<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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE 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)
3800 FOREST HILL-IRENE
SUITE 100
MEMPHIS, TN 38125
(Address of principal executive offices)
901-754-6577
(Registrant's telephone number, including area code)
1365 W. BRIERBROOK ROAD
MEMPHIS, TN 38138
(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 8, 2000, there were 25,044,924 outstanding shares of the
registrant's common stock.
<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)
Condensed consolidated balance sheets as of January 31, 2000 and April 30, 1999.............................3
Condensed consolidated statements of operations for the three and nine months ended January 31, 2000
and January 31, 1999........................................................................................4
Condensed consolidated statements of cash flows for the nine months ended January 31, 2000
and January 31, 1999........................................................................................5
Notes to condensed 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 3. Exhibits and Reports on Form 8-K...........................................................................11
Signature...........................................................................................................12
</TABLE>
2
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SCB COMPUTER TECHNOLOGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 1,843,134 $ 5,318,259
Accounts receivable 31,266,227 38,556,723
Other current assets 8,923,481 6,028,506
------------ ------------
Total current assets 42,032,842 49,903,488
Investment in direct financing leases 13,526,036 16,229,954
Equipment under operating leases (net) 6,791,992 4,826,291
Fixed assets:
Buildings 992,427 1,348,293
Furniture, fixtures and equipment 34,166,781 29,675,296
Accumulated depreciation (11,990,027) (6,753,640)
------------ ------------
23,169,181 24,269,949
Land 209,912 209,912
------------ ------------
23,379,093 24,479,861
Goodwill (net) 50,174,392 45,085,230
Other 3,946,008 6,322,010
------------ ------------
Total assets $139,850,363 $146,846,834
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable-trade $ 3,843,765 $ 6,763,376
Accrued expenses 6,983,587 8,513,652
Notes payable 11,974,289 0
Current portion of long term debt 10,790,000 15,307,385
Current portion - nonrecourse debt 808,035 0
Deferred revenue 1,313,775 1,244,623
------------ ------------
Total current liabilities 35,713,451 31,829,036
Long term debt 27,422,219 33,754,628
Notes payable-nonrecourse 14,585,468 16,224,198
Other long term liabilities 3,057,246 5,612,769
Shareholders' equity 59,071,979 59,426,203
------------ ------------
Total liabilities and shareholders' equity $139,850,363 $146,846,834
============ ============
</TABLE>
See accompanying notes.
3
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SCB COMPUTER TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
January 31, January 31,
--------------------------------- -------------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Revenue $ 36,859,307 $ 38,619,450 $123,931,594 $113,388,685
Cost of services 30,254,147 27,321,191 91,186,956 79,251,146
Increase in provision for contract
losses 848,751 -- 848,751 --
------------ ------------ ------------ ------------
Gross profit 5,756,409 11,298,259 31,895,887 34,137,539
Selling, general and administrative
expenses 11,419,029 6,695,036 29,735,829 19,380,755
TVA settlement and severance
payments -- -- -- 2,700,000
------------ ------------ ------------ ------------
Income (loss) from operations (5,662,620) 4,603,223 2,160,058 12,056,784
Interest expense, net 1,020,601 601,138 2,886,821 1,739,229
Other income (expense) 147,117 (364,706) 180,929 (1,067,404)
------------ ------------ ------------ ------------
Income (loss) before income taxes (6,536,104) 3,637,379 (545,834) 9,250,151
Income tax expense (benefit) (2,582,000) 1,380,204 (183,000) 3,946,390
------------ ------------ ------------ ------------
Net income (loss) $ (3,954,104) $ 2,257,175 $ (362,834) $ 5,303,761
============ ============ ============ ============
Net income (loss) per share - basic $ (0.16) $ 0.09 $ (0.01) $ 0.21
============ ============ ============ ============
Net income (loss) per
share - diluted $ (0.16) $ 0.09 $ (0.01) $ 0.21
============ ============ ============ ============
Weighted average number of common
shares - basic 24,711,924 24,683,382 24,711,807 24,672,397
============ ============ ============ ============
Weighted average number of common
shares - diluted 24,711,924 24,918,710 24,711,807 24,953,534
============ ============ ============ ============
</TABLE>
4
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SCB COMPUTER TECHNOLOGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months
Ended
January 31,
-------------------------------
2000 1999
------------ ------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) ($ 362,834) $ 5,303,761
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation included in cost of services 4,003,811 3,164,772
Depreciation included in SG&A 1,232,576 754,939
Amortization and other 1,350,130 1,175,385
Deferred income taxes (1,250,256) (79,797)
Changes in operating assets and liabilities:
Accounts receivable 7,290,496 (10,465,080)
Other assets and liabilities 1,785,574 (2,968,938)
Net investment in direct financing
lease activity 2,703,918 875,342
Accounts payable (2,919,611) (170,284)
Accrued expenses and other (2,140,986) 2,700,040
Accrued TVA settlement (1,658,516) 1,719,077
------------ ------------
Net cash provided by operating activities 10,034,302 2,009,217
------------ ------------
INVESTING ACTIVITIES
Purchases of fixed assets (6,851,320) (16,317,155)
Additional purchase price of subsidiaries -- (6,334,886)
Acquisition of business (6,600,000) --
------------ ------------
Net cash used in investing activities (13,451,320) (22,652,041)
------------ ------------
FINANCING ACTIVITIES
Borrowings on long-term debt -- 17,500,000
Payments on long-term debt (3,184,604) (3,925,027)
Proceeds of non-recourse debt 2,945,000 3,000,000
Payments on non-recourse debt (3,775,695) (4,845,707)
Net borrowings (repayments) under
line of credit (2,644,032) 8,016,333
Options exercised -- 394,341
Short-term loan 7,000,000 --
Other (398,776) (405,645)
------------ ------------
Net cash provided by (used in) financing activities (58,107) 19,734,295
------------ ------------
Net decrease in cash (3,475,125) (908,529)
Cash at beginning of period 5,318,259 2,983,372
------------ ------------
Cash at end of period $ 1,843,134 $ 2,074,843
============ ============
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
Interest paid $ 5,104,893 $ 3,457,636
Income taxes paid $ 1,673,918 $ 3,318,485
</TABLE>
See accompanying notes.
