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EXHIBIT 2.2
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STOCK PURCHASE AGREEMENT
BY AND AMONG
SCB COMPUTER TECHNOLOGY, INC.
AND
THE SHAREHOLDERS OF
PARTNERS RESOURCES, INC.
DATED TO BE EFFECTIVE AS OF JUNE 30, 1997
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STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (the "Agreement"), is dated to be
effective as of June 30, 1997 (the "Effective Date"), by and among SCB Computer
Technology, Inc., a Tennessee corporation ("SCB"), and each of the shareholders
of Partners Resources, Inc., an Arizona corporation ("PRI"), as identified on
the signature pages hereto (individually, a "PRI Shareholder," and,
collectively, the "PRI Shareholders").
The PRI Shareholders own all of the issued and outstanding shares of
common stock, no par value, of PRI (the "PRI Common Stock"). Simultaneously
with the transactions contemplated hereby, SCB and PRI are entering into a
Stock Purchase Agreement (the "PCG Agreement") relating to the purchase by SCB
from the PRI Shareholders of all of the outstanding capital stock of Partners
Capital Group, Inc. ("PCG"). The PRI Shareholders desire to sell to SCB, and
SCB desires to purchase from the PRI Shareholders, the PRI Common Stock on the
terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing, and of the
representations, warranties, covenants, and agreements contained herein, the
parties hereto hereby agree as follows:
ARTICLE 1.
TRANSFER OF SHARES AND PURCHASE PRICE
1.1 Transfer of Shares. Subject to the terms and conditions of
this Agreement, at the Closing (as hereinafter defined) the PRI Shareholders
will sell, and SCB will buy, all of the PRI Common Stock.
1.2 Purchase Price. The purchase price (the "Purchase Price") for
the PRI Common Stock of $9,600,000 in cash, subject to adjustment pursuant to
Section 1.3 hereof, will be payable by SCB to the PRI Shareholders at Closing.
An aggregate of $8,640,000 of the Purchase Price will be payable to the PRI
Shareholders in the amounts identified on Exhibit A, by wire transfer of
immediately available funds, pursuant to the wire transfer instructions set
forth on Exhibit A, and an aggregate of $960,000 (the "Escrow Amount") of the
Purchase Price will be deposited in an escrow account to be established at
SunTrust Bank, Nashville, N.A., in Nashville, Tennessee, as escrow agent (the
"Escrow Agent"), which Escrow Amount will be held for one year following the
effective date hereof in connection with potential Purchase Price adjustments
pursuant to Section 1.3 hereof and potential indemnification claims under
Article 5 hereof, and pursuant to the terms of an Escrow Agreement (the "Escrow
Agreement"), substantially in the form of Exhibit B attached hereto.
1.3 Earnout.
(a) Subject to adjustment as set forth in this Agreement,
and subject to the provisions of Section 1.3(f), the PRI Shareholders
will be entitled to receive on May 1, 1998,
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as additional purchase price, in cash and/or, at SCB's sole option
(subject to Section 1.3(c)) in shares of Common Stock of SCB, par
value $.01 per share (the "SCB Common Stock"), an amount equal to 14
times PRI's net income for the calendar year ended December 31, 1997
calculated in accordance with Section 1.3(b) (as so calculated, the
"Earnout Consideration").
(b) As soon as reasonably practicable following December
31, 1997, SCB shall prepare an income statement for PRI for the
calendar year ending December 31, 1997 (the "1997 PRI Income
Statement"), and shall, at SCB's expense, which shall not be an
expense for purposes of the 1997 PRI Income Statement, cause SCB's
independent accountants to audit such income statement to ensure
compliance with this Section 1.3. Except as set forth herein, the
1997 PRI Income Statement will be prepared in accordance with
generally accepted accounting principles, consistently applied. In
the preparation of the 1997 PRI Income Statement, (i) PRI's net income
will be adjusted to take into account taxes associated with the
operation of PRI as if PRI were a corporation taxable under subchapter
C of the Internal Revenue Code of 1986, as amended (the "Code"), for
the full calendar year at an assumed tax rate of 40%; (ii) shared
expenses between, and other expenses of, PRI and PCG accounted for in
a manner consistent with the policies and practices used in the
preparation of PRI's and PCG's audited financial statements for the
year ended December 31, 1996; (iii) there will be no charge to PRI's
net income for the amortization of goodwill or other intangible, or
depreciation of property (or credit for any corresponding tax benefits
related to such amortization or depreciation) arising as a result of
the transactions contemplated hereby; (iv) computer equipment will be
depreciated and expenses associated with software licenses with no
specified terms will be depreciated or amortized, as applicable, on a
straight-line basis over five years; (v) the amortization and
depreciation related to PRI's Louisiana operations will be reflected
in the calculation of net income for the year ended December 31, 1997
without regard to the write- down of related assets in 1996 (i.e.,
will continue to be expensed in 1997 on the same basis as in 1996);
and (vi) in the event the results of operations associated with PRI's
Baan project for the year ended December 31, 1997 are a net loss, such
net loss will not be deducted from the calculation of PRI's net
income; and (vii) immediately prior to the Effective Date, PRI shall
book a reserve in the amount of $350,000 (the "Westchester Reserve")
to cover potential reimbursement obligations with respect to the
Westchester Contract (as defined herein), the remaining amount of
which Westchester Reserve as of December 31, 1997 after satisfaction
of any such reimbursement obligations will be credited to PRI's net
income for the year ended December 31, 1997. SCB shall cause to be
delivered promptly following preparation, but in no event later than
March 31, 1998, to the PRI Shareholders a copy of the 1997 PRI Income
Statement together with a calculation of the net income and a
determination as to the amount of Earnout Consideration. SCB shall
also make available to the PRI Shareholders and their advisors all
underlying financial data, books, and records (whether written or in
electronic media) reasonably requested by the PRI Shareholders that
are relevant to the determination of the Earnout Consideration. The
PRI Shareholders shall have 20 days from delivery of the 1997 PRI
Income Statement to accept or reject in writing SCB's calculations
regarding the Earnout Consideration. If the PRI Shareholders reject
SCB's calculations regarding the Earnout Consideration, such rejection
must be accompanied by a written statement of the reasons therefor
and, if the parties are
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unable to reach a compromise within five business days of the date of
such rejection, the dispute shall be submitted to arbitration in New
Orleans, Louisiana, such arbitration to be conducted in accordance
with the rules of the American Arbitration Association ("AAA") before
a single arbitrator selected from a panel of arbitrators of the AAA in
accordance with its rules for commercial arbitration. The filing fee
for the arbitration will be paid one-half by SCB and one-half by the
PRI Shareholders and each party shall bear its own costs and expenses
related to the arbitration.
