<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 January 31, 1999.
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
---------
SCB Computer Technology, Inc.
-----------------------------
(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
- ------------------ -----
(Address of principal executive offices) (Zip Code)
(901) 754-6577
--------------
(Registrant's telephone number, including area code)
Not Applicable
--------------
(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 March 15, 1999, 24,710,749 shares of the Registrant's common stock were
outstanding.
<PAGE> 2
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 - January 31, 1999 and
April 30, 1998........................................................3
Consolidated statements of income - Three and nine months
ended January 31, 1999 and January 31, 1998...........................4
Consolidated statements of cash flows - Nine months ended
January 31, 1999 and January 31, 1998.................................5
Notes to consolidated financial statements............................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations.............................................8
Item 3. Quantitative and Qualitative Disclosures About Market Risk...........11
Part II. Other Information
Item 1. Legal Proceedings....................................................11
Item 2. Changes in Securities................................................11
Item 4. Submission of Matters to a Vote of Security Holders..................11
Item 6. Exhibits and Reports on Form 8-K.....................................12
Signature.....................................................................13
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SCB COMPUTER TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
January 31, 1999 April 30, 1998
---------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,074,843 $ 2,983,372
Accounts receivable:
Trade (net) 35,926,985 25,461,905
Prepaid expenses 3,159,263 2,632,076
Inventory 1,144,298 439,182
Deferred federal and state income tax 335,663 335,663
------------- -------------
Total current assets 42,641,052 31,852,198
Investment in direct financing leases 16,234,356 17,109,698
Equipment under operating leases (net) 3,971,118 5,266,429
Fixed assets:
Buildings 1,348,293 1,348,293
Furniture, fixtures, and equipment 32,790,044 15,221,841
Accumulated depreciation (7,481,808) (3,629,636)
------------- -------------
26,656,529 12,940,498
Land 209,912 209,912
------------- -------------
26,866,441 13,150,410
Goodwill (net) 45,506,951 26,115,672
Other 7,951,825 5,051,939
------------- -------------
Total assets $ 143,171,743 $ 98,546,346
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable-trade $ 3,444,338 $ 3,614,622
Accrued TVA settlement costs 1,719,077 --
Accrued and withheld payroll taxes,
insurance, and payroll deductions 1,789,804 662,622
Accrued vacation 1,034,880 924,296
Other accrued expenses 2,336,545 1,036,902
Current portion of long term debt 8,630,244 5,495,245
Deferred revenue 2,685,737 1,730,862
Accrued federal and state income taxes 1,543,432 1,380,801
------------- -------------
Total current liabilities 23,184,057 14,845,350
Deferred federal and state income taxes 1,568,423 1,648,220
Notes payable-revolving term loan 27,660,000 19,643,667
Notes payable-non recourse 16,226,319 18,072,026
Long term debt 13,578,429 3,138,455
Capital lease obligation 911,882 1,317,527
Total long term liabilities 59,945,053 43,819,895
Total liabilities 83,129,110 58,665,245
Shareholders' equity:
Preferred stock, no par value-authorized
1,000,000 shares, none issued -- --
Common stock-100,000,000 shares of $.01
par value authorized and 24,709,849
shares issued and outstanding at
January 31, 1999 and 22,529,965 shares
issued and outstanding at April 30, 1998 247,098 225,300
Additional paid-in capital 39,132,216 24,504,619
Retained earnings 20,663,319 15,151,182
------------- -------------
Total shareholders' equity 60,042,633 39,881,101
------------- -------------
Total liabilities & shareholders' equity $ 143,171,743 $ 98,546,346
============= =============
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
SCB COMPUTER TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
January 31, January 31,
1999 1998 1999 1998
-------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Revenue $ 38,619,450 $ 28,275,210 $ 113,388,685 $ 77,790,942
Cost of services 26,544,646 19,680,310 77,532,739 54,106,796
------------- ------------- ------------- -------------
Gross profit 12,074,804 8,594,900 35,855,946 23,684,146
Provision for settlement of TVA matter -- -- 1,900,000 --
Severence payments -- -- 800,000 --
Other selling, general and
administrative expenses 6,695,036 5,081,051 19,380,755 13,352,598
------------- ------------- ------------- -------------
Total operating expenses 6,695,036 5,081,051 22,080,755 13,352,598
------------- ------------- ------------- -------------
Income from operations 5,379,768 3,513,849 13,775,191 10,331,548
Other income (expenses):
Interest expense (1,377,683) (621,835) (3,457,636) (1,122,539)
Other, net (364,706) (163,878) (1,067,404) (252,906)
------------- ------------- ------------- -------------
Total other income (expenses) (1,742,389) (785,713) (4,525,040) (1,375,445)
------------- ------------- ------------- -------------
Income before income taxes 3,637,379 2,728,136 9,250,151 8,956,103
Income tax expense 1,380,204 1,189,046 3,946,390 3,595,110
------------- ------------- ------------- -------------
Net income $ 2,257,175 $ 1,539,090 $ 5,303,761 $ 5,360,993
============= ============= ============= =============
Net income per share-basic $ 0.09 $ 0.07 $ 0.21 $ 0.24
============= ============= ============= =============
Net income per share-diluted $ 0.09 $ 0.07 $ 0.21 $ 0.24
============= ============= ============= =============
Weighted average number of common
shares-basic 24,683,382 22,472,494 24,672,397 22,457,732
============= ============= ============= =============
Weighted average number of common
shares-diluted 24,918,710 22,744,304 24,953,534 22,704,250
============= ============= ============= =============
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
SCB COMPUTER TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months
Ended
January 31,
-------------------------------
1999 1998
----------- ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 5,303,761 $ 5,360,993
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization 5,095,096 4,175,626
Deferred income taxes (79,797) (412,261)
(Increase) decrease in:
Accounts receivable-trade (10,465,080) (4,933,338)
Prepaid expenses (527,187) (1,842,601)
Inventory (705,116) 389,269
Net investment in direct financing activity 875,342 7,304,120
Deferred revenue 954,875 (1,136,381)
Other assets (2,691,510) (105,310)
Increase (decrease) in:
Accounts payable-trade (170,284) (516,459)
Accrued federal and state income taxes 162,631 1,578,449
Accrued vacation 110,584 158,187
Accrued TVA settlement costs 1,719,077 --
Other accrued expenses 1,299,643 14,248
Accrued and withheld payroll taxes,
insurance, and payroll deductions 1,127,182 184,948
------------ ------------
Total adjustments (3,294,544) 4,858,497
------------ ------------
Net cash provided by operating
activities 2,009,217 10,219,490
INVESTING ACTIVITIES
Purchases of fixed assets (16,317,155) (5,251,317)
Additional purchase price of subsidiaries -- (2,250,425)
Purchase of The Partners Group (6,334,886) (16,000,000)
Proceeds from land sale -- 234,758
------------ ------------
Net cash used by investing activity (22,652,041) (23,266,984)
FINANCING ACTIVITIES
Revolving term loan 12,000,000 16,000,000
Payments on revolving term loan (3,983,667) (4,275,000)
Proceeds from loan 17,500,000 729,103
Options exercised 394,341 215,956
Repayment of capital lease obligations (405,645) (118,229)
Proceeds from non-recourse debt 3,000,000 693,517
Payments on non-recourse debt (4,845,707) (9,369,363)
Payments on long term debt (3,925,027) (707,655)
------------ ------------
Net cash provided by financing
activities 19,734,295 3,168,329
------------ ------------
Net decrease in cash and cash
equivalents (908,529) (9,879,165)
Cash at beginning of period 2,983,372 11,814,787
------------ ------------
Cash at end of period $ 2,074,843 $ 1,935,622
============ ============
Supplemental disclosures of cash flow information:
Interest paid $ 3,457,636 $ 630,621
Income taxes paid $ 3,318,485 $ 2,514,248
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
SCB COMPUTER TECHNOLOGY, INC.