5
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SCB COMPUTER TECHNOLOGY, INC.
Notes to Condensed Consolidated Financial Statements (Unaudited)
January 31, 2000
1. Basis of Presentation
The accompanying unaudited condensed consolidated financial statements of SCB
Computer Technology, Inc. (the "Company") 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, the accompanying condensed consolidated financial
statements contain all adjustments, (which consist of normal recurring
adjustments with the exception of those adjustments described in Note 4.)
considered necessary for the fair presentation of the financial position of the
Company as of January 31, 2000, and the results of operations and cash flows for
the three and nine month periods ended January 31, 2000 and January 31, 1999.
Operating results for the periods ended January 31, 2000 are not necessarily
indicative of the results that may be expected for the fiscal year ending April
30, 2000. 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, 1999 filed with the
Securities and Exchange Commission.
2. Earnings Per Share
The following is a reconciliation of the numerators and denominators used to
calculate net income (loss) per share in the condensed consolidated
statements of operations:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
January 31, January 31,
------------------------- -------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income (loss) $(3,954,104) $ 2,257,175 $ (362,834) $ 5,303,761
=========== =========== =========== ===========
Denominator for basic earnings per
share - weighted average shares 24,711,924 24,683,382 24,711,807 24,672,397
=========== =========== =========== ===========
Assumed exercise of stock options -- 235,328 -- 281,137
----------- ----------- ----------- -----------
Denominator for diluted earnings per
share - adjusted weighted average
shares and assumed conversions 24,711,924 24,918,710 24,711,807 24,953,534
=========== =========== =========== ===========
Net income (loss) per share - basic $ (0.16) $ 0.09 $ (0.01) $ 0.21
=========== =========== =========== ===========
Net income (loss) per share - diluted $ (0.16) $ 0.09 $ (0.01) $ 0.21
=========== =========== =========== ===========
</TABLE>
6
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3. Segment Information
The Company operates in two industry segments - Professional Services and
Enterprise Solutions.
The revenue components of the Professional Services segment consist primarily
of: (1) IT Consulting, including evaluation, design and reengineering of
computer systems, management, quality assurance and technical direction for IT
projects, as well as functional expertise and training and (2) Professional
Staffing, which involves providing skilled IT staff on an as-needed basis.
The revenue components of the Enterprise Solutions segment consist primarily of:
(1) Outsourcing, including system development and integration, maintenance, data
center management, help desk and technical services, remote processing, computer
hardware sales and leasing; (2) Enterprise Resource Planning (ERP) services,
which include planning and evaluation, systems analysis and administration,
implementation and functional support; and (3) E-Services, which include
Enterprise Management Services, Internet application development and design and
implementation of communication networks.
Summarized financial information concerning the operating segments in which the
Company operated at January 31, 2000 and 1999, and for each of the three and
nine month periods then ended is shown in the following table:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
January 31, January 31,
-------------------- ----------------------
Operating Segments (In Thousands) 2000 1999 2000 1999
-------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Professional Services $ 25,457 $ 27,128 $ 84,212 $ 80,514
Enterprise Solutions 11,402 11,492 39,719 32,875
-------- --------- --------- ---------
$ 36,859 $ 38,619 $ 123,932 $ 113,389
======== ========= ========= =========
Income (loss) from operations:(a)
Professional Services $ 784 $ 4,280 $ 8,466 $ 14,294
Enterprise Solutions (2,165) 2,948 1,973 7,404
-------- --------- --------- ---------
(1,381) 7,228 10,439 21,698
Corporate (4,282) (1,848) (8,279) (5,223)
-------- --------- --------- ---------
($ 5,663) $ 5,380 $ 2,160 $ 16,475
======== ========= ========= =========
</TABLE>
(a) The income from operations for the nine months ended January 31, 1999
excludes both the nonrecurring charge related to the settlement of the TVA
matter ($1,900,000) and the one-time severance expense ($800,000) paid to a
former officer of the company.