(c) If SCB elects to pay any portion of the Earnout
Consideration, if any, in shares of SCB Common Stock, SCB shall
deliver to the PRI Shareholders, allocated pro rata as their interests
appear on Exhibit A, certificates representing, in the aggregate, the
number of shares of SCB Common Stock (the "Earnout Shares") determined
by dividing the amount of the Earnout Consideration to be paid in
shares of SCB Common Stock by the average of the closing sales prices
of SCB Common Stock as reported on The Nasdaq Stock Market's National
Market ("Nasdaq") (or such other exchange or quotation system on which
the SCB Common Stock is then traded) for the twenty trading days
ending on December 31, 1997 (the "Average Price"). The foregoing
notwithstanding, SCB shall not be entitled to pay any portion of the
Earnout Consideration in SCB Common Stock if, on May 1, 1998, (i) the
SCB Common Stock is not authorized for quotation on Nasdaq or listed
for trading on a national securities exchange; (ii) the average
closing sales prices of SCB Common Stock for the twenty trading days
ending on April 30, 1997 is less than $10.00 per share (as adjusted to
take into account stock splits and stock dividends); or (iii) SCB
shall have filed, or have filed against it, a petition or other form
of request for relief under the federal bankruptcy laws, or an
application, petition, or request for the appointment of a receiver
under any state insolvency laws.
(d) In lieu of the issuance of fractional shares of SCB
Common Stock pursuant to Section 1.3(c) above, the PRI Shareholders
will be entitled to receive a cash payment (without interest) equal to
the fair market value of any fraction of a share of SCB Common Stock
to which such PRI Shareholder would be entitled but for this
provision. For purposes of calculating such payment, the fair market
value of a fraction of a share of SCB Common Stock shall be such
fraction multiplied by the Average Price.
(e) Notwithstanding the foregoing, if PCG's net income
for calendar year ending December 31, 1997, calculated in accordance
with Section 1.4(a) of the PCG Agreement, does not equal or exceed
$1,177,000 and the amount equal to the difference between $1,177,000
and PCG's actual net income (the "Net Income Deficit") is greater than
the remaining escrow amount established under the PCG Agreement, then
such portions of the Net Income Deficit may, at SCB's discretion, be
offset, dollar-for-dollar, first against the Escrow Amount and, to the
extent still unsatisfied, then against the Earnout Consideration.
(f) Anything herein to the contrary notwithstanding, but
subject to the last sentence of this Section 1.3(f), no Earnout
Consideration will be payable by SCB to the PRI Shareholders unless,
on May 1, 1998,
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(i) that certain Statement of Work between IBM Global
Services ("IBM") and PRI dated March 31, 1997 related to
Outsourcing Information Technology Services for the
Westchester County Data Center (the "Westchester Contract")
shall be in full force and effect and not subject to
litigation or order that could aversely affect the rights of
PRI or, if the Westchester Contract has been amended since the
Closing Date, then such amendment shall not have diminished
any amounts payable to PRI thereunder; or
(ii) if the Westchester Contract is no longer in
effect, or has been amended in a manner adversely affecting
the rights of PRI, or if the litigation related thereto has
not been finally judicially determined or settled in full, PRI
has, since the Closing Date, entered into and is performing
contracts for outsourcing services (the "Substitute
Contracts," which, for purposes of this Section 1.3(f) shall
be deemed to include the Westchester Contract, as amended,
modified, or superseded, and that certain First Amendment to
the HP Outsourcing Services Statement of Work, that certain
Service Change Request Form, dated March 31, 1997, and that
certain Amendment No. 1 to that Outsourcing Services Agreement
(Fiberite), dated to be effective as of June 18, 1997, despite
such amendments having been signed prior to the Closing Date),
the revenues associated with which are reasonably projected to
equal or exceed 85% of the revenues projected to be associated
with the Westchester Contract. If the revenues associated for
the Substitute Contracts are reasonably projected to equal or
exceed 85% (but are less than 100%) of the revenues projected
to be associated with the Westchester Contract, SCB will pay
to the PRI Shareholders 85% of the Earnout Consideration
otherwise payable pursuant to this Section 1.3.
1.4 Section 338(h)(10) Election; Allocation of Consideration.
(a) In the time period required by applicable law, SCB
and the PRI Shareholders shall make an election under Section
338(h)(10) of the Internal Revenue Code of 1986, as amended (the
"Code") (and any comparable election under state, local, or foreign
tax law), with respect to the sale of the PRI Common Stock by the PRI
Shareholders. In this regard, SCB and each of the PRI Shareholders
shall, within 30 days of the Closing Date, jointly execute necessary
copies of Internal Revenue Service Form 8023-A ("Form 8023-A") and all
attachments required to be filed therewith and take such further
actions and execute such further documents as may be necessary in
order for SCB and the PRI Shareholders to make an election under
Section 338(h)(10) of the Code (and any comparable election under
state, local, or foreign tax law).
(b) The PRI Shareholders will pay any Taxes (as
hereinafter defined) attributable to the making of the Section
338(h)(10) election and will indemnify SCB and PRI against any claims
arising out of any failure to pay such Taxes, without offset for any
tax benefit that SCB or PRI may receive as a result of the 338(h)(10)
election during periods ending after the Closing Date.
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(c) The Purchase Price will be allocated among PRI's
assets for federal and state income tax purposes as set forth on
Exhibit C hereto, which Exhibit C will be finalized by mutual
agreement of the parties within 15 days of the Closing Date and, upon
such finalization, will be deemed to be a part of this Agreement as if
attached hereto on the Closing Date. Such allocation will be
determined by arm's-length negotiations of the parties. None of the
parties hereto will take a position on any income tax return, before
any governmental agency charged with collections of any income tax, or
in any judicial proceeding, that is inconsistent with such allocation
or with the positions taken on Form 8023-A or the attachments required
to be filed therewith.
1.5 The Closing. Subject to the terms and conditions of this
Agreement, the closing under this Agreement (the "Closing") will take place
simultaneous with the execution hereof at the offices of PRI in Scottsdale,
Arizona, to be effective for accounting purposes as of 11:59 p.m. on June 30,
1997, or at such other time, date, or place as SCB and the PRI Shareholders may
agree. The date on which the Closing occurs is referred to herein as the
"Closing Date."
1.6 Parties' Obligations at Closing.
(a) At the Closing, SCB will deliver to the PRI
Shareholders:
(i) $8,640,000 in cash by wire transfer of
immediately available funds, allocated among the PRI
Shareholders in accordance with Exhibit A attached hereto,
together with a copy of the Escrow Agreement duly executed by
SCB and the Escrow Agent and evidence, reasonably satisfactory
to the PRI Shareholders and their counsel, that the Escrow
Amount has been duly delivered to the Escrow Agent;
(ii) a copy of the resolutions of the Board of
Directors of SCB, certified by the corporate secretary,
authorizing the execution, delivery, and performance of this
Agreement and the other documents referenced herein and the
consummation of the transactions contemplated hereby;
(iii) an opinion of Bass, ▇▇▇▇▇ & ▇▇▇▇ PLC, legal
counsel to SCB, substantially in the form of Exhibit D
attached hereto;
(iv) an employment agreement (the "Employment
Agreement") between PRI and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇,
substantially in the form of Exhibit E attached hereto, duly
executed by SCB and PRI;
(v) a copy of the PCG Agreement, duly executed
by SCB; and
(vi) such other certificates and documents as the
PRI Shareholders or their counsel may reasonably request,
including a receipt from SCB acknowledging that it has
received the PRI Disclosure Letter.