Notes to Consolidated Financial Statements (Unaudited)
January 31, 1999
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 nine months ended January 31, 1999 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
Basic and diluted earnings per share is calculated in accordance with FASB
Statement No. 128, Earnings per Share. All earnings per share amounts for
all periods have been presented, and where appropriate, restated to conform
to the requirements of Statement 128.
6
<PAGE> 7
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
January 31, January 31,
1999 1998 1999 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net income $ 2,257,175 $ 1,539,090 $ 5,303,761 $ 5,360,993
============ ============ ============ ============
Denominator for basic earnings per
share - weighted average shares 24,683,382 22,472,494 24,672,397 22,457,732
============ ============ ============ ============
Effect of dilutive securities - stock options 235,328 271,810 281,137 246,518
------------ ------------ ------------ ------------
Denominator for diluted earnings per
share - adjusted weighted average
shares and assumed conversion 24,918,710 22,744,304 24,953,534 22,704,250
============ ============ ============ ============
Basic earnings per share $ 0.09 $ 0.07 $ 0.21 $ 0.24
============ ============ ============ ============
Diluted earnings per share $ 0.09 $ 0.07 $ 0.21 $ 0.24
============ ============ ============ ============
</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 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 using the pooling-of-interests method of
accounting. The Company exchanged 543,724 shares 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.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Revenue increased from $28.3 million for the quarter ended January 31, 1998 to
$38.6 million for the quarter ended January 31, 1999, an increase of
approximately 36.6%. Revenue increased from $77.8 million for the first nine
months of fiscal 1998 to $113.4 million for the comparable period for fiscal
1999, an increase of approximately 45.8%. The increase was attributable
primarily to the expansion of the Company's client base and an increase in
consulting and professional staffing services provided to existing clients.
Gross profit increased from $8.6 million for the third quarter of fiscal 1998 to
$12.1 million for the third quarter of fiscal 1999, an increase of approximately
40.5%. Gross profit increased from $23.7 million for the first nine months of
fiscal 1998 to $35.9 million for the comparable period for fiscal 1999, an
increase of approximately 51.4%. 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 31.3%, and gross profit margin for the comparable nine
month periods increased from 30.4% to 31.6%, 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 $5.1 million
in the third quarter of fiscal 1998 to $6.7 million in the third quarter of
fiscal 1999, an increase of 31.8%. Other selling, general and administrative
expenses increased from $13.4 million for the first nine months of fiscal 1998
to $19.4 million for the comparable period for fiscal 1999, an increase of
approximately 45.1%. As a percent of revenue, other selling, general and
administrative expenses decreased from 18.0% in the third quarter of fiscal 1998
to 17.3% for the third quarter of fiscal 1999, and decreased from 17.2% in the
first nine months of fiscal 1998 to 17.1% for the third quarter of fiscal 1999.
The increase in the dollar amount spent is primarily attributable to the
increase in staffing as a result of the Company's regional business units
becoming fully operational and the increased selling, general and administrative
expenses attributable to acquired companies. Expenses related to the
government's investigation into the TVA billing matter decreased from $98,000
for the third quarter of fiscal 1998 to zero for the third quarter of fiscal
1999, and also decreased from $235,000 for the first nine months of fiscal 1998
to $92,000 for the comparable period for 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 has
recorded a one-time severance expense of approximately $800,000 in the fiscal
quarter ended October 31, 1998, with non-compete payments to such former officer
(aggregating $980,000) being amortized ratably over three years.
Interest expense increased from $622,000 in the third quarter of fiscal 1998 to
$1.4 million in the third quarter of fiscal 1999. Interest expense also
increased from $1.1 million for the first nine months of fiscal 1998 to $3.5
million for the comparable period for 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 financing
of equipment associated with new outsourcing contracts. Other expenses, net,
which primarily consists of the amortization of goodwill in connection with the
Company's recent acquisitions, increased from $164,000 for the third quarter of
fiscal 1998 to $365,000 for the third quarter of fiscal 1999, and also increased
from $253,000 for the first nine months
8
<PAGE> 9
of fiscal 1998 to $1.1 million for the comparable period for fiscal 1999, which
amount reflects the full impact of goodwill amortization associated with the
additional earn-out 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 $5,100,000 for the nine months ended January 31, 1999, as
compared to $10,200,000 in the comparable period for fiscal 1998. The cash
provided by operations decreased during this period primarily because of an
increase in receivables and payment of expenses associated with the resignation
of a former officer of the Company. The increase in receivables is due to
increased sales and the Company funding certain significant projects with the
balance due upon completion. The Company had collected about half of its
receivables related to these projects by January 31, 1999 and collected the
remaining $4.0 million by February 28, 1999.