4. Unusual Charges
During the fourth fiscal quarter of 1999, the Company completed an evaluation of
its operations related to a data center and determined that its best course of
action would be to close the facility. The data center had historically
generated revenues through data processing services for customers using legacy
systems. However, due to changes in the industry conditions and significant
increases in the pricing of software licenses used in conjunction with legacy
systems, it became obvious that the data center would continually generate
operating losses in the future without significant capital improvements.
Consequently, the Company recorded a non-cash charge of $1,800,000 for contract
loss reserves which management believed were sufficient to cover estimated
losses on the wind-down of its remaining
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contractual obligations related to the data center. Additionally, the Company
identified a non-cash impairment of the long-term assets related to the data
center as the projected future cash flows of the data center were less than the
carrying value of the assets. These assets which primarily consist of computer
equipment were written down to their fair value based on the salvage value of
the assets. As a result, an impairment loss of $3,950,000 was also recorded in
the fourth fiscal quarter of 1999.
The Company has continuously re-evaluated the remaining cost to wind-down its
obligations related to the data center. Due to the settlement of two employment
agreements and an unanticipated licensing fee payment, the Company has recorded
an additional charge of $848,751 for contract loss reserves, during the third
fiscal quarter of 2000, which management believes is sufficient to cover
estimated losses through April 30, 2000. Subsequent to April 30, 2000, the
Company will have no remaining contractual obligations relating to the data
center.
5. Subsequent Event
On March 3, 2000, the Company acquired substantially all of the assets of RAO
Consulting, Incorporated, a company in substantially the same business as the
Company, which will be accounted for during the fourth fiscal quarter of 2000,
using the purchase method of accounting. The consideration initially paid by the
Company for this acquisition was approximately $1.4 million which consisted of
cash, common stock of the Company and a note payable to the former owner.
Additional consideration of up to $900,000 could be paid within one year
contingent upon certain earnings targets.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Results of Operations
Revenue decreased from $38.6 million for the quarter ended January 31, 1999 to
$36.9 million for the quarter ended January 31, 2000, a decrease of
approximately 4.6%. This decrease was mainly attributable to lower utilization
of billable personnel during the third fiscal quarter of 2000 as a result of
clients delaying projects due to the Year 2000 issue. Revenue increased from
$113.4 million for the first nine months of fiscal 1999 to $123.9 million for
the comparable period for fiscal 2000, an increase of approximately 9.3%
attributable primarily to the expansion of the Company's client base and
increases in enterprise solution services.
Gross profit decreased from $12.1 million for the third quarter of fiscal 1999
to $5.8 million for the third quarter of fiscal 2000, a decrease of
approximately 52.3%. Gross profit decreased from $35.9 million for the first
nine months of fiscal 1999 to $31.9 million for the comparable period for fiscal
2000, a decrease of approximately 11.0%. The decrease was primarily attributable
to the decrease in revenue resulting from lower utilization and a $848,751
charge for an increase in the provision for contract losses. Gross profit margin
for the quarter decreased from 31.3% to 15.6%, and gross profit margin for the
comparable nine month periods decreased from 31.6% to 25.7%, due to the lower
utilization and aforementioned contract loss provision.
Selling, general and administrative expenses increased from $6.7 million in the
third quarter of fiscal 1999 to $11.4 million in third quarter of fiscal 2000,
an increase of 70.6%. Selling, general and administrative expenses increased
from $19.4 million for the first nine months of fiscal 1999 to $29.7
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million for the comparable period for fiscal 2000, an increase of approximately
53.4%. As a percent of revenue, selling, general and administrative expenses
increased from 17.3% in the third quarter of fiscal 1999 to 31.0% for the third
quarter of fiscal 2000, and increased from 17.1% to 24.0% for the comparable
nine month periods then ended. The increase in selling, general and
administrative expense is the result of an increase in staffing from the
Company's planned enhancement of the infrastructure in the regional business
units, the start-up costs associated with the e-solutions product line and
approximately $2.0 million in charges that were recorded during the third fiscal
quarter of 2000. These charges recorded as selling, general and administrative
expense included the write-off of software no longer in use, severance and other
employee-related costs and an increase in the allowances for direct financing
lease losses and doubtful accounts.
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 connection
with 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, a one-time severance expense of approximately $800,000 was
recorded in the fiscal quarter ended October 31, 1998, with non-compete payments
to such former officer(aggregating $980,000) being amortized ratably over future
periods.
