<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934. For the quarterly period ended July 31, 1998.
OR
[ ] Transition Report pursuant to Section 13 or 15(d) of Securities
Exchange Act of 1934. For the transition period from _______to ______.
Commission File No.:0-27694
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SCB Computer Technology, Inc.
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(Exact name of registrant as specified in its charter)
Tennessee 62-1201561
- -------------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1365 W. Brierbrook Road
Memphis, Tennessee 38138
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(Address of principal executive offices) (Zip Code)
901-754-6577
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(Registrant's telephone number, including area code)
Not Applicable
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(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
As of September 11, 1998, 24,671,776 shares of the Registrant's common stock
were outstanding.
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Index to Form 10-Q
SCB Computer Technology, Inc.
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated balance sheets - July 31, 1998 and April 30, 1998........................................3
Consolidated statements of income - Three months ended July 31, 1998 and July 31, 1997................4
Consolidated statements of cash flows - Three months ended July 31, 1998
and July 31, 1997.....................................................................................5
Notes to consolidated financial statements............................................................6
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................8
Part II. Other Information
Item 1. Legal Proceedings....................................................................................10
Item 2. Changes in Securities................................................................................11
Item 6. Exhibits and Reports on Form 8-K.....................................................................11
Signature.....................................................................................................12
</TABLE>
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SCB COMPUTER TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
July 31, 1998 April 30, 1998
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<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents 3,182,607 2,983,372
Accounts receivable(net) 30,282,066 25,461,905
Prepaid expenses 2,595,810 2,632,076
Inventory 529,140 439,182
Deferred federal and state income taxes 370,663 335,663
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Total current assets 36,960,286 31,852,198
Investment in direct financing leases 18,764,102 17,109,698
Equipment under operating leases (net) 5,181,293 5,266,429
Fixed assets:
Buildings 1,348,293 1,348,293
Furniture, fixtures, and equipment 32,867,262 15,221,841
Accumulated depreciation (7,145,016) (3,629,636)
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27,070,539 12,940,498
Land 209,912 209,912
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27,280,451 13,150,410
Goodwill (net) 46,218,376 26,115,672
Other 2,619,982 5,051,939
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Total assets $ 137,024,490 $ 98,546,346
============= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable-trade $ 4,936,742 $ 3,614,622
Accrued TVA settlement cost 1,900,000 -
Accrued and withheld payroll taxes,
insurance, and payroll deductions 175,920 662,622
Accrued vacation 1,011,880 924,296
Other accrued expenses 1,937,287 1,036,902
Current portion of long term debt 6,038,459 5,495,245
Deferred revenue 1,087,113 1,730,862
Accrued federal and state income taxes 2,483,530 1,380,801
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Total current liabilities 19,570,931 14,845,350
Deferred federal and state income taxes 884,145 1,648,220
Notes payable-revolving loan 25,601,000 19,643,667
Notes payable-nonrecourse 20,810,319 18,072,026
Other long term debt 13,617,085 3,138,455
Capital lease obligations 1,167,064 1,317,527
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Total long term liabilities 62,079,613 43,819,895
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Total liabilities 81,650,544 58,665,245
Shareholders' equity:
Preferred stock, no par value-authorized
1,000,000 shares, none issued - -
Common stock-50,000,000 shares of $.01
par value authorized and 24,671,026
shares issued and outstanding at
July 31, 1998 and 22,529,965 shares
issued and outstanding at April 30, 1998 246,710 225,300
Additional paid-in capital 38,860,707 24,504,619
Retained earnings 16,266,529 15,151,182
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Total shareholders' equity 55,373,946 39,881,101
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Total liabilities and shareholders' equity $ 137,024,490 $ 98,546,346
============= ============
</TABLE>
See notes to consolidated financial statements.
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SCB COMPUTER TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months
Ended
July 31,
------------------------------
1998 1997
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<S> <C> <C>
Revenue $ 35,488,610 $ 21,333,202
Cost of services 24,042,414 14,853,966
------------ ------------
Gross profit 11,446,196 6,479,236
Provision for settlement of TVA matter 1,900,000 --
Other selling, general and
administrative expenses 6,196,366 3,515,276
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Total operating expenses 8,096,366 3,515,276
------------ ------------
Income from operations 3,349,830 2,963,960
Other income (expenses):
Interest expense (901,471) (108,301)
Other, net (355,092) 71,183
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Total other income (expenses) (1,256,563) (37,118)
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Income before income taxes 2,093,267 2,926,842
Income tax expense 1,197,000 1,138,400
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Net income $ 896,267 $ 1,788,442
============ ============
Net income per share-basic $ 0.04 $ 0.08
============ ============
Net income per share-diluted $ 0.04 $ 0.08
============ ============
Weighted average number of common
shares-basic 24,665,318 22,440,666
============ ============
Weighted average number of common
shares-diluted 25,114,168 22,634,148
============ ============
</TABLE>
See notes to consolidated financial statements.
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SCB COMPUTER TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months
Ended
July 31,
-----------------------------
1998 1997
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<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 896,267 $ 1,788,441
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 2,105,707 736,228
Deferred income taxes 35,000 1,000
(Increase) decrease in:
Accounts receivable-trade (4,820,161) (439,262)
Prepaid expenses 36,266 (113,970)
Inventory (89,958) 57,731
Net investment in direct financing activity (1,569,268) 283,770
Deferred revenue 643,749 1,203,677
Other assets 2,431,957 (596,872)
Increase (decrease) in:
Accounts payable-trade 1,322,120 (965,549)
Accrued federal and state income taxes 1,113,429 878,998
Accrued vacation 87,584 (7,691)
Accrued TVA settlement cost 1,900,000 -
Other accrued expenses 900,385 (90,773)
Deferred taxes (764,075) (247,961)
Accrued and withheld payroll taxes,
insurance, and payroll deductions (486,702) 90,022
------------ ------------
Total adjustments 2,846,033 789,348
------------ ------------
Net cash provided by operating
activities 3,742,300 2,577,789
INVESTING ACTIVITIES
Purchases of fixed assets (17,272,134) (894,194)
Purchase of The Partners Group (7,127,473) (16,000,000)
Proceeds from land sale - 234,758
------------ ------------
Net cash used by investing activity (24,399,607) (16,659,436)
FINANCING ACTIVITIES
Proceeds from revolving loan 7,000,000 16,000,000
Payments on revolving loan (1,042,667) (12,202,000)
Proceeds from loan 15,000,000 -
Options exercised 122,471 54,813
Repayment of capital lease obligations (150,463) -
Proceeds from non-recourse debt 3,000,000 -
Payment on non-recourse debt (261,707) (763,500)
Payments on long-term debt (2,811,092) (137,743)
------------ ------------
Net cash provided by financing
activities 20,856,542 2,951,570
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Net increase (decrease) in cash and cash
equivalents 199,235 (11,130,077)
Cash at beginning of period 2,983,372 11,814,787
------------ ------------
Cash at end of period $ 3,182,607 $ 684,710
============ ============
Supplemental disclosures of cash flow
information:
Interest paid $ 901,471 $ 108,301
Income taxes paid $ 865,759 $ 260,402
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 6
SCB COMPUTER TECHNOLOGY, INC.
Notes to Consolidated Financial Statements (Unaudited)
July 31, 1998
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three months ended July 31, 1998 are
not necessarily indicative of the results that may be expected for the fiscal
year ending April 30, 1999. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Registrant's Annual
Report on Form 10-K, as amended, for the fiscal year ended April 30, 1998 filed
with the Securities and Exchange Commission.
Note B - Change in Capitalization
On July 23, 1997, the Board of Directors of the Company declared a three-for-two
stock split in the form of a 50% stock dividend, paid on September 3, 1997, to
shareholders of record on August 20, 1997. On April 2, 1998, the Board of
Directors of the Company also declared a two-for-one stock split, which was
effected in the form of a 100% stock dividend and was paid on April 27, 1998 to
shareholders of record at the close of business on April 13, 1998. All share and
per share amounts have been retroactively restated to reflect the stock splits.
Note C - Earnings Per Share
In 1997, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 128, Earnings per Share. Statement 128
replaced the previously reported primary and fully diluted earnings per share.
Unlike primary earnings per share, basic earnings per share excludes any
dilutive effects of options, warrants, and convertible securities. Diluted
earnings per share is very similar to the previously reported fully diluted
earnings per share. All earnings per share amounts for all periods have been
presented and, where necessary, restated to conform to the Statement 128
requirements.
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<PAGE> 7
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three months ended
July 31,
--------------------------------
1998 1997
--------------------------------
<S> <C> <C>
Numerator
Net Income $ 906,967 $ 1,788,442
============ ============
Denominator for basic earnings per share-weighted
averages shares 24,665,318 22,440,666
============ ============
Effect of dilutive securities-stock options 448,850 193,482
------------ ------------
Denominator for diluted earnings per share-adjusted
weighted average shares and assumed
conversions 25,114,168 22,634,148
============ ============
Basic earnings per share $ .04 $ .08
============ ============
Diluted earnings per share $ .04 $ .08
============ ============
</TABLE>
Note D - Acquisitions
Effective June 30, 1997, the Company acquired all the capital stock of Partners
Resources, Inc. ("PRI"), an information technology outsourcing company, and
Partners Capital Group ("PCG"), a computer leasing company, which acquisitions
were accounted for using the purchase method of accounting. The cash
consideration initially paid for these entities was $16,000,000. The operating
results of PRI and PCG have been included in the Company's consolidated
statement of income since July 1, 1997. PRI and PCG have historically operated
as affiliated companies and are sometimes referred to collectively herein as
"The Partners Group."
In May 1998, the Company paid $21,382,212 as additional consideration to the
former shareholders of PRI. Such additional consideration was in the form of
$7,127,437 in cash and 1,580,582 shares of its common stock and was calculated
pursuant to the earnout formula contained in the original PRI acquisition
documents. At the same time, the Company and received $962,154 on a return of
purchase price for the PCG acquisition because of PCG's failure to achieve
certain agreed to earnings targets. These transactions resulted in additional
goodwill that will be amortized over the remaining useful life.
