter connected herewith and shall not be liable for any acts
or omissions while acting in good faith and exercising reasonable judgment.
c. The Escrow Agent shall not be liable in any respect
on account of the identity, authority or rights of the parties executing or
delivering or purporting to execute or deliver this Escrow Agreement or any
documents or papers deposited or called for hereunder.
d. The Escrow Agent shall not be liable for the
outlawing of any rights under any statute of limitations with respect to this
Escrow Agreement or any documents deposited with the Escrow Agent.
e. The Escrow Agent is hereby expressly authorized to
disregard any and all warnings given by any of the parties hereto or by any
other person, excepting only orders or process of courts of law, and is hereby
expressly authorized to comply with and obey orders, judgments or decrees of
any court. In case the Escrow Agent obeys or complies with any such order,
judgment or decree of any court, the Escrow Agent shall not be liable to any of
the parties hereto or to any other person by reason of such compliance,
notwithstanding any such order, judgment or decree being subsequently reversed,
modified, annulled, set aside, vacated or found to have been entered without
jurisdiction.
f. The Escrow Agent is authorized to rely on the written
instructions of the Shareholder Representative as being the act of all of the
Delta Shareholders and the written instructions of the Chairman or President of
SCB as being the act of SCB.
g. This Escrow Agreement sets forth the exclusive duties
of the Escrow Agent with respect to any and all matters pertinent hereto and no
implied duties or obligations of the Escrow Agent shall be read into this
Escrow Agreement.
h. The Escrow Agent shall not be called upon to advise
any party as to its rights and obligations hereunder.
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i. In consideration of its acceptance of the appointment
as the Escrow Agent, and except with respect to the Escrow Agent's own
negligence or willful misconduct or acts or omissions by the Escrow Agent not
in good faith, the other parties hereto agree to jointly and severally
indemnify and hold the Escrow Agent harmless as to any liability incurred by it
to any person, firm or corporation by reason of its having accepted the same or
in carrying out any of the terms hereof, and to reimburse Escrow Agent for all
its expenses, including attorneys' fees, incurred by reason of its position
hereunder or actions taken pursuant hereto. The Escrow Agent shall have no
liability under, or duty to inquire into the terms and provisions of this
Escrow Agreement, and it is agreed that its duties are purely ministerial in
nature, and that the Escrow Agent shall incur no liability whatsoever except
for willful misconduct or gross negligence so long as it has acted in good
faith.
j. In the event that the Escrow Agent should at any time
be confronted with inconsistent claims or demands by the parties hereto, the
Escrow Agent shall have the right to interplead said parties in any court of
competent jurisdiction and request that such court determine such respective
rights of the parties with respect to this Escrow Agreement, and upon doing so,
the Escrow Agent shall be released from any obligations or liability as a
consequence of any such claims or demands.
23. RECORDS. The Escrow Agent shall maintain a record of all
Claims against the Escrow Fund filed with it pursuant to Section 5, a record of
all such Claims which shall become payable as provided in Section 5, 6 or 7,
and a record of all payments from the Escrow Fund to SCB.
24. RESIGNATION OF ESCROW AGENT. The Escrow Agent, or any
successor, may resign as Escrow Agent hereunder by giving written notice
thereof to SCB and the Shareholder Representative. Such resignation shall
become effective following such written notice upon the earlier of the
appointment by SCB and the Shareholder Representative of a successor Escrow
Agent that accepts the appointment and agrees to be bound by the provisions of
this Agreement or the expiration of 60 days thereafter. Upon the effectiveness
of such resignation, all duties of the Escrow Agent so resigning shall cease,
other than the duty to account in accordance with Section 12. SCB and the
Shareholder Representative shall have the right to terminate the appointment of
the Escrow Agent hereunder by giving written notice thereof to the Escrow
Agent, specifying the date upon which such termination shall take effect. A
condition precedent to such termination shall be the designation of a successor
Escrow Agent that has accepted the appointment and agreed to be bound by the
provisions of this Agreement. In event of such termination, the Escrow Agent
shall turn over and deliver to such successor Escrow Agent the Escrow Fund, and
any other sums and the records and instruments held by it under this Agreement
and render the accounting required by Section 12.