Net interest expense increased from $0.6 million in the third quarter of fiscal
1999 to $1.0 million in the third quarter of fiscal 2000. Net interest expense
also increased from $1.7 million for the first nine months of fiscal 1999 to
$2.9 million for the comparable period for fiscal 2000. The increase was
primarily attributable to higher debt levels from acquisitions and higher
interest rates.
Management is currently evaluating the previously announced slowing in our rate
of growth (due to the completion of the Y2K efforts) on the Company's operations
and infrastructure and anticipates implementing the necessary changes identified
during this evaluation. The evaluation is focusing on balancing the cost
structure with the current revenue stream. At this time management does not
anticipate that the costs associated with this implementation will extend beyond
April 30, 2000, however, there could be some strategies that would require a one
time charge in costs associated with canceling certain employment contracts to
reflect the changes implemented.
Liquidity and Capital Resources
Operating cash flow has historically been the Company's primary source of
liquidity. The Company's net cash provided by operating activities was
approximately $10.0 million and $2.0 million for the first nine months of fiscal
2000 and 1999, respectively. The increase in cash flow was primarily
attributable to improved collections on accounts receivable.
The Company's historical capital expenditures have related primarily to the
acquisition of office buildings used as the Company's corporate headquarters.
With the acquisition of The Partners Group and the up-front purchases of
equipment relating to their outsourcing contracts, the Company expects its
capital expenditures to increase over prior periods. In the first nine months of
fiscal 2000, the Company had approximately $6.9 million in capital expenditures,
the substantial majority of which were related to purchases of equipment
associated with new outsourcing contracts, equipment to complete the Emerging
Technology Center in Phoenix, and leasehold improvements made to the new
corporate headquarters facility.
At January 31, 2000, the Company had approximately $1.8 million of available
cash and $0.1 million available for future borrowing under its credit facility.
Primarily as a result of the Company's recent acquisitions, borrowings have
become a more significant source of liquidity. The Company believes that
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its cash flows from operations and borrowings under its credit facility will be
sufficient to meet the Company's needs for at least the next twelve months.
The Company and its significant subsidiaries have a credit facility with a
commercial bank. The credit facility is comprised of a revolving line of credit
and a term loan. The revolving line of credit initially provided for borrowings
of up to $30 million, but has been reduced to $26.3 million, $26.1 of which is
outstanding, and will mature on October 1, 2000. The Company uses the borrowings
under the revolving line of credit for general corporate purposes, including
acquisitions. At January 31, 2000, there was $11.5 million outstanding under the
term loan. The repayment schedule for the term loan requires monthly principal
and interest payments of $353,845. The term loan matures on July 15, 2002. The
Company used the term loan to fund the purchase of certain equipment utilized in
an outsourcing engagement. Borrowings under the credit facility bear interest at
a rate that varies based on certain financial ratios. At January 31, 2000,
borrowings under the credit facility bore interest at the rate of 7.28% per
year.
In May 1999, the Company used a short-term loan of $7 million from this
commercial bank to fund the acquisition of Global Services, Inc. This term loan
matures on March 20, 2000, and the outstanding principal bears interest at 6.42%
at January 31, 2000. The Company expects to refinance this loan prior to its
maturity date.
The Company also has a $5 million line of credit with a bank, which bears
interest at a rate of prime less 0.55% (7.95% at January 31, 2000) and is due
upon demand. At January 31, 2000, $4,974,289 was outstanding under this line of
credit which is secured by various computer equipment.
Other Matters
The Company has completed its efforts to minimize the risk of Year 2000 ("Y2K")
related problems. The "Y2K issue" is typically the result of software being
written using two digits rather than four to define the applicable year. As
discussed in the Company's Quarterly Report on Form 10-Q for the quarter ended
October 31, 1999, the Company assessed the readiness of its computer systems and
applications and has completed any necessary adjustments that were identified.
Total expenditures for Y2K remediation have not been material. Since January 1,
2000, the Company is not aware of any customers or suppliers experiencing any
significant equipment or systems problems related to the rollover to the year
2000. Accordingly, the Company does not believe that any problems related to the
Y2K issue will have a material adverse impact on the Company's business, results
of operations or financial condition.
Forward Looking Statements
This quarterly report may be deemed to contain certain forward-looking
statements within the meaning of the federal securities laws. Forward-looking
statements are those that express management's view of future performance and
trends, and usually are preceded with "expects", "anticipates", "believes",
"hopes", "estimates", "plans" or similar phrasing. Forward-looking statements
include statements regarding projected operating revenues and costs, liquidity,
capital expenditures, and availability of capital resources as well as Y2K
readiness and potential exposure. Such statements are based on management's
beliefs, assumptions and expectations, which in turn are based on information
currently available to management. Information contained in these
forward-looking statements is inherently uncertain, and the Company's actual
performance and results may differ materially due to a number of factors, most
of which are beyond the Company's ability to predict or control, including the
Company's dependence on key clients; the Company's dependence on the
availability, recruitment, and retention of
10
<PAGE> 11
qualified IT employees; the Company's dependence on key management personnel;
the Company's potential liability to its clients in connection with the
provision of IT services, particularly Y2K services; the Company's ability to
finance, sustain, and manage growth; the Company's ability to integrate acquired
businesses; competition; and general economic conditions. The Company undertakes
no obligation to publicly release any revision to any forward-looking statement
contained herein to reflect events or circumstances occurring after the date
hereof or to reflect the occurrence of unanticipated events.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On May 5, 1999, the Company reached a final agreement with the United States
Attorney for the Western District of Tennessee and the Tennessee Valley
Authority (the "TVA") to settle on a civil basis all claims against the Company
relating to the Company's billing practices under its consulting contract with
the TVA. This matter is described in greater detail in the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended July 31, 1999, to which
reference is hereby made.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) See Exhibit Index following the Signature page.