In May 1998, the Company effected a business combination with Proven Technology,
Inc. ("PTI"), a company in substantially the same business as the Company. The
combination was accounted for the using the pooling-of-interests method of
accounting. The Company exchanged 543,724 shares
7
<PAGE> 8
of its common stock for all the outstanding stock of PTI of which 54,372 shares
are being held in escrow to secure potential indemnification claims. Because of
its size, the transaction does not require restatement of prior financial
results.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Revenue increased from $21.3 million for the quarter ended July 31, 1997 to
$35.5 million for the quarter ended July 31, 1998, an increase of 66.4%. The
increase was attributable primarily to the expansion of the Company's client
base, an increase in consulting and professional staffing services provided to
existing clients, an increase in equipment and software sales and leasing, and
growth through acquisitions, including a full quarter's results from the
acquisition of The Partners Group.
Gross profit increased from $6.5 million for the first quarter of fiscal 1998 to
$11.4 million for the first quarter of fiscal 1999, an increase of 76.7%. The
increase was primarily attributable to the increase in revenue over the prior
periods. Gross profit margin for the quarter increased from 30.4% to 32.3%,
primarily because of the movement of the revenue mix to higher margin consulting
revenue and a general increase in hourly rates.
Other selling, general and administrative expenses increased from $3.5 million
in the first quarter of fiscal 1998 to $6.2 million in first quarter of fiscal
1999, an increase of 76.3%. As a percent of revenue, other selling, general and
administrative expenses increased from 16.5% in the first quarter of fiscal 1998
to 17.5% for the first quarter of fiscal 1999. The increase in the dollar amount
spent is primarily attributable to the increase in staffing as a result of SCB's
regional business units becoming fully operational and the increased selling,
general and administrative expenses attributable to acquired companies. The
increase, as a percentage of revenue, is primarily attributable to the
acquisition of The Partners Group, which has higher selling, general and
administrative costs as a percentage of revenue than the remainder of the
Company's operations. Expenses related to the government's investigation into
the TVA billing matter increased from $38,000 for the first quarter of fiscal
1998 to $57,000 for the first quarter of fiscal 1999. In addition, in the first
quarter of fiscal 1999, the Company provided for an accrual of $1,900,000, which
is reflected separately on the income statement, in anticipation of the
settlement of the TVA billing matter as discussed herein. See "Part II - Item 1.
Legal Proceedings."
In connection with the resignation of an officer of the Company, SCB will record
a one-time expense of approximately $800,000 in the fiscal quarter ending
October 31, 1999, with noncompete payments to such former officer (aggregating
$980,000) being amortized ratably over future periods.
Interest expense increased from $108,000 in the first quarter of fiscal 1998 to
$901,000 in the first quarter of fiscal 1999. The increase was primarily the
result of borrowings to fund a portion of the acquisition of The Partners Group,
debt assumed in the acquisition of The Partners Group, and the
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<PAGE> 9
financing of equipment associated with new outsourcing contracts. Other
expenses, net, primarily the amortization of goodwill in connection with the
Company's recent acquisitions, increased from $71,000 of income for the first
quarter of fiscal 1998 to $355,000 of expense in the first quarter of fiscal
1999, which amount reflects the full impact of goodwill amortization associated
with the additional earnout consideration paid in May 1998 in connection with
The Partners Group acquisition.
Liquidity and Capital Resources
Prior to the acquisition of The Partners Group, cash on hand from the Company's
initial public offering in February 1996 and cash flow from operations had
historically been the Company's primary source of liquidity. Cash flows from
operations were $3,672,000 for the three months ended July 31, 1998, as compared
to $2,578,000 in the comparable period for fiscal 1998. The cash provided by
operations increased during this period primarily because of an increase in
revenue.
Primarily as a result of the Company's recent acquisitions, borrowings have
become a more significant source of liquidity. The Company's current revolving
Credit Facility, which was amended on July 31, 1998, is comprised of a revolving
line of credit of up to $30 million, the proceeds of which can be used for
general corporate purposes, including acquisitions, and a term loan of $15
million, the proceeds of which were used to purchase certain equipment in
connection with an outsourcing engagement, which equipment serves as collateral
for the term loan. The Credit Facility bears interest at LIBOR plus a spread
over LIBOR, which varies based on certain financial ratios. The Company's
significant subsidiaries are co-borrowers under the Credit Facility. All
borrowings under the revolver mature on October 1, 2000. The term loan provides
for monthly payments of principal and interest of $130,348 until January 15,
1999, when monthly payments increase to $353,845 until the term loan matures on
July 15, 2002. At July 31, 1998, borrowings under the Credit Facility bore
interest at a rate of 7.14%. At July 31, 1998, the Company had approximately
$4.4 million available for borrowing under the revolver. The maximum amount
available under the revolver will reduce to $28.75 million on February 1, 1999.
The Company's working capital increased from $17,007,000 as of July 31, 1997 to
$17,389,000 as of July 31, 1998, primarily due to increased accounts receivable.
The Company's current ratio at July 31, 1998 was 1.9:1.
The Company made capital expenditures during the first three months of fiscal
1999 of $17.3 million. Such capital expenditures related primarily to the
purchase of computer equipment for new outsourcing contracts for The Partners
Group.
The Company believes cash flows from operations and amounts available under the
Credit Facility will be sufficient to fund the Company's operating needs for at
least the next twelve months. Although the Company is currently in preliminary
discussions with several firms regarding potential acquisitions, presently there
are no definitive agreements with such firms, and no assurance can be made that
any transaction currently being discussed will be consummated. Any such
transactions
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may be financed through borrowings under the Credit Facility, the issuance of
securities (including Common Stock), or a combination of both.
Year 2000
In fiscal 1998, the Company derived less than 10% of its revenue from Year 2000
("Y2K") consulting services and anticipates that such percentage will decrease
in fiscal 1999. Many of the Company's engagements, particularly with regard to
Y2K services, involve projects that are critical to the operations of its
clients' businesses and provide benefits that may be difficult to quantify. Any
failure in a client's system could result in a claim for substantial damages
against the Company, regardless of the Company's responsibility for such
failure. Furthermore, any litigation, regardless of its outcome, could result
in substantial costs to the Company, diversion of management's attention from
operations, and negative publicity, any of which could adversely affect the
Company's results of operations and financial condition.
Because SCB's business includes the assessment of clients' Year 2000 problems
and the recommendation and implementation of solutions to such problems, SCB
has long been aware of the potential adverse effects on a company if its
systems are not Year 2000 compliant. SCB has also made an assessment of its
computer systems and applications and believes its systems are Year 2000
compliant. Accordingly, SCB does not expect to incur significant costs in order
to remedy Year 2000 problems of its own systems, if any, and does not believe
that Year 2000 problems associated with its own systems will have a material
adverse effect on SCB's business, operations, or financial condition.
New Accounting Pronouncements
In June 1997, the FASB issued SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information," which established standards for the way
that public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports. It also
establishes standards for related disclosures about products and services,
geographic area, and major customers. SFAS No. 131 is effective for financial
statements for fiscal years beginning after December 15, 1997, and the Company
will adopt the new requirements for fiscal 1999, but it is not required to
disclose segment information until its April 30, 1999 year end annual report. In
the Company's first quarter report for July 31, 1999 and in subsequent quarters,
it will present the interim disclosures for both fiscal 2000 and comparative
fiscal 1999 interim information.
Forward-Looking Statements
This Quarterly Report on Form 10-Q may be deemed to contain certain
forward-looking statements regarding the anticipated financial and operating
results of the Company. The Company undertakes no obligation to publicly release
any revisions to any forward-looking statements contained herein to reflect
events or circumstances occurring after the date hereof or to reflect the
occurrence of unanticipated events. Information contained in these
forward-looking statements is inherently uncertain and actual performance and
results may differ materially due to many important factors, many of which are
beyond the Company's control, including the Company's dependence on key clients;
the Company's dependence on the availability, recruitment, and retention of
qualified IT employees; the Company's potential liability to clients in
connection with the provision of IT services, particularly Year 2000 services;
the Company's dependence on key management personnel; the Company's ability to
finance, sustain, and manage growth; the Company's ability to integrate acquired
businesses; the timing and ultimate outcome of the governmental investigations
of the Company, including the Company's ability to negotiate a definitive
settlement with the government related to the TVA matter on the terms described
herein and the tax and accounting treatment for payments related to such
settlement; competition; general economic conditions; and the like.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
The Company has reached a tentative agreement with the United States
Attorney for the Western District of Tennessee and the TVA to settle on
a civil basis all claims against the Company relating to the TVA
billing matter. The Company is in the process of negotiating with the
government regarding the amount of the civil settlement, which it
anticipates will occur before 1998 calendar year end. Such settlement
is contingent on, among other things,
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<PAGE> 11
the agreement by a former officer of the Company to plead guilty to a
felony charge and the Company's ability to agree with the government as
to the actual amount of damages. See "Item 3. Legal Proceedings" in the
Company's Annual Report on Form 10-K for the fiscal year ended April
30, 1998 for additional information.
ITEM 2. CHANGES IN SECURITIES.
In May 1998, the Company issued 1,580,582 shares of its Common Stock to
the former shareholders of PRI as partial payment of earnout
consideration in accordance with the terms of the acquisition agreement
entered into between such former shareholders and the Company in July
1997. The issuances were made in reliance on the exemption provided by
Section 4(2) of the Securities Act of 1933, as amended (the "Securities
Act"), for a transaction not involving a public offering.
On May 1, 1998, the Company issued 543,724 shares of Common Stock to
the former shareholders of PTI in connection with the merger of PTI
with and into a wholly owned subsidiary of the Company. The issuances
were made in reliance on the exemption provided by Section 4(2) of the
Securities Act for a transaction not involving a public offering.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) See Index to Exhibits following the Signature page.
(b) No reports on Form 8-K were filed during the quarter ended July
31, 1998.
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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 thereunto duly authorized.
SCB COMPUTER TECHNOLOGY, INC.