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 January 31, 1999, borrowings under the Credit Facility bore
interest at a rate of 6.60%. At January 31, 1999, the Company had approximately
$2.3 million available for borrowing under the Credit Facility. In accordance
with the terms of the Credit Facility, the maximum amount available under the
revolver was reduced to $28.8 million on February 1, 1999.
The Company's working capital increased from $14,023,000 as of January 31, 1998
to $19,457,000 as of January 31, 1999, primarily due to increased accounts
receivable. The Company's current ratio at January 31, 1999 was 1.84:1.
The Company made capital expenditures during the first nine months of fiscal
1999 of $16.3 million. Such capital expenditures related primarily to the
purchase of computer equipment for new outsourcing contracts for The Partners
Group.
Management believes that projected cash flows from operations will be sufficient
to enable the Company to fund its payment of $1.6 million in connection with the
proposed settlement of the TVA billing matter in the first quarter of fiscal
2000, fund capital expenditures of approximately $250,000 during the remainder
of fiscal 1999 and 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.
9
<PAGE> 10
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 the Company's business includes the assessment of clients' Y2K problems
and the recommendation and implementation of solutions to such problems, the
Company has long been aware of the potential adverse effects on a company if its
systems are not Y2K compliant. The Company has also made an assessment of its
computer systems and applications and believes its systems are Y2K compliant.
Accordingly, the Company does not expect to incur significant costs in order to
remedy Y2K problems of its own systems, if any, and does not believe that Y2K
problems associated with its own systems will have a material adverse effect on
the Company'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 information technology ("IT") employees; the Company's potential
liability to clients in connection with the provision of IT services,
particularly Y2K 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
10
<PAGE> 11
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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not Applicable
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
has agreed to pay $1,000,000 to the United States government and $600,000 to
the TVA in settlement of all claims against it. The Company anticipates that a
definitive agreement will be reached by mid-1999. A former officer of the
Company has pleaded guilty to a single felony count of submitting a false
claim of less than $10,000. 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.
Effective November 3, 1998, the Company's Amended and Restated Charter was
amended to increase the authorized shares of common stock from 50,000,000 to
100,000,000. The additional authorized shares of common stock may be issued by
the Board of Directors, at their discretion and without shareholder approval,
except as may be required by law or the rules of The Nasdaq Stock Market.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On November 3, 1998, the Company held its 1998 Annual Meeting of Shareholders.
At the Annual Meeting, the shareholders of the Company elected the following
persons to serve as directors for a term of one year and until their
successors are duly elected and qualified with the number of votes cast for or
withheld as set forth opposite their names:
<TABLE>
<CAPTION>
VOTES
-------------------------------------------------
FOR WITHHOLD AUTHORITY
-------------------------------------------------
<S> <C> <C>
T. Scott Cobb 20,502,924 164,916
Ben C. Bryant, Jr. 20,499,734 168,106
James E. Harwood 20,500,272 167,568
Joseph W. McLeary 20,500,947 166,893
</TABLE>
11
<PAGE> 12
The shareholders of the Company also voted to amend the Company's charter to
increase the number of authorized shares of Common Stock of the Company from
50,000,000 to 100,000,000 with the following number of votes cast for, against
or abstaining:
VOTES
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
- --------------------------------------------------------------------------------
20,425,277 234,307 8,256
- --------------------------------------------------------------------------------
The shareholders of the Company also voted to amend the Company's 1997 Stock
Incentive Plan to increase the number of shares of Common Stock available for
issuance thereunder to 3,000,000 with the following votes cast for, against or
abstaining:
VOTES
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
- --------------------------------------------------------------------------------
16,053,061 2,300,104 67,104
- --------------------------------------------------------------------------------
The shareholders of the Company also voted on the ratification of Ernst &
Young LLP as the independent public accountants of the Company for fiscal 1999
with the following number of votes cast for, against or abstaining:
VOTES
- --------------------------------------------------------------------------------
FOR AGAINST ABSTAIN
- --------------------------------------------------------------------------------
20,654,438 4,850 8,552
- --------------------------------------------------------------------------------
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) See Index to Exhibits following the Signature page.
(b) The Company filed no Current Reports on Form 8-K during the quarter ended
January 31, 1999.
12
<PAGE> 13
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
--------------------------------------
Name: Gary E. McCarter
------------------------------------
Title: Chief Financial Officer
-----------------------------------
Date: March 15, 1999
------------------------------------
13
<PAGE> 14
Index to Exhibits
<TABLE>
<CAPTION>
Item Description
- ---- -----------
<S> <C>
10.1 Employment Agreement of Ben C. Bryant, Jr. dated as of November 1, 1998.
10.2 Employment Agreement of T. Scott Cobb dated as of November 1, 1998.
27 Financial Data Schedule (for the SEC use only).
</TABLE>
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<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into to be effective as of
the 1st day of November, 1998, by and between SCB Computer Technology, Inc., a
Tennessee corporation (the "Company"), and Ben C. Bryant, Jr. (the "Executive").
WHEREAS, the Executive is currently employed by the Company
pursuant to the terms of an Employment Agreement dated February 14, 1996, and
the Company and the Executive desire to continue that employment relationship
and to set forth in an agreement the terms and conditions of such employment.
NOW, THEREFORE, in consideration of the premises hereof and of
the mutual promises and agreements contained herein, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. Employment and Term of Employment. The Company hereby
agrees to employ the Executive, and the Executive hereby agrees to serve the
Company, on the terms and conditions set forth herein for the period commencing
as of the date set forth above and expiring on October 31, 2001, provided that
unless either party gives written notice to the contrary at least 30 days prior
to the second anniversary of this Agreement or any anniversary thereafter, the
term shall be extended for an additional year and on each anniversary thereafter
so that the remaining term shall always be, unless such written notice is given,
two years from such anniversary (the "Expiration Date"). Notwithstanding the
foregoing, in no event shall the term of Executive's employment hereunder extend
beyond the calendar year in which the Executive's 70th birthday occurs.
2. Positions and Duties. The Executive shall serve, in name
and in fact, as Vice Chairman, Chief Executive Officer, President and Treasurer
of the Company and shall have such powers and duties as are customarily
associated with such positions. The Executive shall devote substantially all his
working time and efforts to the business and affairs of the Company, shall use
his best efforts to advance the best interests of the Company, and shall not
engage in outside business activities which interfere with the performance of
his duties hereunder.