(b) No reports on Form 8-K were filed during the fiscal quarter ended
January 31, 2000.
11
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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.
Date: March 14, 2000 By: /s/ Michael J. Boling
----------------------------------------
Title: Chief Financial Officer
-------------------------------------
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------ ----------------------
<S> <C>
2.1 Agreement and Plan of Merger dated as of September 26, 1996, among the
Company, Delta Acquisition, Inc., Delta Software Systems, Inc., and the
shareholders of Delta Software Systems, Inc. including form of
Indemnity and Escrow Agreement (incorporated herein by reference to
Exhibit 2 to the Company's Current Report on Form 8-K dated October 8,
1996). Schedules and other exhibits have been omitted from this filing.
The Company will furnish, as supplementary information, copies of the
omitted materials to the Securities and Exchange Commission (the "SEC")
upon request.
2.2 Asset Purchase Agreement dated February 28, 1997, among the Company,
TMR Acquisition, Inc., Technology Management Resources, Inc., and the
shareholders of the Technology Management Resources, Inc. (incorporated
herein by reference to Exhibit 2.2 to the Company's Registration
Statement on From S-3 (Registration No. 333-22869)). Schedules and
other exhibits have been omitted from this filing. The company will
furnish, as supplementary information, copies of the omitted materials
to the SEC upon request.
2.3 Settlement Agreement and Release dated as of December 30, 1997, among
the Company, Technology Management Resources, Inc. (a wholly owned
subsidiary of the Company), Marino Holdings, Inc. (formerly Technology
Management Resources, Inc.), Thomas R. Marshall and Thomas V. Ruffino
(incorporated herein by reference to Exhibit 2 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended January 31,
1998).
2.4 Stock Purchase Agreement dated as of June 30, 1997, among the Company
and the shareholders of Partners Capital Group, Inc. (incorporated
herein by reference to Exhibit 2.1 to the Company's Current Report on
Form 8-K dated July 24, 1997). Schedules and other exhibits have been
omitted from this filing. The Company will furnish, as supplementary
information, copies of the omitted materials to the SEC upon request.
2.5 Stock Purchase Agreement dated as of June 30, 1997, among the Company
and the shareholders of Partners Resources, Inc. (incorporated herein
by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K
dated July 24, 1997). Schedules and other exhibits have been omitted
from this filing. The Company will furnish, as supplementary
information, copies of the omitted materials to the SEC upon request.
2.6 Asset Purchase Agreement dated as of May 1, 1999, among the Company,
Partners Resources, Inc. Global Services, Inc. and the shareholders of
Global Services, Inc. (incorporated herein by reference to Exhibit 2.6
to the Company's Annual Report on Form 10-K for the fiscal year ended
April 30, 1999).
3.1 Amended and Restated Charter of the Company (incorporated herein by
reference to exhibit 3.1 to the Company's Registration Statement on
Form S-1 (Registration No. 33-80707)).
3.2 Articles of Amendment to the Amended and Restated Charter of the
Company dated November 3, 1998 (incorporated herein by reference to
Exhibit 4.2 to the Company's Registration Statement on Form S-8
(Registration No. 333-68343)).
3.3 Amended and Restated Bylaws of the Company (incorporated herein by
reference to Exhibit 3.2 to the Company's Registration Statement on
Form S-1 (Registration No. 33-80707)).
4.1 Specimen of common stock certificate (incorporated herein by reference
to Exhibit 4.1 to the Company's Registration Statement on Form S-1
(Registration No. 33-80707)).
4.2 Article 7 of the Amended and Restated Charter of the Company, as
amended (included in Exhibits 3.1 and 3.2 hereto).
10.1 SCB Computer Technology, Inc. 1995 Stock Incentive Plan (incorporated
herein by reference to Exhibit 10.2 to the Company's Registration
Statement on Form S-1 (Registration No. 33-80707)).
10.2 SCB Computer Technology, Inc. 1997 Stock Incentive Plan (incorporated
herein by reference to Appendix A to the Company's definitive Proxy
Statement dated September 25, 1998).