By: /s/ Gary E. McCarter
--------------------------------------
Title: Chief Financial Officer
-----------------------------------
Date: September 14, 1998
-----------------------------------
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Index to Exhibits
<TABLE>
<CAPTION>
Item Description
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<S> <C>
10.1 Second Amended and Restated Loan Agreement dated as of July 31,
1998 among NationsBank of Tennessee, N.A., the Company, and
certain of its subsidiaries and form of promissory note.
10.2* Mutual Release, dated August 27, 1998, by and between Steve
N. White and the Company (incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K,
dated September 4, 1998).
10.3* Noncompetition, Confidentiality, and Nondisparagement
Agreement, dated August 27, 1998, by and between Steve
N. White and the Company (incorporated by reference to
Exhibit 10.2 to the Company's Current Report on Form 8-K,
dated September 4, 1998).
10.4* Stock Restriction Agreement, dated August 27, 1998, by
and between Steve N. White and the Company (incorporated
by reference to Exhibit 10.3 to the Company's Current
Report on Form 8-K, dated September 4, 1998).
10.5* Cancellation of Option Agreement, dated August 27, 1998, by
and between Steve N. White and the Company (incorporated by
reference to Exhibit 10.4 to the Company's Current Report on
Form 8-K, dated September 4, 1998).
27 Financial Data Schedule (for the SEC use only).
</TABLE>
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*Management Contract or Compensatory Plan
13
<PAGE> 1
Exhibit 10.1
NATIONSBANK OF TENNESSEE, N.A.
SECOND AMENDED AND RESTATED LOAN AGREEMENT
This Second Amended and Restated Loan Agreement (the "Agreement") dated
as of July 31, 1998, by and between NATIONSBANK OF TENNESSEE, N.A., a national
banking association ("Bank"), and SCB COMPUTER TECHNOLOGY, INC., a Tennessee
corporation, DELTA SOFTWARE SYSTEMS, INC., a Tennessee corporation, TMR
ACQUISITION, INC., a Tennessee corporation, PARTNERS CAPITAL GROUP, INC., a
California Corporation, and PARTNERS RESOURCES, INC., an Arizona Corporation
(collectively "Borrower").
RECITALS:
A. Borrower has heretofore obtained a revolving term loan facility
(the "Revolving Loan") in the principal amount of Thirty Million and No/100
Dollars ($30,000,000.00), the terms and conditions of which were set forth in
that certain Amended and Restated Loan Agreement dated March 12, 1998
(hereinafter as heretofore or hereafter Amended, Modified or Restated referred
to as the "Loan Agreement").
B. Borrower has asked Bank for a term loan in the amount of
Fifteen Million and No/100 Dollars ($15,000,000.00).
C. One of the conditions of the Loans, as hereinafter defined,
from Bank to Borrower is the execution of this Agreement setting forth the terms
and conditions of the Loans, and amending and restating the Loan Agreement.
NOW THEREFORE, in consideration of the Loan described below and the
mutual covenants and agreements contained herein, and intending to be legally
bound hereby, Bank and Borrower agree as follows:
1. DEFINITIONS AND REFERENCE TERMS. In addition to any other terms
defined herein, the following terms shall have the meaning set forth with
respect thereto:
A. ACCOUNT DEBTOR: Account Debtor means any Person (as herein
defined) which is now or hereafter obligated or indebted to Borrower on any
Account Receivable.
B. ACCOUNTS RECEIVABLE: Accounts Receivable means all amounts owed
to Borrower on account of sales, leases or rentals of goods or services rendered
in the ordinary course of trade or business to or on behalf of any Person (as
herein defined) which is now or hereafter obligated or indebted to Borrower (i)
which arise from goods theretofore sold and delivered or services or rentals
theretofore rendered or made, as the case may be, to an Account Debtor (as
herein defined); (ii) with respect to which no setoffs, counterclaims or
defenses are claimed by the Account Debtor; (iii) which constitute the binding
obligation of an Account Debtor which Bank deems, in the exercise of its
reasonable business judgment, to be solvent, to be financially able to pay its
debts and obligations as they become due and to be paying
<PAGE> 2
its debts and obligations as they become due; (iv) which, in the case of "dated
invoices" which specify a due date for the payment thereof, do not remain unpaid
more than ninety (90) days after the end of the month in which such due date
falls, and in the case of all other invoices, do not remain unpaid more than
ninety (90) days after the date of such invoice; (v) with respect to which the
Account Debtor is not an officer, director, agent or employee of Borrower (vi)
which do not arise from a "sale on approval," "sale or return," "guaranteed
sale" or "consignment"; and (viii) which are unencumbered or pledged as
collateral for any other indebtedness of Borrower.
C. BORROWER: SCB Computer Technology, Inc., a Tennessee
corporation, Delta Software Systems, Inc., a Tennessee Corporation, TMR
Acquisition, Inc., Partners Capital Group, Inc., a California corporation, and
Partners Resources, Inc., an Arizona corporation, collectively.
D. BORROWER'S ADDRESS:
1365 Brierbrook Road
Germantown, Tennessee 38138
E. COLLATERAL: Collateral means any and all collateral now or
hereafter pledged as collateral security for the Loans
F. CURRENT LIABILITIES: Current Liabilities means the aggregate
amount of all current liabilities as determined in accordance with GAAP, but in
any event shall include all liabilities except those having a maturity date
which is more than one year from the date as of which such computation is being
made.
G. EBITDA: EBITDA means, without duplication for any period, the
following, each calculated for the trailing twelve (12) months of such period:
(a) Net Income; plus (b) any provision for (or minus any benefit from) income or
franchise taxes included in the determination of Net Income; plus (c) interest
expense (excluding that which is associated with any lease expense whereby the
contract is assigned to a non-recourse lender) deducted in the determination of
Net Income (excluding that which is associated with any lease expense whereby
the contract is assigned to a non-recourse lender); plus (d) amortization and
depreciation (excluding that which is associated with any lease expense whereby
the contract is assigned to a non-recourse lender) deducted in the determination
of Net Income (excluding that which is associated with any lease expense whereby
the contract is assigned to a non-recourse lender); plus (e) losses from (or
minus gains from) non-cash items (excluding sales, expenses or losses related to
current assets) included in the determination of Net Income; minus (f) after tax
extraordinary gains (or plus after tax extraordinary losses) (in each case as
defined under GAAP) included in the determination of Net Income.
H. FIRST AMENDMENT: First Amendment means that certain "First
Amendment to the Outsourcing Agreement by and between Partners Resources, Inc.,
and Honeywell Inc." dated as of April 1, 1998.
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<PAGE> 3
I . FUNDED DEBT: Funded Debt means the total indebtedness
outstanding under all recourse notes payable of Borrower, plus funded or
unfunded letters of credit issued pursuant to Borrower's application therefor,
plus capital leases of Borrower.
J. HAZARDOUS MATERIALS: Hazardous Materials include all materials
defined as hazardous materials or substances under any local, state or federal
environmental laws, rules or regulations, and petroleum, petroleum products, oil
and asbestos.
K. LOANS: The Revolving Loan and the Term Loan and any subsequent
loan which states that it is subject to this Agreement.
L. LOAN DOCUMENTS: Loan Documents means this Agreement and any and
all promissory notes executed by Borrower in favor of Bank and all other
documents, instruments, guarantees, certificates and agreements executed and/or
delivered by Borrower, any guarantor or third party in connection with the Loan.
M. NET INCOME: Net Income means for any period, the net income (or
loss) of Borrower and its Subsidiaries after provision for or benefit from
income and franchise taxes determined in accordance with GAAP, but excluding:
(i) the income (or loss) of any Person (other than a Subsidiary) in which
Borrower has an ownership interest unless received by Borrower in a cash
distribution; and (ii) the income (or loss) of any Person accrued prior to the
date it is merged into or consolidated with Borrower.
N. OUTSOURCING AGREEMENT: Outsourcing Agreement means that certain
agreement dated as of September 29, 1995, between Partners and Honeywell, Inc.,
as thereafter amended or modified including, without limitation, by the First
Amendment, and by various statements of work and amendments thereto.
O. PARTNERS: Partners means Partners Resources, Inc., an Arizona
corporation.
P. PERSON: Person means any individual, partnership, corporation,
trust, unincorporated organization, limited liability company, association,
joint venture or other legally recognized entity having the capacity to contract
in its own name.
Q. REVOLVING LOAN: The revolving term loan facility as described
in Section 2 hereof.
R. REVOLVING NOTE: The promissory note evidencing the Revolving
Loan.
S. SECURITY AGREEMENT: Security Agreement means that certain
Security Agreement executed by Partners, dated July 31, 1998.
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<PAGE> 4
T. SUBSIDIARIES: Subsidiaries means those corporations now or
hereafter owned by SCB Computer Technology, Inc., including at the present time,
those identified on Exhibit "A" attached hereto, as such list may be amended or
restated from time to time.
U. TERM LOAN: The Term Loan as described in Section 2 hereof.
V. TERM NOTE: The promissory note evidencing the Term Loan.
W. NET WORTH. Net Worth means the amount by which total assets
exceed total liabilities in accordance with GAAP.
X. NOTES: The Revolving Note and the Term Note.
Y. ACCOUNTING TERMS. All accounting terms not specifically
defined or specified herein shall have the meanings generally attributed to such
terms under generally accepted accounting principles ("GAAP"), as in effect from
time to time, consistently applied, with respect to the financial statements
referenced in Section 3.H. hereof.
2. LOANS.
A. REVOLVING LOAN. Bank hereby agrees to make one or more loans to
Borrower in the aggregate principal face amount of Thirty Million and No/100
Dollars ($30,000,000.00). The obligation to repay the Revolving Loan is
evidenced by an amended and restated promissory note dated March 12, 1998 (the
promissory note together with any and all renewals, extensions or rearrangements
thereof being hereafter collectively referred to as the "Revolving Note") having
a maturity date, repayment terms and interest rate as set forth in the Revolving
Note.