3. Compensation.
a. Base Salary. The Executive shall receive a base salary
at the rate of $425,000 per annum during the first year of this Agreement,
$600,000 per annum during the second year of this Agreement and $700,000 per
annum during the third year of this Agreement and any subsequent year (as
adjusted, the "Base Salary"), payable in substantially equal periodic payments,
which shall be made no less frequently than monthly during the period of the
Executive's employment hereunder.
b. Incentive Compensation. In addition to Base Salary, the
Executive shall be entitled to receive incentive compensation as determined in
accordance with the bonus plan authorized by the Compensation Committee of the
Board of Directors (the "Incentive Compensation").
<PAGE> 2
c. Stock Options. Concurrently herewith, the Company shall
execute and deliver to the Executive a Stock Option Agreement, in substantially
the form attached hereto as Exhibit A, pursuant to which Executive shall be
granted options to purchase 35,211 shares of common stock of the Company
pursuant to the Company's 1997 Stock Incentive Plan. In addition, the Executive
shall be entitled to receive stock options and other stock-based awards as the
Board of Directors or the Compensation Committee thereof may from time to time
determine.
d. Expenses. During the term of his employment hereunder,
the Executive shall be entitled to be reimbursed (in accordance with the
policies and procedures established by the Board of Directors for Company
officers) for all reasonable expenses incurred by him in performing services
hereunder, provided that the Executive properly accounts therefor in accordance
with Company policy.
e. Participation in Benefit Plans. The Executive shall be
entitled to participate in or receive benefits under all the Company's employee
benefit plans and arrangements in effect on the date hereof or made available in
the future to the officers and key management employees of the Company.
f. Car Allowance. During the term of the Executive's
employment hereunder, the Company shall lease an automobile selected by the
Executive, provided that the Executive's lease expenses shall not exceed $750.00
per month.
g. Vacation. During the term of his employment hereunder,
the Executive shall be entitled to four weeks of paid vacation per year.
4. Offices. In addition to serving as Vice Chairman, Chief
Executive Officer, President and Treasurer of the Company, the Executive agrees
to serve without additional compensation, if elected or appointed thereto, in
one or more offices or as a director of any of the Company's subsidiaries or
affiliates.
5. Termination.
a. Disability. If, as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall have been
absent from his duties hereunder on a full time basis for ninety (90)
consecutive days, the Company may terminate its obligations hereunder, except
for those obligations provided for in Section 6(a) hereof. The determination of
whether the Executive is disabled due to physical or mental illness shall be
made by a licensed physician satisfactory to the Executive and to the Company.
b. Termination Upon Death. If the Executive should die
during the term of this Agreement, the Company's obligations under this
Agreement shall cease, except for those obligations set forth in Section 6(a)
hereof, and the Executive's employment shall be terminated.
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c. Termination by the Company. The Company may terminate
the Executive's employment hereunder at any time for Cause or for any other
reason. For the purposes of this Agreement, "Cause" shall mean any act that is
materially inimical to the best interests of the Company and that constitutes on
the part of the Executive personal dishonesty, willful misconduct, breach of
fiduciary duty, intentional failure to perform stated duties of the Vice
Chairman, Chief Executive Officer, President and Treasurer of the Company,
willful violation of any law, governmental rule or regulation (other than
traffic violations or similar offenses) or final cease and desist order, or
material breach of this Agreement.
d. Termination by the Executive. The Executive may
terminate his employment hereunder upon 60 days written notice for any reason.
e. Notice of Termination. Any termination by the Company
or by the Executive pursuant to this Section 5 shall be communicated by written
notice of termination to the other party hereto.
6. Compensation Upon Termination or During Disability.
a. If the Executive's employment is terminated as a result
of disability under Section 5(a), the Executive shall receive an amount which,
when added to any disability benefits provided for by the Company, equals his
Base Salary until the Expiration Date. If the Executive's employment shall be
terminated because of the Executive's death, the Company shall pay to the
Executive's estate, in a single lump sum, an amount equal to the Base Salary
payable through the Expiration Date.
b. If the Executive's employment shall be terminated for
Cause or if the Executive voluntarily terminates his employment for any reason,
subject to the provisions of Section 7 hereof, the Company shall pay the
Executive his Base Salary earned through the date on which his employment is
terminated. The Company shall then have no further obligations to the Executive
under this Agreement.
c. Subject to Section 7 hereof, if the Company shall
terminate the Executive's employment under this Agreement for any reason other
than pursuant to Section 5(a) or for Cause pursuant to Section 5(c) hereof,
then, subject to the compliance by the Executive with the provisions of Sections
9 and 10 hereof, the Company shall pay the Executive, as liquidated damages or
severance or both, his Base Salary payable in substantially equal periodic
payments no less frequently than monthly for a period ending on the Expiration
Date.
7. Change in Control.
a. In the event a Change in Control (as defined below)
occurs during the term of this Agreement and the Executive is terminated by the
Company or if the Executive gives notice of termination prior to the first to
occur of the first anniversary of the Change in Control or the Expiration Date,
Executive shall be entitled to payment and benefits as set forth in subsections
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<PAGE> 4
(b) and (c) below unless such termination is a result of (i) the Executive's
death; (ii) the Executive's disability; (iii) the Executive's retirement; (iv)
termination of the Executive by the Company for Cause; or (v) the Executive's
decision to terminate employment other than for Good Reason (as defined below).
b. If the Company terminates the Executive's employment
following a Change in Control other than pursuant to Section 7(a) or if the
Executive shall terminate his employment following a Change in Control for Good
Reason, then the Company shall pay to the Executive as severance pay, in cash,
on the fifth day following termination, $2,000,000.00; provided that if such
severance payment, either alone or together with other payments which the
Executive has the right to receive from the Company, would constitute a
"parachute payment" (as defined in Section 280G of the Internal Revenue Code of
1986, as amended (the "Code")), and subject the Executive to excise taxes
imposed by Section 4999 of the Code, the Executive will be entitled to an
additional payment such that the aggregate amount of the severance payment and
gross-up payment shall be equal to $2,000,000.00, after deduction for the excise
tax on the severance payment and any federal, state, and local income taxes and
excise tax on the gross-up payment.
c. In addition to the severance payment provided in Section
7(b), if the Company terminates the Executive's employment following a Change in
Control other than pursuant to Section 7(a) or if the Executive shall terminate
his employment following a Change in Control for Good Reason, then the Company
shall provide the Executive with health insurance substantially equivalent to
that provided to the Executive immediately prior to termination until the
Executive is eligible to receive coverage under any federal or state health care
program, including Medicare, or is covered or permitted to be covered by benefit
plans of another employer providing substantially similar coverage.