(b) At the Closing, the PRI Shareholders will deliver to
SCB:
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(i) a copy of the Escrow Agreement duly executed
by the PRI Shareholders;
(ii) an opinion of Peskind ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇,
P.C., legal counsel to the PRI Shareholders, substantially in
the form of Exhibit F attached hereto;
(iii) the Employment Agreement, duly executed by
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇;
(iv) certificates representing all of the issued
and outstanding PRI Common Stock, together with stock powers
duly endorsed in blank by each of the PRI Shareholders and
spousal consents or waivers with respect to the sale of the
PRI Common Stock;
(v) any required consent or approval of a
creditor, contract party, or public or governmental authority
to the transaction contemplated hereby;
(vi) non-competition agreements (the
"Non-Competition Agreements") substantially in the form of
Exhibit G hereto duly executed by PRI and the PRI Shareholders
other than ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇;
(vii) [intentionally omitted]
(viii) duly executed resignations as directors and
officers of PRI of all directors and officers of PRI;
(ix) an Assignment and Assumption Agreement,
substantially in the form of Exhibit I hereto, duly executed
by PRI and On-Guard Disaster Recovery, Inc. ("On-Guard") and
evidence, reasonably satisfactory to SCB, that On-Guard has
taken irrevocable action to dissolve and wind-up its affairs;
(x) the PCG Agreement, duly executed by PCG and
the PRI Shareholders; and
(xi) such other certificates or documents as SCB
or its counsel may reasonably request.
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ARTICLE 2.
REPRESENTATIONS AND WARRANTIES OF
THE PRI SHAREHOLDERS
Except as set forth in the disclosure letter delivered prior to the
execution hereof to SCB (the "PRI Disclosure Letter"), the PRI Shareholders,
jointly and severally (except as set forth in Section 2.22(c)), represent,
warrant, and agree as follows:
2.1 Existence; Good Standing; Corporate Power and Authority. PRI
is a corporation duly organized, validly existing, and in good standing under
the laws of the State of Arizona. PRI is qualified to do business as a foreign
corporation and is in good standing under the laws of any state of the United
States in which the character of the properties owned or leased by it therein
or in which the transaction of business makes such qualification necessary,
except where the failure to be so qualified would not have a material adverse
effect on the business, results of operations, financial condition, or
prospects of PRI (a "PRI Material Adverse Effect"). PRI has all requisite
corporate power and authority to own, operate, and lease its properties and to
carry on its business as now conducted. PRI has provided to SCB complete and
correct copies of its articles of incorporation and bylaws, each of which is in
full force and effect.
2.2 Authorization, Validity, and Effect of Agreements. The PRI
Shareholders have the full power and authority to execute and deliver this
Agreement and all agreements and documents contemplated hereby. This Agreement
constitutes, and all agreements and documents contemplated hereby (when
executed and delivered pursuant hereto) will constitute, the valid and legally
binding obligations of the PRI Shareholders, enforceable in accordance with
their respective terms.
2.3 Capitalization. The authorized capital stock of PRI consists
of 1,000,000 shares of common stock, no par value, of which 4,000 shares are
issued and outstanding as of the date of this Agreement and owned beneficially
and of record by the PRI Shareholders as set forth in the PRI Disclosure
Letter. PRI has no outstanding capital stock, bonds, debentures, notes, or
other obligations as to which the holders have the right to vote (or which are
convertible into or exercisable for securities having the right to vote) with
the shareholders of PRI on any matter. All issued and outstanding shares of
PRI Common Stock are duly authorized, validly issued, fully paid,
nonassessable, and free of, or in compliance with, preemptive rights. There
are no options, warrants, calls, subscriptions, convertible securities, or
other rights, agreements, or commitments that obligate PRI to issue, transfer,
or sell any shares of its capital stock. None of the outstanding shares of PRI
Common Stock are subject to any voting trust agreement, lien, encumbrance,
security interest, restriction, or claim.
2.4 Other Interests. PRI does not own, directly or indirectly, or
have any obligation to acquire any interest or investment in, any corporation,
partnership, joint venture, business, trust, or other entity.
2.5 No Violation. Neither the execution and delivery by the PRI
Shareholders of this Agreement nor the consummation by the PRI Shareholders of
the transactions contemplated hereby
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in accordance with the terms hereof, will: (i) conflict with or result in a
breach of any provisions of the articles of incorporation or bylaws of PRI;
(ii) conflict with, result in a breach of any provision of or the modification
or termination of, constitute a default under, or result in the creation or
imposition of any lien, security interest, charge, or encumbrance upon any of
the assets of PRI or any PRI Shareholder by virtue of the application of any
provisions contained in, any material commitment, lease, contract, or other
material agreement or instrument to which PRI or any PRI Shareholder is a party
(including any Material Contract, as hereinafter defined); or (iii) violate or
result in a change in any rights or obligations under any governmental permit
or license or any order, arbitration award, judgment, writ, injunction, decree,
statute, rule, or regulation applicable to PRI or any PRI Shareholder.
2.6 Regulatory Consents. No consent, approval, order, or
authorization of, or registration, declaration, or filing with, any
governmental entity, is required by or with respect to PRI or any PRI
Shareholder in connection with the execution and delivery of this Agreement by
any PRI Shareholder, or the consummation by any PRI Shareholder of the
transactions contemplated hereby, which has not been made or obtained and the
failure to make or obtain would have a PRI Material Adverse Effect.
2.7 Material Contracts. The PRI Disclosure Letter contains a
complete and accurate list of all contracts and agreements for the performance
of services or the purchase or leasing of property by PRI of an amount or value
in excess of $100,000 ("Material Contracts"). Each of the Material Contracts
is in full force and effect and is valid and enforceable in accordance with its
terms, and PRI is in full compliance with all applicable terms and requirements
thereof. No event has occurred or circumstance exists that (with or without
notice or lapse of time) may contravene, conflict with, or result in a
violation or breach of, or give any person the right to declare a default or
exercise any remedy under, or to accelerate the maturity or performance of, or
to cancel, terminate, or modify, any Material Contract. To the knowledge of
PRI and each of the PRI Shareholders, there are no renegotiations of, attempts
to renegotiate, or outstanding rights to renegotiate (other than with respect
to renewals in accordance with contract terms) any amounts paid or payable
under any Material Contract with any person.