(i) REVOLVING TERM LOAN FEATURE. The Revolving Loan shall
consist of a revolving term loan facility under which Borrower may from time to
time, borrow, repay and re-borrow funds. The Loan shall be repaid as set forth
in the Revolving Note with a maturity date of October 1, 2000, at which time the
entire outstanding principal balance, plus all accrued and unpaid interest,
shall be due and payable in full. Interest shall be paid monthly as more fully
provided in the Revolving Note.
(ii) STRUCTURING FEE. Borrower has paid a structuring fee of
Thirty-Five Thousand and No/100 Dollars ($35,000.00) at the closing of the
Revolving Loan.
(iii) UNUSED CREDIT FEE. Borrower will pay on April 1, 1998,
and on the same day of each month thereafter for the period from and including
the date the Revolving Loan was established to and including the maturity date
of the Revolving Loan, an unused credit fee at a rate per annum equal to (i)
.20%, (if the Funded Debt/EBITDA ratio is less than 1.0 to 1.0), (ii) .25% (if
such ratio is equal to or less than 1.50 to 1.0), or (iii) .30% (if such ratio
is greater than 1.5 to 1.0), times the average daily unused portion of the
Revolving Loan during the preceding month. Borrower may at any time upon written
notice to Bank permanently reduce the amount of the Revolving Loan at which time
the obligation of Borrower to pay such unused credit fee shall thereupon
correspondingly be reduced.
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<PAGE> 5
(iv) PURPOSE. The Revolving Loan shall be available to
Borrower for general corporate purposes (including, without limitation,
additional acquisitions made in accordance with the terms hereof).
B. TERM LOAN. Bank hereby agrees to make a term loan to Borrower
in the principal face amount of Fifteen Million and No/100 Dollars
($15,000,000.00). The obligation to repay the Term Loan is evidenced by a
promissory note dated July 31, 1998 (the promissory note together with any and
all renewals, extensions or rearrangements thereof being hereafter collectively
referred to as the "Term Note") having a maturity date, repayment terms and
interest rate as set forth in the Term Note.
(i) STRUCTURING FEE. Borrower will pay a structuring fee of
One Hundred One Thousand Two Hundred Fifty and No/100 Dollars ($101,250.00).
(ii) PURPOSE. The Term Loan shall be used by Borrower to
acquire the "Equipment Upgrade" and the "DS Equipment," as defined in the First
Amendment, the terms and conditions of which are incorporated herein by
reference, and for other purposes acceptable to Bank. .
(iii) COLLATERAL. The Term Loan shall be secured by the
Collateral described in the Security Agreement including, without limitation,
the Equipment Upgrade and the DS Equipment, both terms as defined in the First
Amendment.
3. REPRESENTATIONS AND WARRANTIES. Borrower hereby represents and
warrants to Bank as follows:
A. GOOD STANDING. Each of the Persons composing Borrower is a
corporation, duly organized, validly existing and in good standing under the
laws of the state of its formation and has the power and authority to own its
property and to carry on its business as currently conducted.
B. AUTHORITY AND COMPLIANCE. Borrower has full power and authority
to execute and deliver the Loan Documents and to incur and perform the
obligations provided for therein, all of which have been duly authorized by all
proper and necessary action of the appropriate governing body of Borrower. No
consent or approval of any public authority or other third party is required as
a condition to the validity of any Loan Document, and each Person composing
Borrower is in material compliance with all laws and regulatory requirements to
which each is subject.
C. BINDING AGREEMENT. This Agreement and the other Loan Documents
executed by Borrower constitute valid and legally binding obligations of
Borrower, enforceable in accordance with their terms.
D. LITIGATION. There is no material proceeding involving Borrower
pending or, to the knowledge of Borrower, threatened before any court or
governmental authority, agency or arbitration
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<PAGE> 6
authority, except as disclosed to Bank in writing and acknowledged by Bank prior
to the date of this Agreement.
E. NO CONFLICTING AGREEMENTS. There is no charter, bylaw, stock
provision, partnership agreement or other document pertaining to the
organization, power or authority of Borrower and no provision of any existing
material agreement, mortgage, indenture or contract binding on Borrower or
affecting its property, which would conflict with or in any way prevent the
execution, delivery or carrying out of the terms of this Agreement and the other
Loan Documents.
F. OWNERSHIP OF ASSETS. Borrower has good title to its assets, and
its assets are free and clear of liens, except limited liens involving
non-recourse lease related loans, and except for those granted to Bank and as
disclosed to Bank in writing prior to the date of this Agreement.
G. TAXES. All taxes and assessments due and payable by Borrower
have been paid or are being contested in good faith by appropriate proceedings
and Borrower has filed all tax returns which they are required to file.
H. FINANCIAL STATEMENTS. The financial statements of Borrower
heretofore delivered to Bank have been prepared in accordance with GAAP applied
on a consistent basis throughout the period involved and fairly present
Borrower's financial condition as of the date or dates thereof, and there has
been no material adverse change in Borrower's financial condition or operations
since October 31, 1997. All factual information furnished by Borrower to Bank in
connection with this Agreement and the other Loan Documents is and will be
accurate and complete in all material respects on the date as of which such
information is delivered to Bank and is not and will not be incomplete by the
omission of any material fact necessary to make such information not misleading.
I. PLACE OF BUSINESS. Borrower's chief executive office is
located at
1365 Brierbrook Road
Germantown, Tennessee 38138
J. ENVIRONMENTAL. The conduct of Borrower's business operations
and the condition of Borrower's properties does not and will not violate any
federal laws, rules or ordinances for environmental protection, regulations of
the Environmental Protection Agency, any applicable local or state law, rule,
regulation or rule of common law or any judicial interpretation thereof relating
primarily to the environment or Hazardous Materials.
K. CONTINUATION OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made under this Agreement shall be deemed to be
made at and as of the date hereof and at and as of the date of any advance under
the Revolving Loan.
L. SUBSIDIARIES. Other than as shown on Exhibit "A," there are no
other Subsidiaries.
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<PAGE> 7
M. PRINCIPAL PLACE OF BUSINESS. Partners maintains its principal
place of business in Arizona, and will not move from its present location
without notifying Bank in advance at least thirty (30) days prior to such date.
N. NO DEFAULT UNDER OTHER AGREEMENTS. There are no defaults known
to Borrower under any agreement to which the Borrower is a party including,
without limitation, the Outsourcing Agreement and any license agreements to
which the Borrower is a party. Borrower has provided Bank with a complete copy
of the Outsourcing Agreement, the First Amendment and all statements of work and
amendments thereto.
4. AFFIRMATIVE COVENANTS. Until full payment and performance of all
obligations of Borrower under the Loan Documents, Borrower will, on a
consolidated basis unless Bank consents otherwise in writing (and without
limiting any requirement of any other Loan Document):
A. FINANCIAL CONDITION. Maintain at all times Borrower's financial
condition as follows and determined in accordance with GAAP applied on a
consistent basis throughout the period involved except to the extent modified by
the following:
i. Maintain a ratio of Funded Debt to EBITDA of 2.75 to 1.0
or less; and on October 31, 1998, and thereafter until April 30, 1999, maintain
a ratio of Funded Debt to EBITDA of 2.50 to 1.0 or less; and on April 30, 1999,
and thereafter maintain a ratio of Funded Debt to EBITDA of 2.00 to 1.0 or less.
ii. Maintain a ratio of Funded Debt to Net Worth of 1.0 to
1.0 or less.
iii. Maintain a ratio of cash plus Accounts Receivable plus
unencumbered fixed assets (net of depreciation) such as buildings, furniture,
fixtures and equipment, and land (such sum as shown on the most recent financial
statements provided to Bank from time to time or derived from other information
made available to Bank, from which Bank may determine the sum using its
reasonable discretion as to what items should be included) to trade accounts
payable (as determined in accordance with GAAP and as such sum is shown on the
most recent financial statements provided to Bank from time to time or derived
from other information made available to Bank, from which Bank may determine the
sum using its reasonable discretion as to what items should be included) plus
unsecured Funded Debt of 1.0 to 1.0 or greater.
B. FINANCIAL STATEMENTS AND OTHER INFORMATION. Maintain a system
of accounting satisfactory to Bank and in accordance with GAAP applied on a
consistent basis throughout the period involved, permit Bank's officers or
authorized representatives to visit and inspect Borrower's books of account and
other records at such reasonable times and as often as Bank may desire, and pay
the reasonable fees and disbursements of any accountants or other agents of Bank
selected by Bank for the foregoing purposes. Unless written notice of another
location is given to Bank, Borrower's books and records will be located at
Borrower's chief executive office set forth above. All financial statements
called for below
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<PAGE> 8
shall be prepared in form and content acceptable to Bank and by independent
certified public accountants acceptable to Bank.
In addition, Borrower will:
i. Furnish to Bank audited financial statements of Borrower
for each fiscal year of Borrower, within one hundred twenty (120) days after the
close of each such fiscal year, prepared by a public accounting firm acceptable
to Bank.
ii. Furnish to Bank financial statements prepared by
Borrower (including a balance sheet and profit and loss statement) of Borrower,
for each quarter of each fiscal year of Borrower, within forty five (45) days
after the close of each such period, such financial statements to be certified
by the president, vice president or chief financial officer of Borrower.
iii. Furnish to Bank a compliance certificate for (and
executed by an authorized representative of) Borrower in the form of Exhibit "B"
attached hereto, concurrently with and dated as of the date of delivery of each
of the financial statements as required in paragraphs i and ii above, and at
such other times as Bank may request, containing (a) a certification that the
financial statements of even date are true and correct and that Borrower is not
in default under the terms of this Agreement, and (b) computations and
conclusions, in such detail as Bank may request, with respect to compliance with
this Agreement, and the other Loan Documents, including computations of all
quantitative covenants.
iv. Furnish to Bank promptly such additional information,
reports and statements respecting the business operations and financial
condition of Borrower and its Subsidiaries, respectively, from time to time, as
Bank may reasonably request.