Notwithstanding the foregoing, if Executive is eligible to receive coverage
under any federal or state health care program, including Medicare, the Company
shall provide Executive with Medigap insurance coverage or a similar
supplemental health insurance policy.
d. As used herein, a "Change in Control" means the
happening of any of the following:
(i) any person or entity, including a "group" as defined
in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended, other than the Company or a wholly-owned subsidiary thereof,
any employee benefit plan of the Company or any of its subsidiaries,
Executive, or T. Scott Cobb, becomes the beneficial owner of the
Company's securities having 35% or more of the combined voting power
of the then outstanding securities of the Company that may be cast for
the election of directors of the Company (other than as a result of an
issuance of securities initiated by the Company in the ordinary course
of business); or
(ii) as the result of, or in connection with, any cash
tender or exchange offer, merger or other business combination, sales
of assets or contested election, or any combination of the foregoing
transactions, less than a majority of the combined voting power of the
then outstanding securities of the Company or any successor
corporation or
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<PAGE> 5
entity entitled to vote generally in the election of the directors of
the Company or such other corporation or entity after such transaction
are held in the aggregate by the holders of the Company's securities
entitled to vote generally in the election of directors of the Company
immediately prior to such transaction; or
(iii) during any period of two consecutive years,
individuals who at the beginning of any such period constitute the
Board of Directors of the Company cease for any reason to constitute
at least a majority thereof, unless the election, or the nomination
for election by the Company's shareholders, of each director of the
Company's first elected during such period was approved by a vote of
at least two-thirds of the directors of the Company then still in
office who were directors of the Company at the beginning of any such
period.
e. For purposes of this Agreement "Good Reason" shall mean
any of the following (without the Executive's express written consent):
(i) the assignment to the Executive by the Company of
duties inconsistent with the Executive's position, duties,
responsibilities and status with the Company immediately prior to a
Change in Control of the Company, or a change in the Executive's
titles or offices as in effect immediately prior to a Change in
Control of the Company, or any removal of the Executive from or any
failure to reelect the Executive to any of such positions, except in
connection with the termination of his employment for disability,
retirement or Cause or as a result of the Executive's death or by the
Executive other than for Good Reason;
(ii) a reduction by the Company in the Executive's Base
Salary as in effect on the date hereof or as the same may be increased
from time to time during the term of this Agreement;
(iii) a relocation of the Company's principal executive
offices to a location outside of Memphis, Tennessee, or the
Executive's relocation to any place other than the location at which
the Executive performed the Executive's duties prior to a Change in
Control of the Company, except for required travel by the Executive on
the Company's business to an extent substantially consistent with the
Executive's business travel obligations at the time of a Change in
Control of the Company;
(iv) any material breach by the Company of any provision
of this Agreement; or
(v) any failure by the Company to obtain the assumption
of this Agreement by any successor or assign of the Company.
8. Binding Agreement. This Agreement and all obligations of
the Company hereunder shall be binding upon the successors and assigns of the
Company. This Agreement and
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all rights of the Executive hereunder shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees, and legatees.
9. Non-Competition; Nonsolicitation. Executive will not, for a
period equal to the longer of (i) one year from the date of termination of
employment or (ii) October 31, 2001:
(a) own or have a proprietary or equity interest in, be
employed by, or serve as a consultant or advisor to, or in any other
capacity for, any business or firm, that is engaged in the information
technology services business; provided, however, that beneficial
ownership by executive of less than 5% of the outstanding capital stock
of a publicly-held corporation will not violate this provision.
"Information technology services business" shall include, without
limitation: (i) advising persons on the acquisition or strategic
utilization of information technology systems, planning and designing
new information technology systems, and redesigning existing
information technology systems; (ii) providing network design and
management, systems support and maintenance, programming and
application software development, computer code review, data center
management, and information technology outsourcing services; and (iii)
recruiting or training persons with information technology skills;
Company will be entitled to extend noncompete for one additional year
upon payment to executive of lump sum cash payment equal to base salary
at time of termination.
(b) recruit or hire or solicit for business any person who,
during the twelve month period preceding the date of recruitment or
hiring or solicitation, was an employee, customer, or client of the
Company or any of its subsidiaries or affiliates.
10. Unauthorized Disclosure.
(a) During the period of his employment hereunder, the
Executive shall not, without the prior written consent of the Board of
Directors, disclose to any person, other than a person to whom disclosure is
necessary or appropriate in connection with the performance by the Executive of
his duties as an officer of the Company, or its subsidiaries or affiliates, any
confidential information obtained by him while in the employ of the Company with
respect to any of the Company's products, improvements, designs or styles,
methodologies, processes, customers, methods of marketing or distribution,
systems, procedures, plans, proposals, or policies the disclosure of which he
knows, or should have reason to know, could be damaging to the Company or its
subsidiaries or affiliates; provided, however, that confidential information
shall not include any information known generally to the public (other than as a
result of unauthorized disclosure by the Executive) or any information of a type
not otherwise considered confidential by persons engaged in the same business or
a business similar to that conducted by the Company. Following the termination
of employment hereunder, the Executive shall not disclose any confidential
information of the type described above except as may be required in the opinion
of the Executive's counsel in connection with any judicial or administrative
proceeding or inquiry.
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(b) The foregoing provision of this Section 10 shall be
binding upon the Executive's heirs, successors, and legal representatives.
11. Injunction. The Executive acknowledges and agrees that, in
the event of a breach of Section 9 or Section 10 hereof by the Executive, the
Company would be irreparably harmed and that monetary damages would be an
inadequate remedy in favor of the Company. Accordingly, the Executive and the
Company agree that in the event of such a breach, the Company shall be entitled
to injunctive relief against the Executive.
12. Notice. For the purposes of this Agreement, notices and
all other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
Ben C. Bryant, Jr.
1365 West Brierbrook Road
Memphis, Tennessee 38138
If to the Company:
SCB Computer Technology, Inc.