2.8 Financial Statements; Undisclosed Liabilities. Prior to the
Closing Date, PRI has delivered to SCB true and complete copies of (a) the
audited financial statements of PRI as of and for the year ended December 31,
1996 and (b) the unaudited financial statements of PRI as of and for the
quarter ended March 31, 1997. The balance sheets provided to SCB by PRI
(including the related notes and schedules) fairly present the financial
position of PRI as of their respective dates and the statements of income,
stockholders' equity, and cash flows provided to SCB by PRI (including any
related notes and schedules) fairly present the results of operations,
stockholders' equity, and cash flows of PRI for the periods set forth therein,
in each case in accordance with generally accepted accounting principles
consistently applied, except as may be noted therein. Such financial
statements have been prepared from the books and records of PRI which
accurately and fairly reflect the transactions and the acquisitions and
dispositions of the assets of PRI. As of the Closing Date, PRI did not have
any liabilities, contingent or otherwise, whether due or to become due, known
or unknown, other than as indicated or reserved against on the balance sheet
dated
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December 31, 1996, except for current liabilities incurred in the ordinary
course of business since such date.
2.9 No Material Adverse Changes. Since December 31, 1996, there
has not been (i) any material adverse change in the financial condition,
results of operations, business, assets, or liabilities (contingent or
otherwise, whether due or to become due, known or unknown) of PRI; (ii) any
dividend declared or paid or distribution made on the capital stock of PRI, or
any capital stock thereof redeemed or repurchased; (iii) any incurrence by PRI
of long-term debt; (iv) any increases in salary, bonus, or other compensation
(including pursuant to any employee benefit plan) to any officers, employees,
or agents of PRI; (v) any pending or threatened labor disputes or other labor
problems against or potentially affecting PRI; (vi) the termination, or receipt
of notice of termination, of any Material Contract; or (vii) any other
transaction entered into by PRI, except in the ordinary course of business and
consistent with past practice.
2.10 Tax Matters.
(a) For purposes of this Agreement, (i) "Tax" means any
federal, state, local, or foreign income, gross receipts, license,
payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Section 59A of
the Code), customs duties, capital stock, franchise, profits,
withholding, social security (or similar), unemployment, disability,
real property, personal property, sales, use, transfer, registration,
value-added, alternative or add-on minimum, estimated, or other tax of
any kind whatsoever, including any interest, penalty, or addition
thereto, whether disputed or not, and (ii) "Tax Return" means any
return, report, information return, or other document (including any
related or supporting information) filed or required to be filed with
any taxing authority in connection with its determination, assessment,
collection, administration, or imposition of any Tax.
(b) PRI has been since its inception and is a corporation
taxable for federal and state income tax purposes under subchapter S
of the Code. PRI has duly and timely filed all Tax Returns required
to be filed by it (or duly and timely filed an appropriate request for
extension) and has duly and timely paid all Taxes and other charges
(whether or not shown on any Tax Return) due or claimed to be due from
it by federal, foreign, state, or local taxing authorities or has set
up an adequate reserve for all Taxes payable by PRI. True and correct
copies of all Tax Returns relating to federal and state taxes and
sales taxes and other charges for the period from organization through
December 31, 1995 (and a request for extension for the calendar year
ended December 31, 1996) have been heretofore delivered to SCB. The
accruals and reserves for Taxes contained in the financial statements
and carried on the books of PRI (other than any reserve for deferred
taxes established to reflect timing differences between book and tax
income) are adequate to cover all Tax liabilities. Since December 31,
1996, PRI has not incurred any Tax liabilities other than in the
ordinary course of business. There are no recorded Tax liens upon any
properties or assets of PRI (whether real, personal, or mixed,
tangible or intangible), and, except as reflected in the financial
statements, there are no pending or, to the PRI Shareholders'
knowledge, threatened audits or examinations relating to, or claims
asserted for, Taxes or assessments against PRI, and the PRI
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Shareholders are aware of no substantial basis for any such claims.
PRI has not granted or been requested to grant any extension of the
limitation period applicable to any claim for Taxes or assessments
with respect to Taxes. PRI is not a party to any Tax allocation or
sharing agreement. PRI has no liability for the Taxes of any
Affiliated Group under Treasury Regulation 1.1502-6 (or any similar
provision of state, local, or foreign law). PRI has withheld and paid
all Taxes required to have been withheld and paid when due in
connection with amounts paid or owing to any employee, independent
contractor, creditor, or shareholder, where failure to do so would
have a PRI Material Adverse Effect.
(c) The PRI Disclosure Letter lists each jurisdiction in
which PRI files Tax Returns for each period or portion thereof ending
on or before the date hereof. Except as set forth in the PRI
Disclosure Letter, there is no claim outstanding against PRI by any
taxing authority in a jurisdiction where PRI does not file Tax Returns
that it is or may be subject to taxation by that jurisdiction.
(d) All material elections with respect to Taxes
affecting PRI as of the date hereof are set forth in the PRI
Disclosure Letter.
(e) All joint ventures, partnerships, or other
arrangements or contracts to which PRI is a party and that could be
treated as a partnership for federal income tax purposes are set forth
in the PRI Disclosure Letter.
(f) PRI (i) has not filed a consent pursuant to Section
341(f) of the Code nor agreed to have Section 341(f)(2) apply to any
disposition of a subsection (f) asset (as such term is defined in
Section 341(f) of the Code) owned by PRI; (ii) has not agreed, and is
not required, to make any adjustment under Section 481(a) of the Code
by reason of a change in accounting method or otherwise that will
affect the liability of PRI for Taxes; (iii) has not made an election,
and is not required, to treat any asset of PRI as owned by another
person pursuant to the provisions of former Section 168(f)(8) of the
Code or as tax-exempt bond- financed property or tax-exempt use
property within the meaning of Section 168 of the Code; and (iv) has
not made any of the foregoing elections and is not required to apply
any of the foregoing rules under any comparable state or local tax
provision.
(g) PRI holds no asset (i) that it acquired within the
ten years preceding the Closing Date, and (ii) where PRI's adjusted
basis in such asset is determined (in whole or in part) by reference
to the basis of such asset (or any other property) in the hands of a C
corporation (as defined in the Code).
(h) As soon as practicable following the date hereof, the
PRI Shareholders shall, on behalf of PRI, timely file all Tax Returns
for, and pay all Taxes due with respect to, the short period beginning
January 1, 1997, and ending on the Closing Date. The PRI Shareholders
shall close PRI's books on the Closing Date and shall report on PRI's
federal corporate income Tax Return for the short period ending on the
Closing Date hereof all items of income, loss, deduction, and credit
arising during the short period under PRI's accrual method of
accounting for tax purposes.
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2.11 Employees and Fringe Benefit Plans.
(a) The PRI Disclosure Letter sets forth the names, ages,
and titles of all members of the Board of Directors and officers of
PRI and all employees of PRI earning in excess of $50,000 per year,
and the annual rate of compensation (including bonuses) being paid to
each such officer and employee as of the most recent practicable date.
(b) The PRI Disclosure Letter lists each employment,
bonus, deferred compensation, pension, stock option, stock
appreciation right, profit-sharing, or retirement plan, arrangement,
or practice, each medical, vacation, retiree medical, severance pay
plan, and each other agreement or fringe benefit plan, arrangement, or
practice, of PRI, whether legally binding or not, that affects one or
more of PRI's employees, including all "employee benefit plans" as
defined by Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA") (collectively, the "Plans"). PRI
neither has nor sponsors, nor participates in any Plan that is subject
to Title IV of ERISA or the minimum funding standards of Section 412
of the Code.