C. INSURANCE. Maintain insurance with responsible insurance
companies on such of its properties, in such amounts and against such risks as
is customarily maintained by similar businesses operating in the same vicinity,
specifically to include fire and extended coverage insurance covering all
assets, business interruption insurance, workers compensation insurance and
liability insurance, all to be with such companies and in such amounts as are
satisfactory to Bank and providing for at least thirty (30) days prior notice to
Bank of any cancellation thereof. Satisfactory evidence of such insurance will
be supplied to Bank prior to funding under the Loan(s) and thirty (30) days
prior to each policy renewal.
D. EXISTENCE AND COMPLIANCE. Maintain its, as well as that of its
Subsidiaries, existence, good standing and qualification to do business, where
failure to do so would have a material adverse effect on Borrower or its
Subsidiaries, and comply with all laws, regulations and governmental
requirements including, without limitation, applicable environmental laws or to
any of its or their property, business operations and transactions.
E. ADVERSE CONDITIONS OR EVENTS. Promptly advise Bank in writing
of (i) any condition, event or act which comes to its attention that would or
might materially adversely affect
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<PAGE> 9
Borrower's or any Subsidiary's financial condition or operations or Bank's
rights under the Loan Documents, (ii) any material litigation filed by or
against Borrower or any Subsidiary, (iii) any event that has occurred that would
constitute an event of default under any Loan Documents and (iv) any uninsured
or partially uninsured loss through fire, theft, liability or property damage in
excess of an aggregate of Five Hundred Thousand and No/100 Dollars
($500,000.00).
F. TAXES AND OTHER OBLIGATIONS. Pay all of its taxes, assessments
and other obligations, including, but not limited to taxes, costs or other
expenses arising out of this transaction, as the same become due and payable,
except to the extent the same are being contested in good faith by appropriate
proceedings in a diligent manner.
G. MAINTENANCE. Maintain all of its tangible property in good
condition and repair and make all necessary replacements thereof, and preserve
and maintain all licenses, trademarks, privileges, permits, franchises,
certificates and the like necessary for the operation of its business.
H. ENVIRONMENTAL. Immediately advise Bank in writing of (i) any
and all enforcement, cleanup, remedial, removal, or other governmental or
regulatory actions instituted, completed or threatened pursuant to any
applicable federal, state, or local laws, ordinances or regulations relating to
any Hazardous Materials affecting Borrower's or any Subsidiary's business
operations; and (ii) all claims made or threatened by any third party against
Borrower or any Subsidiary relating to damages, contribution, cost recovery,
compensation, loss or injury resulting from any Hazardous Materials. Borrower
shall immediately notify Bank of any remedial action taken by Borrower with
respect to Borrower's business operations. Borrower will not use or permit any
other party to use any Hazardous Materials at any of Borrower's places of
business or at any other property owned by Borrower except such materials as are
incidental to Borrower's normal course of business, maintenance and repairs and
which are handled in compliance with all applicable environmental laws. Borrower
agrees to permit Bank, its agents, contractors and employees to enter and
inspect any of Borrower's places of business or any other property of Borrower
at any reasonable times upon three (3) days prior notice for the purposes of
conducting an environmental investigation and audit (including taking physical
samples) to insure that Borrower is complying with this covenant and Borrower
shall reimburse Bank on demand for the costs of any such environmental
investigation and audit. Borrower shall provide Bank, its agents, contractors,
employees and representatives with access to and copies of any and all data and
documents relating to or dealing with any Hazardous Materials used, generated,
manufactured, stored or disposed of by Borrower's business operations within
five (5) days of the request therefore.
I. ACQUISITIONS. In the event Borrower acquires any other
Subsidiary, such Subsidiary shall sign an unlimited guaranty of the indebtedness
and obligations of Borrower to Bank, such guaranty to be in form and substance
prepared by and acceptable to Bank. In addition, Borrower shall pledge to Bank
all of the common stock to secure the Loan, in form and substance, and with such
supporting documents, as are acceptable to Bank.
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<PAGE> 10
J. OTHER DOCUMENTS. Provide to Bank such other documents as Bank
may reasonably require including, without limitation, release documents
releasing any and all liens possessed by any Person other than Bank encumbering
any of the Collateral, and an intercreditor agreement with any other Person
claiming any lien on any of Borrower's property agreeing not to assert a lien
against, or interfere with Bank's enforcement of its liens against, any of the
Collateral.
5. NEGATIVE COVENANTS. Until full payment and performance of all
obligations of Borrower under the Loan Documents, Borrower will not, without the
prior written consent of Bank (and without limiting any requirement of any other
Loan Documents):
A. CAPITAL EXPENDITURES. Other than in connection with the
purchase of the Equipment Upgrade, as defined in the First Amendment, make
capital expenditures during any four quarter period on a trailing four quarter
basis (including capitalized leases) exceeding in the aggregate a number which
is equal to twenty-five percent (25%) of the Net Income from such four quarter
period.
B. LEASE RESIDUAL EXPENDITURES. Incur new obligations from
investment in the residual values of leases of real or personal property during
any four quarter period on a trailing four quarter basis exceeding in the
aggregate a number which is equal to twenty-five percent (25%) of the Net Income
from such four quarter period.
C. LEASE EXPENDITURES. Incur new obligations for the lease or hire
of real or personal property requiring payments in any fiscal year in excess of
an aggregate of Five Hundred Thousand and No/100 Dollars ($500,000.00).
D. TRANSFER OF ASSETS OR CONTROL. Sell, lease, assign or otherwise
dispose of or transfer any assets, except in the normal course of its business,
or change control or ownership of more than thirty-five percent (35%) of any
Person composing Borrower. For purposes of this covenant, a change in control or
ownership means (i) when any Person or two or more Persons acting in concert
shall have acquired beneficial ownership, directly or indirectly, of the capital
stock of Borrower or any Person composing Borrower (or other securities
convertible into such capital stock) representing thirty-five percent (35%) or
more of the combined voting power of all capital stock of Borrower or any such
Person composing Borrower; or (ii) during any period of up to twenty-four (24)
consecutive months, commencing after the date hereof, individuals who at the
beginning of such twenty-four (24) month period were directors of Borrower or
any such Person composing Borrower cease to constitute a majority of the board
of directors thereof and such event is a result (directly or indirectly) of the
acquisition of five percent (5%) or more of the combined voting power of the
capital stock by a Person or Persons who did not own at least five percent (5%)
or more of the combined voting power of the capital stock as of the date hereof.
As used herein, "beneficial ownership" shall have the meaning provided in Rule
13d-3 of the Securities and Exchange Commission under the Securities and
Exchange Act of 1934.
E. LIENS. Grant, suffer or permit any contractual or
noncontractual lien on or security interest in its assets (including, without
limitation, on any of the Collateral and on any of Borrower's
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<PAGE> 11
intellectual property), except in favor of Bank and except for limited liens
involving non-recourse lease related loans, or fail to promptly pay when due all
lawful claims, whether for labor, materials or otherwise.
F. EXTENSIONS OF CREDIT. Other than loans to Subsidiaries, make or
permit any Subsidiary to make, loans or advances in excess of One Million and
No/100 Dollars ($1,000,000.00) in the aggregate outstanding at any time prior to
August 30, 1998, at which time the maximum aggregate amount outstanding at any
time shall be reduced to Five Hundred Thousand and No/100 Dollars ($500,000.00),
or make any capital contribution to, or participate as a partner or joint
venturer with any Person, except for extensions of credit to employees in the
normal course of Borrower's business, and except for the purchase of direct
obligations of the United States or any agency thereof with maturities of less
than one year, or obligations of Bank or any subsidiary thereof. Any aggregate
amount of such loans made by Borrower in excess of Five Hundred Thousand and
No/100 Dollars ($500,000.00) must be personally guaranteed by Ben C. Bryant,
Jr., and T. Scott Cobb.
G. BORROWINGS. Create, incur, assume or become liable in any
manner for any indebtedness (for borrowed money, deferred payment for the
purchase of assets, lease payments, as surety or guarantor for the debt for
another, or otherwise) other than to Bank, except for normal trade debts
incurred in the ordinary course of Borrower's business, non-recourse
indebtedness, and except for existing indebtedness disclosed to Bank in writing
and acknowledged by Bank prior to the date of this Agreement.
H. DIVIDENDS AND DISTRIBUTIONS. Make any distribution (other than
dividends payable in capital stock of Borrower) on any shares of any class of
its capital stock or apply any of its property or assets to the purchase,
redemption or other retirement of any shares of any class of capital stock of
Borrower exceeding in the aggregate a sum which is equal to twenty-five percent
(25%) of net profit per fiscal year.
I. CHARACTER OF BUSINESS. Change the general character of business
as conducted at the date hereof, or engage in any type of business not
reasonably related to its business as presently conducted.
J. MANAGEMENT CHANGE. Make any substantial change in its present
executive or management personnel.
K. NEGATIVE PLEDGE LIMITATION. Enter into any agreement with any
person other than Bank pursuant hereto which prohibits or limits the ability of
Borrower or any Subsidiary to create, incur, assume or suffer to exist any lien
upon any of the assets, rights, revenues or property, whether real, personal or
mixed, whether tangible or intangible, and whether now owned or hereafter
acquired.
L. ACQUISITIONS OR MERGERS. Acquire or enter into any merger or
consolidation, or purchase or otherwise acquire, or permit any Subsidiary to
purchase or otherwise acquire, any capital stock, assets, obligations, or other
securities of, or otherwise invest in or acquire any interest in any entity,
except in regards to any acquisition that (i) has positive EBITDA during the
last two (2) fiscal years, (ii) where
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<PAGE> 12
the total consideration paid by Borrower in regards to such transaction is 100%
stock, and (iii) the total consideration is less than six (6) times the
acquisition EBITDA, provided, however, in no event may Borrower enter into any
acquisition if the results of such acquisition on a proforma basis would cause a
default hereunder.
M. LOCATION OF EQUIPMENT. Move the Equipment Upgrade or the DS
Equipment from Honeywell's premises as identified to Bank without Bank's prior
written consent.
N. OUTSOURCING AGREEMENT. Amend or modify the Outsourcing
Agreement (as heretofore amended by the First Amendment) without Bank's prior
written consent.