1365 West Brierbrook Road
Memphis, Tennessee 38138
Attn: Corporate Secretary
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
13. Withholding of Taxes. The Company may withhold from any
amounts payable under this Agreement all federal, state, city, and other taxes
as shall be required pursuant to any law or government regulation or ruling.
14. Enforcement of Agreement. The Company shall pay or
reimburse the Executive for all costs and expenses (including court costs and
reasonable attorney's fees) incurred by the Executive in connection with any
litigation seeking to enforce the Executive's rights under this Agreement,
provided that the Executive is substantially successful in such litigation.
15. Governing Law. This Agreement shall be construed according
to the laws of Tennessee, without giving effect to the principles of conflicts
of laws of such State.
16. Amendment; Modification; Waiver. This Agreement may be
amended only by the written agreement of the parties hereto. No provisions of
this Agreement may be modified,
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<PAGE> 8
waived, or discharged unless such waiver, modification, or discharge is agreed
to in writing signed by Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto or compliance with
any condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time.
17. Binding Effect.
a. This Agreement is personal in nature and neither of the
parties hereto shall, without the consent of the other, assign, transfer, or
delegate this Agreement or any rights or obligations hereunder except as
expressly provided for herein. Without limiting the generality of the foregoing,
Executive's right to receive payments hereunder shall not be assignable,
transferable, or delegable, whether by pledge, creation of a security interest
or otherwise, other than by a transfer by his will or by the laws of descent and
distribution and, in the event of any attempted assignment or transfer contrary
to this paragraph, the Company shall have no liability to pay any amount so
attempted to be assigned, transferred, or delegated.
b. The Company and Executive recognize that each party
will have no adequate remedy at law for breach by the other of any of the
agreements contained herein and, in the event of any such breach, the Company
and Executive hereby agree and consent that the other shall be entitled to a
decree of specific performance, mandamus, or other appropriate remedy to enforce
performance of this Agreement.
18. Entire Contract. This Agreement constitutes the entire
agreement and supersedes all other prior and contemporaneous agreements,
employment contracts and understandings, both written and oral, express or
implied with respect to the subject matter of this Agreement, including the
Employment Agreement dated February 14, 1996 between the Executive and the
Company.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
SCB COMPUTER TECHNOLOGY, INC.
By:
---------------------------------------
------------------------------------------
Ben C. Bryant, Jr.
8
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into to be effective as of
the 1st day of November, 1998, by and between SCB Computer Technology, Inc., a
Tennessee corporation (the "Company"), and T. Scott Cobb (the "Executive").
WHEREAS, the Executive is currently employed by the Company
pursuant to the terms of an Employment Agreement dated February 14, 1996, and
the Company and the Executive desire to continue that employment relationship
and to set forth in an agreement the terms and conditions of such employment.
NOW, THEREFORE, in consideration of the premises hereof and of
the mutual promises and agreements contained herein, the parties hereto,
intending to be legally bound, hereby agree as follows:
1. Employment and Term of Employment. The Company hereby
agrees to employ the Executive, and the Executive hereby agrees to serve the
Company, on the terms and conditions set forth herein for the period commencing
as of the date set forth above and expiring on October 31, 2001, provided that
unless either party gives written notice to the contrary at least 30 days prior
to the second anniversary of this Agreement or any anniversary thereafter, the
term shall be extended for an additional year and on each anniversary thereafter
so that the remaining term shall always be, unless such written notice is given,
two years from such anniversary (the "Expiration Date"). Notwithstanding the
foregoing, in no event shall the term of Executive's employment hereunder extend
beyond the calendar year in which the Executive's 70th birthday occurs.
2. Positions and Duties. The Executive shall serve, in name
and in fact, as Chairman of the Board of Directors of the Company and shall have
such powers and duties as are customarily associated with such position. The
Executive shall devote substantially all his working time and efforts to the
business and affairs of the Company, shall use his best efforts to advance the
best interests of the Company, and shall not engage in outside business
activities which interfere with the performance of his duties hereunder.
3. Compensation.
a. Base Salary. The Executive shall receive a base salary
at the rate of $425,000 per annum during the first year of this Agreement,
$600,000 per annum during the second year of this Agreement and $700,000 per
annum during the third year of this Agreement and any subsequent year (as
adjusted, the "Base Salary"), payable in substantially equal periodic payments,
which shall be made no less frequently than monthly during the period of the
Executive's employment hereunder.
b. Incentive Compensation. In addition to Base Salary, the
Executive shall be entitled to receive incentive compensation as determined in
accordance with the bonus plan authorized by the Compensation Committee of the
Board of Directors (the "Incentive Compensation").
<PAGE> 2
c. Stock Options. Concurrently herewith, the Company shall
execute and deliver to the Executive a Stock Option Agreement, in substantially
the form attached hereto as Exhibit A, pursuant to which Executive shall be
granted options to purchase 35,211 shares of common stock of the Company
pursuant to the Company's 1997 Stock Incentive Plan. In addition, the Executive
shall be entitled to receive stock options and other stock-based awards as the
Board of Directors or the Compensation Committee thereof may from time to time
determine.
d. Expenses. During the term of his employment hereunder,
the Executive shall be entitled to be reimbursed (in accordance with the
policies and procedures established by the Board of Directors for Company
officers) for all reasonable expenses incurred by him in performing services
hereunder, provided that the Executive properly accounts therefor in accordance
with Company policy.
e. Participation in Benefit Plans. The Executive shall be
entitled to participate in or receive benefits under all the Company's employee
benefit plans and arrangements in effect on the date hereof or made available in
the future to the officers and key management employees of the Company.
f. Car Allowance. During the term of the Executive's
employment hereunder, the Company shall lease an automobile selected by the
Executive, provided that the Executive's lease expenses shall not exceed $750.00
per month.
g. Vacation. During the term of his employment hereunder,
the Executive shall be entitled to four weeks of paid vacation per year.
4. Offices. In addition to serving as Chairman of the Company,
the Executive agrees to serve without additional compensation, if elected or
appointed thereto, in one or more offices or as a director of any of the
Company's subsidiaries or affiliates.