(c) For each Plan that is an "employee benefit plan"
under Section 3(3) of ERISA, PRI has delivered to SCB correct and
complete copies of the plan documents and summary plan descriptions,
the most recent determination letter received from the Internal
Revenue Service, the most recent Form 5500 Annual Report, and all
related trust agreements, insurance contracts, and funding agreements
that implement each such Plan.
(d) PRI has no commitment, whether formal or informal and
whether or not legally binding, (i) to create any additional Plan;
(ii) to modify or change any Plan; or (iii) to maintain for any period
of time any Plan. The PRI Disclosure Letter contains an accurate and
complete description of the funding policies (and commitments, if any)
with respect to each existing Plan.
(e) PRI has no unfunded past service liability in respect
of any of its Plans; neither PRI, nor any Plan nor any trustee,
administrator, fiduciary, or sponsor of any Plan has engaged in any
prohibited transaction as defined in Section 406 of ERISA or Section
4975 of the Code for which there is no statutory exemption in Section
408 of ERISA or Section 4975 of the Code; all filings, reports, and
descriptions as to such Plans (including Form 5500 Annual Reports,
summary plan descriptions, and summary annual reports) required to
have been made or distributed to participants, the Internal Revenue
Service, the United States Department of Labor, and other governmental
agencies have been made in a timely manner; there is no material
litigation, disputed claim, governmental proceeding, or investigation
pending or threatened with respect to any of the Plans, the related
trusts, or any fiduciary, trustee, administrator, or sponsor of the
Plans; the Plans have been established, maintained, and administered
in all material respects in accordance with their governing documents
and applicable provisions of ERISA and the Code and Treasury
Regulations promulgated thereunder; and each Plan that is intended to
be a qualified plan under Section 401(a) of the Code has received a
favorable determination letter from the Internal Revenue Service with
respect to the current terms of the Plan.
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(f) Except where failure to do so would not have a PRI
Material Adverse Effect, PRI has complied in all respects with all
applicable federal, state, and local laws, rules, and regulations
relating to employees' employment and employment relationships,
including, without limitation, wage related laws, anti-discrimination
laws, employee safety laws, and COBRA (defined herein to mean the
requirements of Code Section 4980B, Proposed Treasury Regulation
Section 1.162-26 and Part 6 of Subtitle B of Title I of ERISA).
(g) The consummation of the transactions contemplated by
this Agreement will not (i) result in the payment or series of
payments by PRI to any employee or other person of an "excess
parachute payment" within the meaning of Section 280G of the Code;
(ii) entitle any employee or former employee of PRI to severance pay,
unemployment compensation, or any other payment; or (iii) accelerate
the time of payment or vesting of any stock option, stock appreciation
right, deferred compensation, or other employee benefits under any
Plan (including vacation and sick pay).
(h) None of the Plans that are "welfare benefit plans,"
within the meaning of Section 3(1) of ERISA, provide for continuing
benefits or coverage after termination or retirement from employment,
except for COBRA rights under a "group health plan" as defined in Code
Section 4980B(g) and ERISA Section 607.
(i) Neither PRI nor any member in a "controlled group"
with PRI (as defined in ERISA) has ever contributed to, participated
in, or withdrawn from a multi-employer plan as defined in Section
4001(a)(3) of Title IV of ERISA, and PRI has not incurred and does not
owe any liability as a result of any partial or complete withdrawal by
any employer from such a multi-employer plan as described under
Section 4201, 4203, or 4205 of ERISA.
2.12 Assets. PRI owns the assets reflected in the December 31,
1996, balance sheet and the assets it purports to own that were acquired in the
ordinary course of business since the date thereof (except for assets sold,
transferred, or conveyed in the ordinary cause of business), including the
leasehold estates, with good and marketable title, free and clear of any and
all claims, liens, mortgages, security interests, or encumbrances whatsoever,
and free and clear of any rights or privileges capable of becoming claims,
liens, mortgages, securities interests, or encumbrances. The buildings,
plants, structures, and equipment owned or leased by PRI are in good operating
condition and repair, and are adequate for the uses for which they are being
put, and none of such buildings, plants, structures, or equipment is in need of
maintenance or repairs except for ordinary and routine maintenance and repairs
that are not material in nature or cost.
2.13 Accounts Receivable. All accounts receivable of PRI that are
reflected on the accounting records of PRI as of the date hereof (collectively,
the "Accounts Receivable"), represent valid obligations arising from sales
actually made or services actually performed in the ordinary course of
business. The Accounts Receivable are current and collectible net of the
respective reserves shown on the accounting records of PRI as of the date
hereof (which reserves are adequate and calculated consistent with past
practice and do not represent a greater percentage of the Accounts Receivable
as of the date hereof than the reserve reflected in the balance sheet dated
December 31, 1996, and do not represent a material adverse change in the
composition of such Accounts
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Receivable in terms of aging). Subject to such reserves, each of the Accounts
Receivable either has been or will be collected in full, without any set-off,
within one hundred twenty (120) days after the day on which it first becomes
due and payable. The PRI Shareholders are not aware of any contest, claim, or
right of set-off with any maker of an Account Receivable relating to the amount
or validity of such Account Receivable.
2.14 Lawful Operations. PRI has been and currently is conducting
its business, and each of the premises leased or owned by PRI have been and now
are being used and operated, in compliance with all statutes, regulations,
orders, covenants, restrictions, and plans of federal, state, regional, county,
or municipal authorities, agencies, or boards applicable to the same, except
where the failure to so comply would not have a PRI Material Adverse Effect.
2.15 Litigation. There is no suit, action, or proceeding pending
or, to the knowledge of any of the PRI Shareholders, threatened against or
affecting PRI, which, if adversely determined, could have a PRI Material
Adverse Effect. PRI is not subject to any currently existing order, writ,
injunction, or decree relating to its operations.
2.16 Corporate Records; Other Information. The minute books of
PRI, copies of which have been provided to SCB, reflect all meetings of the
boards of directors, committees of the boards of directors, and the
shareholders thereof prior to the date hereof. All documents and other written
information as to existing facts relating to PRI and its assets and liabilities
which have been provided to SCB in connection with this Agreement are true,
correct, and complete in all material respects except to the extent that any
such documents or other written information were later specifically
supplemented or corrected prior to the Closing Date with additional documents
or written information that were provided to SCB by authorized agents of PRI,
including the PRI Disclosure Letter.
2.17 Intellectual Property Rights. PRI owns or possesses the right
to use or is licensed to use all trademarks, service marks, trade names,
slogans, copyrights in published and unpublished works, patents, patent
applications, inventions, and discoveries that may be patentable, rights in
mask works, and all trade secrets including, but not limited to, customer
lists, software, and technical information, it currently uses without any
conflict or alleged conflict with the rights of others, except where any such
conflict would not have a PRI Material Adverse Effect. No copyright registered
in the name of or owned by PRI is infringed or has been challenged or
threatened in any way or, to the knowledge of the PRI Shareholders, is
infringed. None of the subject matter of any such copyright infringes or is
alleged to infringe any copyright of any third party or is a derivative work
based on the work of a third party for which PRI lacks a license to use that
third party's work. All works encompassed by a copyright registered in the
name of or owned or licensed by PRI have been marked with the proper copyright
notice.