6. DEFAULT. Borrower shall be in default under this Agreement and under
each of the other Loan Documents if any of the following should occur:
A. It shall default in the payment of any amounts due and owing
under the Loan within fifteen (15) days of the date when due or;
B. It should fail to timely and properly observe, keep or perform
any term, covenant, agreement or condition herein or in any other Loan Document
or in any other loan agreement, promissory note, security agreement, deed of
trust, deed to secure debt, mortgage, assignment or other contract securing or
evidencing payment of any indebtedness of Borrower to Bank or any affiliate or
subsidiary of NationsBank Corporation; or
C. There should occur any material adverse change in Borrower's
financial condition or business affairs from that shown on Borrower's most
recent financial statements provided to Bank, including, without limitation, any
legal proceedings commenced against Borrower or any of its officers which Bank
determines in its sole discretion could have a material adverse effect on
Borrower's financial condition or business affairs, provided, however, that Bank
agrees not to exercise its right to declare a default as a result of any such
material adverse change until forty five (45) days after written notice from
Bank to Borrower that Bank deems a material adverse change to have occurred..
7. REMEDIES UPON DEFAULT. If any of the foregoing defaults shall occur,
Bank shall have all rights, powers and remedies available under each of the Loan
Documents as well as all rights and remedies available at law or in equity.
8. NOTICES. All notices, requests or demands which any party is
required or may desire to give to any other party under any provision of this
Agreement must be in writing delivered to the other party at the following
address:
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<PAGE> 13
Borrower:
SCB Computer Technology, Inc.
1365 Brierbrook Road
Germantown, Tennessee 38138
Attn: Gary McCarter
Fax. No. 901/624-9448
with a copy to:
Bass, Berry, & Sims PLC
2700 First America Center
Nashville, Tennessee 37238-2700
Attn: Gentry Barden
Fax No. 615/742-6298
Bank:
NationsBank of Tennessee, N.A.
6060 Poplar Avenue, Suite 400
Memphis, Tennessee 38119
Attention: Michael R. Frick
Fax No. 901/433-8062
or to such other address as any party may designate by written notice to the
other party. Each such notice, request and demand shall be deemed given or made
as follows:
A. If sent by mail, upon the earlier of the date of receipt or
five (5) days after deposit in the U.S. Mail, first class postage prepaid;
B. If sent by any other means , upon delivery.
9. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrower shall pay to Bank
immediately upon demand the full amount of all costs and expenses, including
reasonable attorneys' fees (to include outside counsel fees and all allocated
costs of Bank's in-house counsel if permitted by applicable law), incurred by
Bank in connection with (a) negotiation and preparation of this Agreement and
each of the Loan Documents, and (b) all other costs and attorneys' fees incurred
by Bank for which Borrower is obligated to reimburse Bank in accordance with the
Terms of the Loan Documents.
10. MISCELLANEOUS. Borrower and Bank further covenant and agree as
follows, without limiting any requirement of any other Loan Document:
A. CUMULATIVE RIGHTS AND NO WAIVER. Each and every right granted
to Bank under any Loan Document, or allowed it by law or equity shall be
cumulative of each other and may be exercised
- 13 -
<PAGE> 14
in addition to any and all other rights of Bank, and no delay in exercising any
right shall operate as a waiver thereof, nor shall any single or partial
exercise by Bank of any right preclude any other or future exercise thereof or
the exercise of any other right. Borrower expressly waives any presentment,
demand, protest or other notice of any kind, including but not limited to notice
of intent to accelerate and notice of acceleration. No notice to or demand on
Borrower in any case shall, of itself, entitle Borrower to any other or future
notice or demand in similar or other circumstances.
B. APPLICABLE LAW. This Agreement and the rights and obligations
of the parties hereunder shall be governed by and interpreted in accordance with
the laws of the state of Tennessee and applicable United States federal law.
C. AMENDMENT. No modification, consent, amendment or waiver of any
provision of this Agreement, nor consent to any departure by Borrower therefrom,
shall be effective unless the same shall be in writing and signed by an officer
of Bank, and then shall be effective only in the specified instance and for the
purpose for which given. This Agreement is binding upon Borrower, its successors
and assigns, and inures to the benefit of Bank, its successors and assigns;
however, no assignment or other transfer of Borrower's rights or obligations
hereunder shall be made or be effective without Bank's prior written consent,
nor shall it relieve Borrower of any obligations hereunder. There is no third
party beneficiary of this Agreement.
D. DOCUMENTS. All documents, certificates and other items required
under this Agreement to be executed and/or delivered to Bank shall be in form
and content satisfactory to Bank and its counsel.
E. PARTIAL INVALIDITY. The unenforceability or invalidity of any
provision of this Agreement shall not affect the enforceability or validity of
any other provision herein and the invalidity or unenforceability of any
provision of any Loan Document to any person or circumstance shall not affect
the enforceability or validity of such provision as it may apply to other
persons or circumstances.
F. INDEMNIFICATION. Notwithstanding anything to the contrary
contained in Section 10(G), except for gross negligence or willful misconduct,
Borrower shall indemnify, defend and hold Bank and its successors and assigns
harmless from and against any and all claims, demands, suits, losses, damages,
assessments, fines, penalties, costs or other expenses (including reasonable
attorneys' fees and court costs) arising from or in any way related to any of
the transactions contemplated hereby, including but not limited to actual or
threatened damage to the environment, agency costs of investigation, personal
injury or death, or property damage, due to a release or alleged release of
Hazardous Materials, arising from Borrower's business operations, any other
property owned by Borrower or in the surface or ground water arising from
Borrower's business operations, or gaseous emissions arising from Borrower's
business operations or any other condition existing or arising from Borrower's
business operations resulting from the use or existence of Hazardous Materials,
whether such claim proves to be true or false. Borrower further agrees that its
indemnity obligations shall include, but are not limited to, liability for
damages resulting from the personal injury or death of an employee of Borrower,
regardless of whether Borrower
- 14 -
<PAGE> 15
has paid the employee under the workmen' s compensation laws of any state or
other similar federal or state legislation for the protection of employees. The
term "property damage" as used in this paragraph includes, but is not limited
to, damage to any real or personal property of Borrower, Bank, and of any third
parties. Borrower's obligations under this paragraph shall survive the repayment
of the Loan and any deed in lieu of foreclosure or foreclosure of any Deed to
Secure Debt, Deed of Trust, Security Agreement or Mortgage securing the Loan.
G. SURVIVABILITY. All covenants, agreements, representations and
warranties made herein or in the other Loan Documents shall survive the making
of the Loan and shall continue in full force and effect so long as the Loan is
outstanding or the obligation of Bank to make any advances under the Loan shall
not have expired.
11. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES
HERETO INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS,
INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR
ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN
THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON
ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY
TO THIS AGREEMENT MAY BRING AN ACTION, INCLUDING A SUMMARY OR EXPEDITED
PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR CLAIM TO WHICH THIS
AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE CITY
OF THE BORROWER'S DOMICILE AT TIME OF THE EXECUTION OF THIS INSTRUMENT,
AGREEMENT OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN
ARBITRATOR; IF J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE
ARBITRATION, THEN THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL
ARBITRATION HEARINGS WILL BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR
ARBITRATION; FURTHER, THE ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE
PERMITTED TO EXTEND THE COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60
DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION
SHALL BE DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE
STATUTES OF LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS ARBITRATION
PROVISION; OR (II) BE A WAIVER BY THE BANK OF THE PROTECTION
- 15 -
<PAGE> 16
AFFORDED TO IT BY 12 U.S.C. ss. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW;
OR (III) LIMIT THE RIGHT OF THE BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES
SUCH AS (BUT NOT LIMITED TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR
PERSONAL PROPERTY COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR
ANCILLARY REMEDIES SUCH AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF
POSSESSION OR THE APPOINTMENT OF A RECEIVER. THE BANK MAY EXERCISE SUCH SELF
HELP RIGHTS, FORECLOSE UPON SUCH PROPERTY, OR OBTAIN SUCH PROVISIONAL OR
ANCILLARY REMEDIES BEFORE, DURING OR AFTER THE PENDENCY OF ANY ARBITRATION
PROCEEDING BROUGHT PURSUANT TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER
THIS EXERCISE OF SELF HELP REMEDIES NOR THE INSTITUTION OR MAINTENANCE OF AN
ACTION FOR FORECLOSURE OR PROVISIONAL OR ANCILLARY REMEDIES SHALL CONSTITUTE A
WAIVER OF THE RIGHT OF ANY PARTY, INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO
ARBITRATE THE MERITS OF THE CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH
REMEDIES.
12. NO ORAL AGREEMENT. THIS WRITTEN LOAN AGREEMENT AND THE OTHER LOAN
DOCUMENTS REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE
CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS
OF THE PARTIES.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed under seal by their duly authorized representatives as of the date
first above written.
- 16 -
<PAGE> 17
BORROWER: BANK:
SCB COMPUTER TECHNOLOGY, INC. NATIONSBANK OF TENNESSEE, N.A.
By: By:
-------------------------------- ---------------------------------
Name: Name:
------------------------------ -------------------------------
Title: Title:
----------------------------- ------------------------------
Attest:
----------------------------
Name:
------------------------------
Title:
-----------------------------
DELTA SOFTWARE SYSTEMS, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Attest:
----------------------------
Name:
------------------------------
Title:
-----------------------------
- 17 -
<PAGE> 18
TMR ACQUISITION, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Attest:
----------------------------
Name:
------------------------------
Title:
-----------------------------
PARTNERS CAPITAL GROUP, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Attest:
----------------------------
Name:
------------------------------
Title:
-----------------------------
- 18 -
<PAGE> 19
PARTNERS RESOURCES, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
Attest:
----------------------------
Name:
------------------------------
Title:
-----------------------------
- 19 -
<PAGE> 20
EXHIBIT "A"
SUBSIDIARIES
SCB Software Services, Inc.
- 20 -
<PAGE> 21
EXHIBIT "B"
COMPLIANCE CERTIFICATE
- 21 -
<PAGE> 22
NationsBank of Tennessee, N.A.