5. Termination.
a. Disability. If, as a result of the Executive's
incapacity due to physical or mental illness, the Executive shall have been
absent from his duties hereunder on a full time basis for ninety (90)
consecutive days, the Company may terminate its obligations hereunder, except
for those obligations provided for in Section 6(a) hereof. The determination of
whether the Executive is disabled due to physical or mental illness shall be
made by a licensed physician satisfactory to the Executive and to the Company.
b. Termination Upon Death. If the Executive should die
during the term of this Agreement, the Company's obligations under this
Agreement shall cease, except for those obligations set forth in Section 6(a)
hereof, and the Executive's employment shall be terminated.
c. Termination by the Company. The Company may
terminate the Executive's employment hereunder at any time for Cause or for any
other reason. For the purposes
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<PAGE> 3
of this Agreement, "Cause" shall mean any act that is materially inimical to the
best interests of the Company and that constitutes on the part of the Executive
personal dishonesty, willful misconduct, breach of fiduciary duty, intentional
failure to perform stated duties of the Chairman of the Board of the Company,
willful violation of any law, governmental rule or regulation (other than
traffic violations or similar offenses) or final cease and desist order, or
material breach of this Agreement.
d. Termination by the Executive. The Executive may
terminate his employment hereunder upon 60 days written notice for any reason.
e. Notice of Termination. Any termination by the Company or
by the Executive pursuant to this Section 5 shall be communicated by written
notice of termination to the other party hereto.
6. Compensation Upon Termination or During Disability.
a. If the Executive's employment is terminated as a result
of disability under Section 5(a), the Executive shall receive an amount which,
when added to any disability benefits provided for by the Company, equals his
Base Salary until the Expiration Date. If the Executive's employment shall be
terminated because of the Executive's death, the Company shall pay to the
Executive's estate, in a single lump sum, an amount equal to the Base Salary
payable through the Expiration Date.
b. If the Executive's employment shall be terminated for
Cause or if the Executive voluntarily terminates his employment for any reason,
subject to the provisions of Section 7 hereof, the Company shall pay the
Executive his Base Salary earned through the date on which his employment is
terminated. The Company shall then have no further obligations to the Executive
under this Agreement.
c. Subject to Section 7 hereof, if the Company shall
terminate the Executive's employment under this Agreement for any reason other
than pursuant to Section 5(a) or for Cause pursuant to Section 5(c) hereof,
then, subject to the compliance by the Executive with the provisions of Sections
9 and 10 hereof, the Company shall pay the Executive, as liquidated damages or
severance or both, his Base Salary payable in substantially equal periodic
payments no less frequently than monthly for a period ending on the Expiration
Date.
7. Change in Control.
a. In the event a Change in Control (as defined below)
occurs during the term of this Agreement and the Executive is terminated by the
Company or if the Executive gives notice of termination prior to the first to
occur of the first anniversary of the Change in Control or the Expiration Date,
Executive shall be entitled to payment and benefits as set forth in subsections
(b) and (c) below unless such termination is a result of (i) the Executive's
death; (ii) the Executive's disability; (iii) the Executive's retirement; (iv)
termination of the Executive by the Company for
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Cause; or (v) the Executive's decision to terminate employment other than for
Good Reason (as defined below).
b. If the Company terminates the Executive's employment
following a Change in Control other than pursuant to Section 7(a) or if the
Executive shall terminate his employment following a Change in Control for Good
Reason, then the Company shall pay to the Executive as severance pay, in cash,
on the fifth day following termination, $2,000,000.00; provided that if such
severance payment, either alone or together with other payments which the
Executive has the right to receive from the Company, would constitute a
"parachute payment" (as defined in Section 280G of the Internal Revenue Code of
1986, as amended (the "Code")), and subject the Executive to excise taxes
imposed by Section 4999 of the Code, the Executive will be entitled to an
additional payment such that the aggregate amount of the severance payment and
gross-up payment shall be equal to $2,000,000.00, after deduction for the excise
tax on the severance payment and any federal, state, and local income taxes and
excise tax on the gross-up payment.
c. In addition to the severance payment provided in
Section 7(b), if the Company terminates the Executive's employment following a
Change in Control other than pursuant to Section 7(a) or if the Executive shall
terminate his employment following a Change in Control for Good Reason, then the
Company shall provide the Executive with health insurance substantially
equivalent to that provided to the Executive immediately prior to termination
until the Executive is eligible to receive coverage under any federal or state
health care program, including Medicare, or is covered or permitted to be
covered by benefit plans of another employer providing substantially similar
coverage. Notwithstanding the foregoing, if Executive is eligible to receive
coverage under any federal or state health care program, including Medicare, the
Company shall provide Executive with Medigap insurance coverage or a similar
supplemental health insurance policy.
d. As used herein, a "Change in Control" means the
happening of any of the following:
(i) any person or entity, including a "group" as defined
in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended, other than the Company or a wholly-owned subsidiary thereof,
any employee benefit plan of the Company or any of its subsidiaries,
Ben C. Bryant, Jr., or Executive, becomes the beneficial owner of the
Company's securities having 35% or more of the combined voting power
of the then outstanding securities of the Company that may be cast for
the election of directors of the Company (other than as a result of an
issuance of securities initiated by the Company in the ordinary course
of business); or
(ii) as the result of, or in connection with, any cash
tender or exchange offer, merger or other business combination, sales
of assets or contested election, or any combination of the foregoing
transactions, less than a majority of the combined voting power of the
then outstanding securities of the Company or any successor
corporation or entity entitled to vote generally in the election of
the directors of the Company or such other corporation or entity after
such transaction are held in the aggregate by the holders of the
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Company's securities entitled to vote generally in the election of
directors of the Company immediately prior to such transaction; or
(iii) during any period of two consecutive years,
individuals who at the beginning of any such period constitute the
Board of Directors of the Company cease for any reason to constitute
at least a majority thereof, unless the election, or the nomination
for election by the Company's shareholders, of each director of the
Company's first elected during such period was approved by a vote of
at least two-thirds of the directors of the Company then still in
office who were directors of the Company at the beginning of any such
period.
e. For purposes of this Agreement "Good Reason" shall mean
any of the following (without the Executive's express written consent):
(i) the assignment to the Executive by the Company of
duties inconsistent with the Executive's position, duties,
responsibilities and status with the Company immediately prior to a
Change in Control of the Company, or a change in the Executive's
titles or offices as in effect immediately prior to a Change in
Control of the Company, or any removal of the Executive from or any
failure to reelect the Executive to any of such positions, except in
connection with the termination of his employment for disability,
retirement or Cause or as a result of the Executive's death or by the
Executive other than for Good Reason;
(ii) a reduction by the Company in the Executive's Base
Salary as in effect on the date hereof or as the same may be increased
from time to time during the term of this Agreement;
(iii) a relocation of the Company's principal executive
offices to a location outside of Memphis, Tennessee, or the
Executive's relocation to any place other than the location at which
the Executive performed the Executive's duties prior to a Change in
Control of the Company, except for required travel by the Executive on
the Company's business to an extent substantially consistent with the
Executive's business travel obligations at the time of a Change in
Control of the Company;
(iv) any material breach by the Company of any provision
of this Agreement; or
(v) any failure by the Company to obtain the assumption
of this Agreement by any successor or assign of the Company.