2.18 Hazardous Substances.
(a) PRI has not authorized or conducted or has knowledge
of the generation, transportation, storage, presence, use, treatment, disposal,
release, or handling of (in an amount or of a type that has been or must be
reported to any governmental agency, violates any Environmental
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Law (as defined below), or has required or could require remediation
expenditures) any hazardous substance, asbestos, radon, polychlorinated
biphenyls ("PCBs"), petroleum product, or waste (including crude oil or any
fraction thereof), natural gas, liquefied gas, synthetic gas, or other material
defined, regulated, controlled, or potentially subject to any remediation
requirement under any environmental law (collectively, "Hazardous Materials"),
on, in, or under any real property owned, leased, or by any means controlled by
it;
(b) PRI is in compliance with all federal, state, and
local laws, ordinances, rules, regulations, and other governmental requirements
relating to pollution, control of chemicals, management of waste, discharges of
materials into the environment, health, safety, natural resources, and the
environment (collectively, "Environmental Laws");
(c) PRI has, and is in compliance with, all licenses,
permits, registrations, and government authorizations necessary to operate
under all applicable Environmental Laws;
(d) PRI has not received any written or oral notice from
any governmental entity or any other person, and there is no pending or, to any
PRI Shareholder's knowledge, threatened claim, litigation, or any
administrative agency proceeding that: alleges a violation of any
Environmental Law by PRI; alleges PRI is a liable party or a potentially
responsible party under the Comprehensive Environmental Response, Compensation
and Liability Act, 42 U.S.C. Section 9601, et seq., or any state superfund
law; has resulted in or could result in the attachment of an environmental lien
on any real property owned, leased, or controlled by PRI; or alleges the
occurrence of contamination of any of such real property, damage to natural
resources, property damage, or personal injury based on its activities or the
activities of PRI's predecessors or third parties (whether at the real property
or elsewhere) involving Hazardous Materials, whether arising under the
Environmental Laws, common law principles, or other legal standards.
2.19 Certain Business Practices and Regulations. Neither PRI, nor
to any of the PRI Shareholder's knowledge, any of its executive officers,
directors, or employees, has (i) made or agreed to make any contribution,
payment, or gift to any customer, supplier, landlord, political candidate,
governmental official, employee, or agent where either the contribution,
payment, or gift or the purpose thereof was illegal under any law or
regulation; (ii) established or maintained any unrecorded fund or asset for any
purpose or made any false entries on its respective books and records for any
reason; (iii) made or agreed to make any contribution, or reimbursed any
political gift or contribution made by any other person, to any candidate for
federal, state, or local public office in violation of any law or regulation;
or (iv) submitted any claim for services rendered or reimbursement for expenses
to any person where the services were not actually rendered or the expenses
were not actually incurred.
2.20 Insurance. All policies and binders of insurance for
professional liability, directors and officers, fire, liability, workers'
compensation, and other customary matters held by or on behalf of PRI
("Insurance Policies") are described in the PRI Disclosure Letter and have been
made available to SCB. The Insurance Policies are in full force and effect.
PRI is not in default with respect to any material provision contained in any
Insurance Policy.
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2.21 No Brokers. PRI has not entered into any contract,
arrangement, or understanding with any person or firm that may result in the
obligation of PRI or SCB to pay any finder's fees, brokerage or agent's
commissions, or other like payments in connection with the negotiations leading
to this Agreement or the consummation of the transactions contemplated hereby.
2.22 SCB Stock Ownership; Investment Intent.
(a) Neither PRI nor any of the PRI Shareholders owns, beneficially
or otherwise, any shares of SCB Common Stock.
(b) The shares of SCB Common Stock, if any, issuable pursuant to
this Agreement are being acquired by the PRI Shareholders subject to the terms
of this Agreement for investment and not with a view to the distribution
thereof, and each of the PRI Shareholders acknowledges and understands that the
certificate(s) representing such shares of SCB Common Stock will bear a legend
in substantially the following form:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY
STATE SECURITIES ACT AND CANNOT BE SOLD, TRANSFERRED, OR OTHERWISE
DISPOSED OF UNLESS REGISTERED UNDER SUCH ACTS OR UNLESS EXEMPTIONS
FROM REGISTRATION ARE AVAILABLE.
THE COMPANY WILL FURNISH THE HOLDER HEREOF INFORMATION REGARDING THE
DESIGNATIONS, RELATIVE RIGHTS, PREFERENCES, AND LIMITATIONS APPLICABLE
TO EACH CLASS AND THE VARIATIONS AND RIGHTS, PREFERENCES, AND
LIMITATIONS DETERMINED FOR EACH SERIES OF STOCK ISSUED BY THE COMPANY
(AND THE AUTHORITY OF THE BOARD OF DIRECTORS TO DETERMINE VARIATIONS
FOR FUTURE SERIES) UPON REQUEST IN WRITING AND WITHOUT CHARGE.
(c) Each PRI Shareholder, severally and not jointly, represents
and warrants as follows:
(i) Each of the PRI Shareholders is an "accredited
investor" as defined under Rule 501 of Regulation D promulgated under the
Securities Act of 1933, as amended (the "Securities Act").
(ii) Each of the PRI Shareholders has received and
reviewed copies of SCB's Annual Report on Form 10-K for the fiscal year ended
April 30, 1996, SCB's Quarterly Reports on Form 10-Q for the fiscal quarters
ended July 31, 1996, October 31, 1996, and January 31, 1997, SCB's Current
Report on Form 8-K, dated October 8, 1996, as amended on December 4, 1996,
relating to the combination with Delta Software Systems, Inc., and SCB's
Current Report on Form 8-K, dated March 14, 1997, as amended on May 14, 1997,
relating to the acquisition of substantially all of the assets of Technology
Management Resources, Inc. (collectively, the "SEC Reports"). Each
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of the PRI Shareholders confirms that SCB has made available to him or to his
representatives the opportunity to ask questions of SCB's officers and
directors and to acquire such information about the shares of SCB Common Stock
and the business and financial condition of SCB as the PRI Shareholders have
requested, which additional information has been received.
(iii) In deciding to acquire shares of SCB Common Stock
pursuant to this Agreement, the PRI Shareholders have consulted with their
legal, financial, and tax advisers with respect to the transaction contemplated
hereby and the nature of the investment, together with additional information
concerning SCB set forth in the SEC Reports and any additional information
provided under subsection (ii) above.
(iv) Each PRI Shareholder has adequate means of providing
for his current needs and personal contingencies and has no need for liquidity
in his investment in SCB. Each of the PRI Shareholders, either alone or with
his representatives, has such knowledge and experience in financial and
business matters that he is capable of evaluating the merits and risks of an
investment in SCB.