25. NOTICES. All notices and other communications pursuant to this
Escrow Agreement shall be in writing and shall be deemed given if delivered
personally, sent by a nationally recognized overnight courier, or mailed by
registered or certified mail (return receipt
B-8
<PAGE> 47
requested), postage prepaid, or sent by facsimile (followed with a copy sent by
courier or registered or certified mail) to the parties at the following
addresses (or at such other address for a party as shall be specified by notice
hereunder):
To SCB:
SCB Computer Technology, Inc.
1365 West Brierbrook Road
Memphis, TN 38138
Attention: Corporate Secretary
Telephone: (901) 754-6577
Fax: (901) 754-8463
with a copy to:
Bass, Berry & Sims PLC
2700 First American Center
Nashville, TN 37238
Attention: J. Gentry Barden
Telephone: (615) 742-6200
Fax: (615) 742-6298
To the Shareholder Representative:
John Michael O'Guinn
146 Timber Creek Drive
Suite 200
Memphis, TN 38018
Telephone: (901) 758-0123, Ext. 112
Fax: (901) 758-0211
with a copy to:
Baker, Donelson, Bearman & Caldwell, P.C.
20th Floor, First Tennessee Building
165 Madison Avenue
Memphis, TN 38103
Attention: David T. Popwell
Telephone: (901) 577-2136
Fax: (901) 577-2303
B-9
<PAGE> 48
To the Escrow Agent:
Boatmen's Trust Company
510 Locust Street
St. Louis, Missouri 63101
Attn: Corporate Trust Department
All such notices and other communications shall be deemed to have been received
(a) in the case of personal delivery, on the date of such delivery, (b) in the
case of delivery by nationally recognized overnight courier, on the business
day following dispatch, (c) in the case of mailing, on the third business day
following such mailing, and (d) in the case of a facsimile, when the party
receiving such facsimile shall have confirmed receipt of the communication (or
when the copy sent by courier or registered or certified mail shall have been
deemed to have been received pursuant to clause (a), (b) or (c)).
26. SUCCESSORS AND ASSIGNS. This Escrow Agreement shall inure to
the benefit of and be binding upon the successors and assigns of the parties
hereto.
27. GOVERNING LAW. This Escrow Agreement shall be governed by and
interpreted in accordance with the laws of the State of Tennessee without
regard to the choice of law principles thereof.
28. ESCROW FEES. It is agreed that SCB shall pay the Escrow Agent,
in connection with the services to be provided by the Escrow Agent hereunder,
$1,000 per year for the term of this Agreement, pro rated for any partial year
on a monthly basis. The first payment will be made by SCB to the Escrow Agent
upon execution of this Escrow Agreement.
29. PREVAILING PARTY. In the event of any dispute that results in
a suit or other legal proceeding to construe or enforce any provision of this
Agreement or because of an alleged breach, default or misrepresentation in
connection with any of the provisions of this Agreement, the parties agree that
the prevailing party or parties (in addition to all other amounts and relief to
which such party or parties may be entitled) shall be entitled to recover
reasonable attorneys' fees and other costs incurred in any action or
proceeding.
30. COUNTERPARTS. This Escrow Agreement may be executed in any
number of counterparts, each of which when so executed shall constitute an
original hereof, but all of which together shall constitute one agreement.
B-10
<PAGE> 49
IN WITNESS WHEREOF, the undersigned have executed this Escrow
Agreement to be effective as of the day and year first above written.
SCB COMPUTER TECHNOLOGY, INC. DELTA SOFTWARE SYSTEMS, INC.
By: By:
--------------------------------- ------------------------------
Title: Title:
------------------------------- -----------------------------
BOATMEN'S TRUST COMPANY SHAREHOLDER REPRESENTATIVE
By:
--------------------------------- ----------------------------------
John Michael O'Guinn
Name:
--------------------------------
Title:
-------------------------------
DELTA SHAREHOLDERS:
- ------------------------------------- -----------------------------------
Richard T. Ely, Jr. John Michael O'Guinn
- ------------------------------------- -----------------------------------
Thomas Edward Jordan Larry W. Reed
B-11
<PAGE> 50
ANNEX 1
LIST OF DELTA SHAREHOLDERS
<TABLE>
<CAPTION>
NAME NUMBER OF ESCROW SHARES
- ------------------------------------------------- ------------------------
<S> <C>
Richard T. Ely, Jr. 11,538
Thomas Edward Jordan 11,538
John Michael O'Guinn 11,538
Larry W. Reed 11,538
</TABLE>
B-12