8. Binding Agreement. This Agreement and all obligations of
the Company hereunder shall be binding upon the successors and assigns of the
Company. This Agreement and all rights of the Executive hereunder shall inure to
the benefit of and be enforceable by the
5
<PAGE> 6
Executive's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees, and legatees.
9. Non-Competition; Nonsolicitation. Executive will not, for a
period equal to the longer of (i) one year from the date of termination of
employment or (ii) October 31, 2001:
(a) own or have a proprietary or equity interest in, be
employed by, or serve as a consultant or advisor to, or in any other
capacity for, any business or firm, that is engaged in the information
technology services business; provided, however, that beneficial
ownership by executive of less than 5% of the outstanding capital stock
of a publicly-held corporation will not violate this provision.
"Information technology services business" shall include, without
limitation: (i) advising persons on the acquisition or strategic
utilization of information technology systems, planning and designing
new information technology systems, and redesigning existing
information technology systems; (ii) providing network design and
management, systems support and maintenance, programming and
application software development, computer code review, data center
management, and information technology outsourcing services; and (iii)
recruiting or training persons with information technology skills;
Company will be entitled to extend noncompete for one additional year
upon payment to executive of lump sum cash payment equal to base salary
at time of termination.
(b) recruit or hire or solicit for business any person who,
during the twelve month period preceding the date of recruitment or
hiring or solicitation, was an employee, customer, or client of the
Company or any of its subsidiaries or affiliates.
10. Unauthorized Disclosure.
(a) During the period of his employment hereunder, the
Executive shall not, without the prior written consent of the Board of
Directors, disclose to any person, other than a person to whom disclosure is
necessary or appropriate in connection with the performance by the Executive of
his duties as an officer of the Company, or its subsidiaries or affiliates, any
confidential information obtained by him while in the employ of the Company with
respect to any of the Company's products, improvements, designs or styles,
methodologies, processes, customers, methods of marketing or distribution,
systems, procedures, plans, proposals, or policies the disclosure of which he
knows, or should have reason to know, could be damaging to the Company or its
subsidiaries or affiliates; provided, however, that confidential information
shall not include any information known generally to the public (other than as a
result of unauthorized disclosure by the Executive) or any information of a type
not otherwise considered confidential by persons engaged in the same business or
a business similar to that conducted by the Company. Following the termination
of employment hereunder, the Executive shall not disclose any confidential
information of the type described above except as may be required in the opinion
of the Executive's counsel in connection with any judicial or administrative
proceeding or inquiry.
6
<PAGE> 7
(b) The foregoing provision of this Section 10 shall be
binding upon the Executive's heirs, successors, and legal representatives.
11. Injunction. The Executive acknowledges and agrees that, in
the event of a breach of Section 9 or Section 10 hereof by the Executive, the
Company would be irreparably harmed and that monetary damages would be an
inadequate remedy in favor of the Company. Accordingly, the Executive and the
Company agree that in the event of such a breach, the Company shall be entitled
to injunctive relief against the Executive.
12. Notice. For the purposes of this Agreement, notices and
all other communications provided for in the Agreement shall be in writing and
shall be deemed to have been duly given when delivered or mailed by United
States registered mail, return receipt requested, postage prepaid, addressed as
follows:
If to the Executive:
T. Scott Cobb
1365 West Brierbrook Road
Memphis, Tennessee 38138
If to the Company:
SCB Computer Technology, Inc.
1365 West Brierbrook Road
Memphis, Tennessee 38138
Attn: Corporate Secretary
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
13. Withholding of Taxes. The Company may withhold from any
amounts payable under this Agreement all federal, state, city, and other taxes
as shall be required pursuant to any law or government regulation or ruling.
14. Enforcement of Agreement. The Company shall pay or
reimburse the Executive for all costs and expenses (including court costs and
reasonable attorney's fees) incurred by the Executive in connection with any
litigation seeking to enforce the Executive's rights under this Agreement,
provided that the Executive is substantially successful in such litigation.
15. Governing Law. This Agreement shall be construed according
to the laws of Tennessee, without giving effect to the principles of conflicts
of laws of such State.
16. Amendment; Modification; Waiver. This Agreement may be
amended only by the written agreement of the parties hereto. No provisions of
this Agreement may be modified,
7
<PAGE> 8
waived, or discharged unless such waiver, modification, or discharge is agreed
to in writing signed by Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto or compliance with
any condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time.
17. Binding Effect.
a. This Agreement is personal in nature and neither of the
parties hereto shall, without the consent of the other, assign, transfer, or
delegate this Agreement or any rights or obligations hereunder except as
expressly provided for herein. Without limiting the generality of the foregoing,
Executive's right to receive payments hereunder shall not be assignable,
transferable, or delegable, whether by pledge, creation of a security interest
or otherwise, other than by a transfer by his will or by the laws of descent and
distribution and, in the event of any attempted assignment or transfer contrary
to this paragraph, the Company shall have no liability to pay any amount so
attempted to be assigned, transferred, or delegated.
b. The Company and Executive recognize that each party
will have no adequate remedy at law for breach by the other of any of the
agreements contained herein and, in the event of any such breach, the Company
and Executive hereby agree and consent that the other shall be entitled to a
decree of specific performance, mandamus, or other appropriate remedy to enforce
performance of this Agreement.
18. Entire Contract. This Agreement constitutes the entire
agreement and supersedes all other prior and contemporaneous agreements,
employment contracts and understandings, both written and oral, express or
implied with respect to the subject matter of this Agreement, including the
Employment Agreement dated February 14, 1996 between the Executive and the
Company.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
SCB COMPUTER TECHNOLOGY, INC.
By:
------------------------------------
---------------------------------------
T. Scott Cobb
8
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