</TABLE>
13
<PAGE> 14
<TABLE>
<S> <C>
10.3 Employment Agreement dated as of November 1, 1998, between the Company
and T. Scott Cobb (incorporated herein by reference to Exhibit 10.2 to
the Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended January 31, 1999).
10.4 Employment Agreement dated as of November 1, 1998, between the Company
and Ben C. Bryant, Jr. (incorporated herein by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the fiscal
quarter ended January 31, 1999), as amended by First Modification of
Employment Agreement dated as of November 1, 1999, between the Company
and Ben C. Bryant, Jr.
10.5 Second Amended and Restated Loan Agreement dated as of March 12, 1998,
among NationsBank of Tennessee, N.A., the Company, and certain of its
subsidiaries, including the form of promissory note (incorporated
herein by reference to Amendment No. 1 to the Company's Annual Report
on Form 10-K/A for the fiscal year ended April 30, 1998), as amended by
(1) First Modification to Second Amended and Restated Loan Agreement
dated as of September 15, 1998, among the parties thereto, (2) Second
Modification to Second Amended and Restated Loan Agreement dated as of
May 20, 1999, among the parties thereto, (3) Third Modification to
Second Amended and Restated Loan Agreement dated as of June 21, 1999,
among the parties thereto (as to the documents described in clauses
(1), (2) and (3), incorporated herein by reference to Exhibit 10.5 to
the Company's Annual Report on Form 10-K for the fiscal year ended
April 30, 1999), and (4) Fourth Modification to Second Amended and
Restated Loan Agreement dated as of February 17, 2000, among the
parties thereto.
27 Financial Data Schedule - Fiscal Quarter Ended January 31, 2000.
</TABLE>
14
<PAGE> 1
EXHIBIT 10.4
FIRST MODIFICATION TO EMPLOYMENT AGREEMENT
This First Modification to Employment Agreement (this "Agreement") is
made and entered into effective as of November 1, 1999, 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 as of November 1, 1998 (the
"Employment Agreement"); and
WHEREAS, the Company and the Executive desire to modify the Employment
Agreement as set forth herein.
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. Section 3.a of the Employment Agreement is amended to read as
follows:
a. Base Salary. The Executive shall receive a base salary at
the rate of $425,000.00 per annum during the first year of this
Agreement and the first quarter of the second year of this Agreement,
$600,000.00 per annum during the second, third and fourth quarters of
the second year of this Agreement, and $743,750.00 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.
2. As so amended, the Employment Agreement is hereby ratified and
confirmed.
IN WITNESS WHEREOF, the parties have executed and delivered this
Agreement as of the date first written above.
SCB COMPUTER TECHNOLOGY, INC.
By: /s/ Gordon L. Bateman
---------------------------------
Gordon L. Bateman
Chief Administrative Officer
/s/ Ben C. Bryant, Jr.
------------------------------------
Ben C. Bryant, Jr.
<PAGE> 1
EXHIBIT 10.5
FOURTH MODIFICATION OF SECOND AMENDED
AND RESTATED LOAN AGREEMENT
This Fourth Modification of Second Amended and Restated Loan Agreement
("Fourth Modification") is made and entered into the 17th day of February, 2000,
by and among BANK OF AMERICA, N.A., successor to NATIONSBANK, N.A., a national
banking association ("Bank") and SCB COMPUTER TECHNOLOGY, INC., a Tennessee
corporation, DELTA SOFTWARE SYSTEMS, INC., a Tennessee corporation, TECHNOLOGY
MANAGEMENT RESOURCES, INC., F/K/A TMR ACQUISITION, INC., a Tennessee
corporation, PARTNERS CAPITAL GROUP, a California corporation, PARTNERS
RESOURCES, INC., an Arizona corporation, SCB COMPUTER TECHNOLOGY OF ALABAMA,
INC. and PROVEN TECHNOLOGY, INC., a Tennessee corporation ("collectively
Borrower") and.
R E C I T A L S
A. Borrower has previously obtained from Bank a revolving term loan
facility (the "Revolving Loan") in the principal amount of $30,000,000 and a
term loan facility (the "Term Loan") in the principal amount of $15,000,000 and
a short-term loan (the "Short-Term Loan") in the principal amount of $7,000,000.
B. The terms and conditions of the Revolving Loan and the Term Loan are
set forth in that certain Second Amended and Restated Loan Agreement dated July
31, 1998, as modified by that certain First Modification of Second Amended and
Restated Loan Agreement dated September 15, 1998, and that certain Second
Modification of Second Amended and Restated Loan Agreement dated May 20, 1999
and by that certain Third Modification of Second Amended and Restated Loan
Agreement dated June 21, 1999 (hereinafter as hereafter modified or amended
collectively referred to as the "Agreement").
C. Borrower has asked Bank to modify certain provisions in the
Agreement pursuant to the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained herein, the intending to be legally bound
hereby, Bank and Borrower agree as follows:
1. Capitalized terms not defined herein shall have the meaning
contained in the Agreement.