2.23 Affiliated Transactions and Persons. No PRI Shareholder or
member of his "immediate family" (as defined by the rules and regulations
adopted under the Exchange Act) has any interest in any property (whether real,
personal, or mixed, and whether tangible or intangible) used in or pertaining
to the business of PRI. No PRI Shareholder or member of his immediate family
owns, of record or beneficially, an equity interest or any other financial or
profit interest in any person or entity that has had business dealings with PRI
or engaged in competition with PRI.
2.24 Full Disclosure. All of the information provided by the PRI
Shareholders and their representatives herein or in the PRI Disclosure Letter
is true, correct, and complete in all material respects, and no representation,
warranty, or statement made by the PRI Shareholders in or pursuant to this
Agreement or the PRI Disclosure Letter contains any untrue statement of a
material fact or omits or will omit to state any material fact necessary to
make such representation, warranty, or statement not misleading.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF SCB
Except as set forth in the disclosure letter delivered at or prior to
the execution hereof to the PRI Shareholders (the "SCB Disclosure Letter"), SCB
represents, warrants, and agrees as follows:
3.1 Existence; Good Standing; Corporate Authority. SCB is duly
incorporated, validly existing, and in good standing under the laws of the
State of Tennessee. SCB is duly licensed or qualified to do business as a
foreign corporation and is in good standing under the laws of any other state
of the United States in which the character of the properties owned or leased
by it therein or in which the transaction of its business therein makes such
qualification necessary, except where the failure to be so qualified would not
have a material adverse effect on the business, results of
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operations, or financial condition of SCB (an "SCB Material Adverse Effect").
SCB has all requisite corporate power and authority to own, operate, and lease
its properties and carry on its business as now conducted.
3.2 Authorization, Validity, and Effect of Agreements. SCB has
the requisite corporate power and authority to execute and deliver this
Agreement and all agreements and documents contemplated hereby. The
consummation by SCB of the transactions contemplated hereby has been duly
authorized by all requisite corporate action. This Agreement constitutes, and
all agreements and documents contemplated hereby (when executed and delivered
pursuant hereto) will constitute, the valid and legally binding obligations of
SCB, enforceable in accordance with their respective terms. The issuance and
delivery by SCB of shares of SCB Common Stock pursuant to this Agreement have
been duly and validly authorized by all necessary corporate action on the part
of SCB. The shares of SCB Common Stock to be issued pursuant to this
Agreement, if and when issued in accordance with the terms of this Agreement,
will be validly issued, fully paid, and nonassessable.
3.3 Capitalization. The authorized capital stock of SCB consists
of 1,000,000 shares of preferred stock, none of which is issued and
outstanding, and 20,000,000 shares of SCB Common Stock, of which 7,481,369
shares are issued and outstanding as of the date hereof, approximately
3,693,944 of which outstanding shares are owned by "affiliates" (as such term
is defined under federal securities laws) by SCB. SCB has no outstanding
bonds, debentures, notes, or other obligations, the holders of which have the
right to vote (or which are convertible into or exercisable for securities
having the right to vote) with the shareholders of SCB on any matter. All
issued and outstanding shares of SCB Common Stock are duly authorized, validly
issued, fully paid, nonassessable, and free of preemptive rights. Other than
pursuant to this Agreement, there are no options, warrants, calls,
subscriptions, convertible securities, or other rights, agreements, or
commitments that obligate SCB to issue, transfer, or sell any shares of capital
stock of SCB.
3.4 Subsidiaries. The SCB Disclosure Letter sets forth the
outstanding capital stock and each corporation, partnership, or other entity of
which at least a majority of the voting interest is owned directly or
indirectly by SCB (an "SCB Subsidiary").
3.5 Other Interests. SCB does not own, directly or indirectly,
any interest or investment (whether equity or debt) in any corporation,
partnership, joint venture, business, trust, or other entity, except for the
SCB Subsidiaries.
3.6 No Violation. Neither the execution and delivery by SCB of
this Agreement, nor the consummation by SCB of the transactions contemplated
hereby in accordance with the terms hereof, will: (i) conflict with or result
in a breach of any provisions of the charter or bylaws of SCB; (ii) conflict
with, result in a breach of any provision of or the modification or termination
of, constitute a default under, or result in the creation or imposition of any
lien, security interest, charge, or encumbrance upon any of the assets of SCB
by virtue of the application of any provision contained in, any material
commitment, lease, contract, or other material agreement or instrument to which
SCB is a party; or (iii) violate or result in a change in any rights or
obligations, under any
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governmental permit or license or any order, arbitration award, judgment, writ,
injunction, decree, statute, rule, or regulation applicable to SCB.
3.7 SEC Documents. Prior to the date hereof, SCB has delivered to
the PRI Shareholders copies of the SEC Reports. The SEC Reports (i) were
prepared in all material respects in accordance with the applicable
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations promulgated thereunder, and (ii) as of
their respective dates, did not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements made therein, in the light of the circumstances under which
they were made, not misleading. The consolidated balance sheets included in
the SEC Reports (including the related notes and schedules) fairly present, in
all material respects, the consolidated financial position of SCB as of their
respective dates and each of the consolidated statements of income,
shareholders' equity, and cash flows included in the SEC Reports (including any
related notes and schedules) fairly present, in all material respects, the
results of operations, shareholders' equity, and cash flows of SCB for the
periods set forth therein, in each case in accordance with generally accepted
accounting principles consistently applied during the periods involved, except
as may be noted therein.
3.8 Litigation. As of the date of this Agreement, there is no
action, suit, or proceeding pending against SCB or any SCB Subsidiary or, to
the knowledge of SCB or any SCB Subsidiary, threatened against or affecting SCB
or any SCB Subsidiary, at law or in equity, or before or by any federal or
state commission, board, bureau, agency, or instrumentality, that is reasonably
likely to have an SCB Material Adverse Effect.
3.9 Absence of Certain Changes. Since January 31, 1997, there has
not been any material adverse change in the financial condition, results of
operations, business, assets or liabilities (contingent or otherwise, whether
due or to become due, known or unknown), of SCB, except for changes in the
ordinary course of business.
3.10 No Brokers. SCB has not entered into any contract,
arrangement, or understanding with any person or firm that may result in the
obligation of SCB to pay any finder's fees, brokerage or agent's commissions,
or other like payments in connection with the negotiations leading to this
Agreement or the consummation of the transactions contemplated hereby, except
that SCB has retained ▇▇▇▇▇▇ Capital as its financial advisor (the fees and
expenses of which shall be the sole responsibility of SCB). Other than the
foregoing arrangement, SCB is not aware of any claim for payment of any
finder's fees, brokerage or agent's commissions, or other like payments in
connection with the negotiations leading to this Agreement or the consummation
of the transactions contemplated hereby.
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ARTICLE 4.