TERM LOAN
PROMISSORY NOTE
July 31, 1998 $15,000,000.00 Maturity Date: July 15, 2002
Bank: Borrower:
NationsBank of Tennessee, N.A. SCB Computer Technology, Inc.
6060 Poplar Avenue Delta Software Systems, Inc.
Memphis, TN 38119 TMR Acquisition, Inc.
Partners Capital Group, Inc.
Partners Resources, Inc.
1365 Brierbrook Road
Germantown, TN 38138
FOR VALUE RECEIVED, the undersigned Borrower unconditionally (and jointly and
severally, if more than one) promises to pay to the order of Bank, its
successors and assigns, without set off, at its offices indicated at the
beginning of this Note, or at such other place as may be designated by Bank, the
principal amount of Fifteen Million and No/100 Dollars ($15,000,000.00) in
immediately available funds as set forth in that certain Amended and Restated
Loan Agreement of even date herewith (the "Loan Agreement"), together with
interest computed daily on the outstanding principal balance hereunder, at an
annual interest rate, and in accordance with the payment schedule, indicated
below.
1. RATE. The unpaid principal balance of this Note from day to day outstanding
which is not past due shall bear interest at a rate per annum equal to the
lesser of (i) the Maximum Rate (hereinafter defined) or (ii) the Stated Rate
(hereinafter defined) fixed for periods of one (1) month each and computed on
the Annual Basis (hereinafter defined).
(a) The term "Stated Rate" means the LIBOR Funding Rate plus the Applicable
Margin (as hereinafter set forth).
(b) The term "LIBOR Funding Rate" means the thirty (30) day rate of
interest set by Bank as the LIBOR Funding Rate as of and at any time during the
second Business Day immediately preceding the first day of such Interest Period,
for a term comparable to such Interest Period, as adjusted from time to time in
Bank's sole discretion for then applicable reserve requirements, deposit
insurance assessment rates and other regulatory costs.
(c) The term "Business Day" shall mean a day on which Bank is open for
business and dealing in deposits in Memphis, Tennessee.
(d) The term "Interest Period" shall mean, with respect to any LIBOR
Borrowing (hereinafter defined), a period from the 15th of each month in which
the LIBOR Funding Rate shall become effective as to such LIBOR Borrowing to the
14th of the following month, subject however to the following:
(i) if any Interest Period would otherwise end on a day which is not a
Business Day, the LIBOR Funding Rate shall be determined the immediately
preceding business day; and
(ii) no Interest Period shall extend beyond the final maturity date.
(e) The term "Applicable Margin" means the percentage added to the LIBOR
Funding Rate and shall be a function of the Funded Debt/EBITDA ratio as follows:
Funded Debt/EBITDA LIBOR Applicable Margin
------------------ -----------------------
1
<PAGE> 23
(i) <1.00 x 0.75%
(ii) = or <1.50 x 1.00%
(iii) >1.50 x 1.50%
(f) The term "LIBOR Borrowing" as used herein means a separate and distinct
portion of the indebtedness evidenced by the Note bearing interest at a LIBOR
Funding Rate.
The term "Maximum Rate" as used in this Note means the maximum nonusurious rate
of interest per annum permitted by whichever of applicable United States federal
law or the law of the state of Tennessee permits the higher interest rate,
including to the extent permitted by applicable law, any amendments thereof
hereafter or any new law hereafter coming into effect to the extent a higher
Maximum Rate is permitted thereby. The Maximum Rate shall be applied by taking
into account all amounts characterized by applicable law as interest on the debt
evidenced by this Note, so that the aggregate of all interest does not exceed
the maximum nonusurious amount permitted by applicable law.
Notwithstanding any provision of this Note, Bank does not intend to charge and
Borrower shall not be required to pay any amount of interest or other charges in
excess of the Maximum Rate; if any higher rate ceiling is lawful, then that
higher rate ceiling shall apply. Any payment in excess of such Maximum Rate
shall be refunded to Borrower or credited against principal, at the option of
Bank.
2. ANNUAL BASIS OR ACCRUAL METHOD. "Annual Basis" means computation of interest
at the Rate set forth above using a 365/360 day method (a daily amount of
interest is computed for a hypothetical year of 360 days; that amount is
multiplied by the actual number of days for which any principal is outstanding
hereunder).
3. RATE CHANGE DATE. The Stated Rate will change on the 15th of each month.
4. PAYMENT SCHEDULE. All payments received hereunder shall be applied first to
the payment of any expense or charges payable hereunder or under any other loan
documents executed in connection with this Note, then to interest due and
payable, with the balance applied to principal, or in such other order as Bank
shall determine at its option.
Principal and interest shall be paid in consecutive equal installments of
$130,348.31, payable monthly, commencing on August 15, 1998, and continuing on
the same day of each successive month thereafter, to and including December 15,
1998, then, principal and interest shall be paid in consecutive equal
installments of $353,844.87, payable monthly, commencing on January 15, 1999,
and continuing on the same day of each successive month thereafter, with a final
payment of all unpaid principal and interest due thereon on July 15, 2002. If,
on any payment date, accrued interest exceeds the applicable installment amount
set forth above, Borrower will also pay such excess as and when billed.
5. WAIVERS, CONSENTS AND COVENANTS. Borrower, any indorser or guarantor hereof,
or any other party hereto (individually an "Obligor" and collectively
"Obligors") and each of them jointly and severally: (a) waive presentment,
demand, protest, notice of demand, notice of intent to accelerate, notice of
acceleration of maturity, notice of protest, notice of nonpayment, notice of
dishonor, and any other notice required to be given under the law to any Obligor
in connection with the delivery, acceptance, performance, default or enforcement
of this Note, any indorsement or guaranty of this Note, or any other documents
executed in connection with this Note or any other note or other loan documents
now or hereafter executed in connection with any obligation of Borrower to Bank
(the "Loan Documents"); (b) consent to all delays, extensions, renewals or, in
the case of any guarantor, other modifications of this Note or the Loan
Documents, or waivers of any term hereof or of the Loan Documents, or release or
discharge by Bank of any of Obligors, or release, substitution or exchange of
any security for the payment hereof, or the failure to act on the part of Bank,
or any indulgence shown by Bank (without notice to or further assent from any of
Obligors), and agree that no such action, failure to act or failure to exercise
any right or remedy by Bank shall in any way affect or impair the obligations of
any Obligors or be construed as a waiver by Bank of, or otherwise affect, any of
Bank's rights under this Note, under any indorsement or guaranty of this Note or
under any of the Loan Documents; and (c) agree to pay, on demand, all costs and
expenses of collection or defense of this Note or of any indorsement or guaranty
hereof and/or the enforcement or defense of Bank's rights with respect to, or
the administration, supervision, preservation, or protection of, or realization
upon, any property securing payment hereof, including, without limitation,
reasonable attorney's fees, including fees related to any suit, mediation or
arbitration proceeding, out of court payment agreement, trial, appeal,
bankruptcy proceedings or other proceeding, in such amount as may be determined
reasonable by any arbitrator or court, whichever is applicable.
2
<PAGE> 24
6. PREPAYMENTS. During the first twelve (12) months from the date hereof, no
prepayment shall be permitted without the prior written consent of Bank.
Notwithstanding such prohibition, if there is a prepayment within said twelve
(12) month period, whether by consent of Bank, or because of acceleration or
otherwise, Borrower shall within fifteen (15) days of any request by Bank pay
to Bank a prepayment penalty equal to one percent (1%) of the principal sum
prepaid. After the first twelve (12) months from the date hereof, prepayments
may be made in whole or in part at any time without penalty. All prepayments
shall be applied in the inverse order of maturity, or in such other order as
Bank shall determine in its sole discretion.
7. DELINQUENCY CHARGE. To the extent permitted by law, a delinquency charge may
be imposed in an amount not to exceed four percent (4%) of any payment that is
more than fifteen (15) days late.
8. EVENTS OF DEFAULT. The following are events of default hereunder: (a) the
failure to pay or perform any obligation, liability or indebtedness of any
Obligor to Bank, or to any affiliate or subsidiary of NationsBank Corporation,
whether under this Note, the Loan Agreement, or any of the other Loan Documents,
within fifteen (15) days of the date when due (whether upon demand, at maturity
or by acceleration); (b) the failure to pay or perform any other material
obligation, liability or indebtedness of any Obligor to any other party; (c) the
commencement of a proceeding against any Obligor for dissolution or liquidation,
the voluntary or involuntary termination or dissolution of any Obligor or the
merger or consolidation of any Obligor with or into another entity; (d) the
insolvency of, the business failure of, the appointment of a custodian, trustee,
liquidator or receiver for or for any of the property of, the assignment for the
benefit of creditors by, or the filing of a petition under bankruptcy,
insolvency or debtor's relief law or the filing of a petition for any adjustment
of indebtedness, composition or extension by or against any Obligor; (e) the
determination by Bank that any representation or warranty made to Bank by any
Obligor in any Loan Documents or otherwise is or was, when it was made, untrue
or materially misleading; (f) the failure of any Obligor to timely deliver such
financial statements, including tax returns, other statements of condition or
other information, as Bank shall request from time to time; or (g) the seizure
or forfeiture of, or the issuance of any writ of possession, garnishment or
attachment, or any turnover order for any property of any Obligor.
9. REMEDIES UPON DEFAULT. Whenever there is a default under this Note (a) the
entire balance outstanding hereunder and all other obligations of any Obligor to
Bank (however acquired or evidenced) shall, at the option of Bank, become
immediately due and payable and any obligation of Bank to permit further
borrowing under this Note shall immediately cease and terminate, and/or (b) to
the extent permitted by law, the Rate of interest on the unpaid principal shall
be increased at Bank's discretion up to the Maximum Rate, or if none, 25% per
annum (the "Default Rate"). The provisions herein for a Default Rate shall not
be deemed to extend the time for any payment hereunder or to constitute a "grace
period" giving Obligors a right to cure any default. At Bank's option, any
accrued and unpaid interest, fees or charges may, for purposes of computing and
accruing interest on a daily basis after the due date of the Note or any
installment thereof, be deemed to be a part of the principal balance, and
interest shall accrue on a daily compounded basis after such date at the Default
Rate provided in this Note until the entire outstanding balance of principal and
interest is paid in full. Upon a default under this Note, Bank is hereby
authorized at any time, at its option and without notice or demand, to set off
and charge against any deposit accounts of any Obligor, (as well as any money,
instruments, securities, documents, chattel paper, credits, claims, demands,
income and any other property, rights and interests of any Obligor), which at
any time shall come into the possession or custody or under the control of Bank
or any of its agents, affiliates or correspondents, any and all obligations due
hereunder. Additionally, Bank shall have all rights and remedies available under
each of the Loan Documents, as well as all rights and remedies available at law
or in equity.