2. Section 1.D of the Agreement is amended to provide that Borrower's
address will change to 3800 Forest Hill Irene Road, Suite 100, Memphis,
Tennessee 38125 on March 1, 2000.
3. Section 3.I of the Agreement is amended to provide that Borrower's
address will change to 3800 Forest Hill Irene Road, Suite 100, Memphis,
Tennessee 38125 on March 1, 2000.
<PAGE> 2
4. Section 4.A.i of the Agreement is deleted in its entirety and in
lieu thereof shall read as follows:
"(i) Maintain a ratio of Funded Debt to EBITDA of less than 2.5 to 1.0
as of the quarter ending October 31, 1999; 3.75 to 1.0 as of the
quarter ending January 31, 2000 and as of the month ending February 29,
2000; and 3.25 to 1.0 as of the end of each month thereafter beginning
with March 31, 2000. This will be measured quarterly through the
quarter ending January 31, 2000 and monthly commencing with the month
ending February 29, 2000."
5. Section 4.B.ii of the Agreement is amended by changing the
submission of financial statements and compliance certificate from quarterly to
monthly and from 45 days after the close of the quarter to ten days after the
end of the month.
6. Section 4.B.iv is amended by renumbering it as 4.B.v and inserting a
new subsection iv which shall read as follows:
"(iv) Furnish to Bank a monthly aging of the Accounts Receivable of
each Borrower which report shall be provided to Bank by the 10th day of
the following month. By March 1, 2000, Borrower shall furnish to Bank
an acceptable plan showing how Borrower will be able to furnish to Bank
a weekly aging of the Accounts Receivable of each Borrower for the
period from Saturday through Friday, which report shall be provided to
Bank by Wednesday of the following week. (Such weekly report will show
aging of billed Accounts Receivable from prior month end and will not
show unbilled work-in-process and will not serve as a basis for a
borrowing base calculation.) "
7. Section 4 is amended by adding a new subparagraph K which shall read
as follows:
"K. COLLATERAL LOCKBOX ACCOUNT. As soon as possible following
the execution of the Fourth Modification, Borrower shall establish a
Collateral Lockbox Account acceptable to Bank for Accounts Receivable
collections."
8. Section 4 is amended by adding a new subparagraph L which shall read
as follows:
"L. MANAGEMENT PLAN. On or before March 1, 2000, Borrower
shall provide information to Bank to allow Bank to assess its
collateral position and shall provide to Bank a management plan
including discussions of expense reductions and asset sales."
9. Section 5.A. of the Agreement is hereby deleted in its entirety and
in lieu thereof shall read as follows:
"A. CAPITAL EXPENDITURES. Make Capital Expenditures during the
fiscal year ending April 30, 2000 exceeding in the aggregate $6,000,000
and during any other four quarter period on a trailing four quarter
basis exceeding in the aggregate a number which is equal to 25% of the
Net Income from such four quarter period;
2
<PAGE> 3
provided, for the quarter ending 7/31/00 and the six-month period
ending 10/31/00, capital expenditures for each such period may not
exceed 25% of the Net Income for such period. Expenditures for computer
equipment which Borrower then leases to a third party under a true or
capital lease shall be excluded from capital expenditures but shall be
subject to the restriction on computer equipment expenditures contained
in Section 5.B. below."
10. Section 5.C. of the Agreement is deleted in its entirety and in
lieu thereof shall read as follows:
"C. LEASE EXPENDITURES. Incur new obligations for the
operating lease or hire of real or personal property requiring payments
in any fiscal year in excess of an aggregate of $500,000 provided,
however, that for the fiscal year ending April 30, 2000, the aggregate
shall be $600,000.
11. Section 5.G. of the Agreement is amended by adding the following
clause to the end thereof: "provided, however, this shall not apply to the
$5,000,000 loan from State Bank and the $1,148,000 lease guaranty for
International Gaming; further provided, however, that the guaranty liability
related to International Gaming shall be included in the Funded Debt to EBITDA
ratio."
12. Section 6.B. of the Agreement is modified by adding the following
clause to the beginning thereof: "Subject to a 15 day cure period, ..."
13. Section 8 of the Agreement is amended to provide that copies of any
notices to Borrower will also be provided to Baker, Donelson, Bearman &
Caldwell, 20th Floor, First Tennessee Building, 165 Madison, Memphis, Tennessee
38103, Attention: Robert C. Liddon, and copies of any notices to the Bank will
also be provided to Neal & Harwell, PLC, 2000 First Union Tower, 150 Fourth
Avenue, North, Nashville, Tennessee 37219, Attention: James R. Kelley.
14. Section 1.S. of the Agreement is amended by adding the following
clause to the end thereof: "; and each Security Agreement executed by each
Borrower on February 17, 2000."
15. Section 2 of the Agreement is hereby amended to add the following
paragraph:
"D. COLLATERAL. The Notes and all obligations of Borrower to
Bank shall be secured by the Collateral described in the Security
Agreement.