10. NON-WAIVER. The failure at any time of Bank to exercise any of its options
or any other rights hereunder shall not constitute a waiver thereof, nor shall
it be a bar to the exercise of any of its options or rights at a later date. All
rights and remedies of Bank shall be cumulative and may be pursued singly,
successively or together, at the option of Bank. The acceptance by Bank of any
partial payment shall not constitute a waiver of any default or of any of Bank's
rights under this Note. No waiver of any of its rights hereunder, and no
modification or amendment of this Note, shall be deemed to be made by Bank
unless the same shall be in writing, duly signed on behalf of Bank; each such
waiver shall apply only with respect to the specific instance involved, and
shall in no way impair the rights of Bank or the obligations of Obligors to Bank
in any other respect at any other time.
11. APPLICABLE LAW, VENUE AND JURISDICTION. This Note and the rights and
obligations of Borrower and Bank shall be governed by and interpreted in
accordance with the law of the State of Tennessee. In any litigation in
connection with or to enforce this Note or any indorsement or guaranty of this
Note or any Loan Documents, Obligors, and each of them, irrevocably consent to
and confer personal jurisdiction on the courts of the State of Tennessee or the
United States located within the State of Tennessee and expressly waive any
objections as to venue in any such courts. Nothing contained herein shall,
however, prevent Bank from bringing any action or exercising any rights within
any other state or jurisdiction or from obtaining personal jurisdiction by any
other means available under applicable law.
3
<PAGE> 25
12. PARTIAL INVALIDITY. The unenforceability or invalidity of any provision of
this Note shall not affect the enforceability or validity of any other provision
herein and the invalidity or unenforceability of any provision of this Note or
of the Loan Documents to any person or circumstance shall not affect the
enforceability or validity of such provision as it may apply to other persons or
circumstances.
13. BINDING EFFECT. This Note shall be binding upon and inure to the benefit of
Borrower, Obligors and Bank and their respective successors, assigns, heirs and
personal representatives, provided, however, that no obligations of Borrower or
Obligors hereunder can be assigned without prior written consent of Bank.
14. CONTROLLING DOCUMENT. To the extent that this Note conflicts with or is in
any way incompatible with any other document related specifically to the loan
evidenced by this Note, this Note shall control over any other such document,
and if this Note does not address an issue, then each other such document shall
control to the extent that it deals most specifically with an issue.
15. ARBITRATION. ANY CONTROVERSY OR CLAIM BETWEEN OR AMONG THE PARTIES HERETO
INCLUDING BUT NOT LIMITED TO THOSE ARISING OUT OF OR RELATING TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT OR ANY RELATED INSTRUMENTS, AGREEMENTS OR
DOCUMENTS, INCLUDING ANY CLAIM BASED ON OR ARISING FROM AN ALLEGED TORT, SHALL
BE DETERMINED BY BINDING ARBITRATION IN ACCORDANCE WITH THE FEDERAL ARBITRATION
ACT (OR IF NOT APPLICABLE, THE APPLICABLE STATE LAW), THE RULES OF PRACTICE AND
PROCEDURE FOR THE ARBITRATION OF COMMERCIAL DISPUTES OF J.A.M.S./ENDISPUTE OR
ANY SUCCESSOR THEREOF ("J.A.M.S."), AND THE "SPECIAL RULES" SET FORTH BELOW. IN
THE EVENT OF ANY INCONSISTENCY, THE SPECIAL RULES SHALL CONTROL. JUDGMENT UPON
ANY ARBITRATION AWARD MAY BE ENTERED IN ANY COURT HAVING JURISDICTION. ANY PARTY
TO THIS INSTRUMENT, AGREEMENT OR DOCUMENT MAY BRING AN ACTION, INCLUDING A
SUMMARY OR EXPEDITED PROCEEDING, TO COMPEL ARBITRATION OF ANY CONTROVERSY OR
CLAIM TO WHICH THIS AGREEMENT APPLIES IN ANY COURT HAVING JURISDICTION OVER SUCH
ACTION.
A. SPECIAL RULES. THE ARBITRATION SHALL BE CONDUCTED IN THE COUNTY OF ANY
BORROWER'S DOMICILE AT THE TIME OF THE EXECUTION OF THIS INSTRUMENT, AGREEMENT
OR DOCUMENT AND ADMINISTERED BY J.A.M.S. WHO WILL APPOINT AN ARBITRATOR; IF
J.A.M.S. IS UNABLE OR LEGALLY PRECLUDED FROM ADMINISTERING THE ARBITRATION, THEN
THE AMERICAN ARBITRATION ASSOCIATION WILL SERVE. ALL ARBITRATION HEARINGS WILL
BE COMMENCED WITHIN 90 DAYS OF THE DEMAND FOR ARBITRATION; FURTHER, THE
ARBITRATOR SHALL ONLY, UPON A SHOWING OF CAUSE, BE PERMITTED TO EXTEND THE
COMMENCEMENT OF SUCH HEARING FOR UP TO AN ADDITIONAL 60 DAYS.
B. RESERVATION OF RIGHTS. NOTHING IN THIS ARBITRATION PROVISION SHALL BE
DEEMED TO (I) LIMIT THE APPLICABILITY OF ANY OTHERWISE APPLICABLE STATUTES OF
LIMITATION OR REPOSE AND ANY WAIVERS CONTAINED IN THIS INSTRUMENT, AGREEMENT OR
DOCUMENT; OR (II) BE A WAIVER BY BANK OF THE PROTECTION AFFORDED TO IT BY 12
U.S.C. SEC. 91 OR ANY SUBSTANTIALLY EQUIVALENT STATE LAW; OR (III) LIMIT THE
RIGHT OF BANK HERETO (A) TO EXERCISE SELF HELP REMEDIES SUCH AS (BUT NOT LIMITED
TO) SETOFF, OR (B) TO FORECLOSE AGAINST ANY REAL OR PERSONAL PROPERTY
COLLATERAL, OR (C) TO OBTAIN FROM A COURT PROVISIONAL OR ANCILLARY REMEDIES SUCH
AS (BUT NOT LIMITED TO) INJUNCTIVE RELIEF, WRIT OF POSSESSION OR THE APPOINTMENT
OF A RECEIVER. BANK MAY EXERCISE SUCH SELF HELP RIGHTS, FORECLOSE UPON SUCH
PROPERTY, OR OBTAIN SUCH PROVISIONAL OR ANCILLARY REMEDIES BEFORE, DURING OR
AFTER THE PENDENCY OF ANY ARBITRATION PROCEEDING BROUGHT PURSUANT TO THIS
INSTRUMENT, AGREEMENT OR DOCUMENT. NEITHER THIS EXERCISE OF SELF HELP REMEDIES
NOR THE INSTITUTION OR MAINTENANCE OF AN ACTION FOR FORECLOSURE OR PROVISIONAL
OR ANCILLARY REMEDIES SHALL CONSTITUTE A WAIVER OF THE RIGHT OF ANY PARTY,
INCLUDING THE CLAIMANT IN ANY SUCH ACTION, TO ARBITRATE THE MERITS OF THE
CONTROVERSY OR CLAIM OCCASIONING RESORT TO SUCH REMEDIES.
4
<PAGE> 26
BORROWER REPRESENTS TO BANK THAT THE PROCEEDS OF THIS LOAN ARE TO BE USED
PRIMARILY FOR BUSINESS, COMMERCIAL OR AGRICULTURAL PURPOSES. BORROWER
ACKNOWLEDGES HAVING READ AND UNDERSTOOD, AND AGREES TO BE BOUND BY, ALL TERMS
AND CONDITIONS OF THIS NOTE.
NOTICE OF FINAL AGREEMENT. THIS WRITTEN PROMISSORY NOTE REPRESENTS THE FINAL
AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF
PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
SCB COMPUTER TECHNOLOGY, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
--------------------------------------
Attest
5
<PAGE> 27
DELTA SOFTWARE SYSTEMS, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
--------------------------------------
Attest
TMR ACQUISITION, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
--------------------------------------
Attest
6
<PAGE> 28
PARTNERS CAPITAL GROUP, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
--------------------------------------
Attest
PARTNERS RESOURCES, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
--------------------------------------
Attest
7
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SCB COMPUTER TECHNOLOGY, INC. FOR THE THREE MONTHS ENDED
JULY 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-30-1999
<PERIOD-START> MAY-01-1998
<PERIOD-END> JUL-31-1998
<CASH> 3,182,607
<SECURITIES> 0
<RECEIVABLES> 30,407,066
<ALLOWANCES> 125,000
<INVENTORY> 529,140
<CURRENT-ASSETS> 36,960,286
<PP&E> 42,363,709
<DEPRECIATION> 9,901,965
<TOTAL-ASSETS> 137,024,490
<CURRENT-LIABILITIES> 19,570,931
<BONDS> 61,195,468
0
0
<COMMON> 246,710
<OTHER-SE> 55,127,236
<TOTAL-LIABILITY-AND-EQUITY> 137,024,490
<SALES> 35,488,610
<TOTAL-REVENUES> 35,488,610
<CGS> 24,042,414
<TOTAL-COSTS> 24,042,414
<OTHER-EXPENSES> 1,256,563
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 901,471
<INCOME-PRETAX> 2,093,267
<INCOME-TAX> 1,186,300
<INCOME-CONTINUING> 896,267
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 896,267
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0.04
</TABLE>