16. Upon execution of this Fourth Modification, Borrower shall pay to
Bank a modification fee of one-quarter of one percent of the committed loan
facilities as of October 31, 1999, an interest adjustment fee of one-quarter of
one percent on the committed loan facilities as of October 31, 1999 (both of
which one-quarter percent fees will be credited against fees payable on any
restructure signed before April 15, 2000) and the $52,500 extension fee payable
by Borrower when the Third Modification was executed. Borrower shall pay all
costs incidental to this Fourth Modification, including, but not limited to, the
fees and expenses of Lender's counsel and filing fees and taxes.
17. Borrower warrants and represents that (a) the Loan Documents are
valid, binding
3
<PAGE> 4
and enforceable against the Borrower according to their terms; (b) all
warranties and representations made by Borrower in the Loan Documents are hereby
again warranted and represented to be true as of the date hereof, except with
regard to matters expressed only as of a specific time or which have been
supplemented or superseded by disclosures to Lender in writing and (c) no
default presently exists under the Loan Documents. Borrower further acknowledges
that Borrower's obligations evidenced by the Loan Documents are not subject to
any counterclaim, defense or right of set-off and Borrower does hereby release
Lender from any claim, known or unknown, that Borrower may have against Lender
as of the execution of this Fourth Modification.
18. As amended hereby, the Agreement remains in full effect, and all
agreements among the parties with respect to the subject hereof are represented
fully in this Fourth Modification and the other written documents among the
parties. The provisions of the Loan Agreement regarding the arbitration of
disputes and other general matters also govern this Fourth Modification. The
validity, construction and enforcement hereof shall be determined according to
the substantive laws of the State of Tennessee.
IN WITNESS WHEREOF, the parties have executed this Fourth Modification
to be effective the day and year first above written.
BANK OF AMERICA, N.A., SUCCESSOR TO PARTNERS CAPITAL GROUP
NATIONSBANK, N.A.
By: /s/ Sheri K. Hollis By: /s/ Ben C. Bryant, Jr.
----------------------------------- -------------------------------
Its: Vice President Its: Director
----------------------------------- -------------------------------
By: /s/ Gordon Bateman
-------------------------------
Its: Secretary
-------------------------------
SCB COMPUTER TECHNOLOGY, INC. PARTNERS RESOURCES, INC.
By: /s/ Ben C. Bryant, Jr. By: /s/ Ben C. Bryant, Jr.
----------------------------------- -------------------------------
Its: President Its: Director
----------------------------------- -------------------------------
By: /s/ Gordon Bateman By: /s/ Gordon Bateman
----------------------------------- -------------------------------
Its: Secretary Its: Secretary
----------------------------------- -------------------------------
DELTA SOFTWARE SYSTEMS, INC. PROVEN TECHNOLOGY, INC.
By: /s/ Ben C. Bryant, Jr. By: /s/ Ben C. Bryant, Jr.
----------------------------------- -------------------------------
Its: President Its: President
----------------------------------- -------------------------------
By: /s/ Gordon Bateman By: /s/ Gordon Bateman
----------------------------------- -------------------------------
Its: Secretary Its: Secretary
----------------------------------- -------------------------------
4
<PAGE> 5
TECHNOLOGY MANAGEMENT SCB COMPUTER TECHNOLOGY OF
RESOURCES, INC. ALABAMA, INC.
F/K/A TMR ACQUISITION, INC.
By: /s/ Ben C. Bryant, Jr. By: /s/ Ben C. Bryant, Jr.
----------------------------------- -------------------------------
Its: President Its: President
----------------------------------- -------------------------------
By: /s/ Gordon Bateman By: /s/ Gordon Bateman
----------------------------------- -------------------------------
Its: Secretary Its: Secretary
----------------------------------- -------------------------------
5
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SCB COMPUTER TECHNOLOGY, INC. FOR THE NINE MONTHS ENDED
JANUARY 31, 2000 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-START> MAY-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 1,843,134
<SECURITIES> 0
<RECEIVABLES> 31,266,227
<ALLOWANCES> 0
<INVENTORY> 862,250
<CURRENT-ASSETS> 42,032,842
<PP&E> 35,159,208
<DEPRECIATION> 11,990,027
<TOTAL-ASSETS> 139,850,363
<CURRENT-LIABILITIES> 35,713,451
<BONDS> 0
0
0
<COMMON> 247,119
<OTHER-SE> 58,824,860
<TOTAL-LIABILITY-AND-EQUITY> 139,850,363
<SALES> 123,931,594
<TOTAL-REVENUES> 123,931,594
<CGS> 92,035,707
<TOTAL-COSTS> 92,035,707
<OTHER-EXPENSES> 29,735,829
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,886,821
<INCOME-PRETAX> (545,834)
<INCOME-TAX> (183,000)
<INCOME-CONTINUING> (362,834)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (362,834)
<EPS-BASIC> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