COVENANTS
4.1 Covenants of SCB. SCB covenants and agrees as follows:
(a) in the event any Earnout Shares are issuable, SCB
will, prior to May 1, 1998, prepare and submit to Nasdaq (or such
other exchange or quotation system on which SCB Common Stock is then
traded) a notification for listing additional shares covering such
Earnout Shares, and shall use its best efforts to obtain approval for
the listing of such SCB Common Stock, subject, if applicable, to
official notice of issuance.
(b) in order to ensure that determination of the Earnout
Consideration, if any, is on a basis consistent with and comparable to
the operations of PRI prior to the date hereof, SCB will not, without
the prior written consent of the PRI Shareholders, prior to December
31, 1997:
(i) merge or consolidate the business of PRI into
or with any other entity, sell or permit the sale of any
material amount of assets of PRI otherwise than in the
ordinary course of business, or permit PRI to be otherwise
dissolved and liquidated;
(ii) require the employees of PRI to devote more
than an inconsequential amount of their working time (which
for purposes of this Agreement shall mean an amount not in
excess of 10% of their working time and which will otherwise
not materially adversely affect the business of PRI) to
matters other than the conduct of the business of PRI;
(iii) sell or provide any goods or services to PRI,
except those which are reasonably necessary to the conduct of
PRI's business and on terms and conditions no less favorable
to PRI than it could obtain from unrelated third parties;
(iv) materially change the financial or
operational business practices of PRI including materially
increasing expenses associated with the business without a
corresponding increase in the revenues associated with the
business;
(v) change the method of allocating expenses
between PRI and PCG in a manner inconsistent with prior
policies and practices; and
(vi) direct to SCB or any of its affiliates other
than PRI any corporate opportunity of PRI relating to
outsourcing of Unisys-based systems.
4.2 Further Assurances. SCB, from time to time after the Closing
and at the PRI Shareholders' reasonable request, and the PRI Shareholders from
time to time after the Closing and at SCB's reasonable request, will execute,
acknowledge, and deliver to the PRI Shareholders or SCB, as the case may be,
such other instruments of conveyance and transfer and will take such other
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actions and execute and deliver such other documents, certifications, and
further assurances as the PRI Shareholders or SCB, as the case may be, may
reasonably require in order to better enable the other party to complete,
perform, or discharge any of the liabilities or obligations assumed hereunder.
Each of the parties hereto will cooperate with the other and execute and
deliver to the other parties hereto such other instruments and documents and
take such other actions as may be reasonably requested from time to time by any
other party hereto as necessary to carry out, evidence, and confirm the
intended purposes of this Agreement. Without limiting the generality of the
foregoing, SCB will cause PRI to, and the PRI Shareholders will, within 30 days
of the Closing Date, use their best efforts to agree to leases for properties
identified on Schedule 4.2 hereto, with such terms as may be mutually agreeable
to the parties, including fair market value rental rates.
ARTICLE 5.
REGISTRATION RIGHTS AND SALE OF EARNOUT SHARES
5.1 Registration Rights.
(a) If, at any time on or after Earnout Shares, if any, have been
issued to the PRI Shareholders SCB proposes to file a registration statement
under the Securities Act with respect to an underwritten offering for cash by
SCB of its equity securities on a form that would also permit the registration
of the Earnout Shares, SCB will give written notice of such proposal to the PRI
Shareholders; provided, however, that, if there is an effective registration
statement covering the Earnout Shares, no such notice pursuant to this Section
5.1(a) shall be required. In such event, the PRI Shareholders may, by written
request given within five business days after receipt by the PRI Shareholders
of any such notice by SCB, require SCB to cause such number of the Earnout
Shares as requested by the PRI Shareholders to be included in such registration
statement. Notwithstanding the foregoing, if the managing underwriter or
underwriters of such offering, if any, advise SCB that inclusion of the PRI
Shareholders' shares would (i) make it impracticable to conduct an underwritten
offering of the SCB Common Stock being registered at the price at which such
SCB Common Stock could be sold without such inclusion, or (ii) materially
interfere with the success of the offering by SCB, then the number of the
shares requested to be included in the registration by the PRI Shareholders
may be reduced or eliminated. Notwithstanding anything to the contrary in this
Section 5.1(a), SCB may, in its sole discretion and without the consent of the
PRI Shareholders postpone the filing or effectiveness of such registration
statement or withdraw any such registration statement and abandon any proposed
offering.
(b) Notwithstanding the foregoing, SCB shall have no obligation to
register the resale of any Earnout Shares on behalf of the PRI Shareholders or
to keep any previously filed registration statement effective pursuant to this
Article 5 in the event such shares could be sold by the PRI Shareholders
pursuant to and in compliance with Rule 144(k) (or any successor or similar
rule) promulgated pursuant to the Securities Act.
5.2 Expenses. The PRI Shareholders shall bear all brokerage fees,
underwriting discounts, and commissions, if any, applicable to the sale of the
Earnout Shares and the related fees
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and disbursements of their legal counsel and accountants. SCB shall bear all
other expenses in connection with any registration of the Earnout Shares
pursuant to this Article 5.
5.3 SCB Indemnification. In the case of a registration effected
by or pursuant to this Article 5, SCB agrees to indemnify and hold harmless the
PRI Shareholders against any and all losses, claims, damages, or liabilities to
which the PRI Shareholders may become subject under the Securities Act or any
other statute or common law, and to reimburse the PRI Shareholders for any
reasonable legal or other expense actually and reasonably incurred by any of
them in connection with investigating any claim and defending any action,
insofar as such losses, claims, damages, liabilities, or actions arise out of
or are based upon: (i) any untrue statement, or alleged untrue statement, of a
material fact contained in the registration statement or any post-effective
amendment thereof, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; (ii) any untrue statement or alleged untrue statement
of a material fact contained in any preliminary prospectus, if used prior to
the effective date of the registration statement, or contained in the
prospectus (as amended or supplemented if SCB shall have filed with the
Securities and Exchange Commission any amendment thereof or supplement
thereto), if used within the period during which SCB is required to keep the
registration statement in which such prospectus is contained current pursuant
to the terms of this Article 5, or the omission or alleged omission to state
therein a material fact necessary in order to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the indemnification agreement contained in
this Section 5.3 shall not apply to such losses, claims, damages, liabilities,
or actions arising out of, or based upon, any such untrue statement or alleged
untrue statement, or any such omission or alleged omission, if such statement
or omission was made in reliance upon and in conformity with written
information furnished to SCB by the PRI Shareholders or on behalf of the PRI
Shareholders by a person authorized to make such disclosures specifically for
use in connection with the preparation of the registration statement or any
preliminary prospectus contained in the registration statement or any such
amendment thereof or supplement thereto.
5.4 PRI Shareholders Indemnification. In the case of a
registration effected pursuant to this Article 5, each of the PRI Shareholders,
severally and not jointly, agrees to indemnify and hold harmless SCB and each
person, if any, who controls SCB within the meaning of Section 15 of the
Securities Act, its directors, and those officers of SCB who shall have signed
the registration statement or any post-effective amendment thereof or any
preliminary prospectus or prospectus (as amended or as supplemented, if amended
or supplemented as aforesaid) contained in the registration statement against
losses, claims, damages, liabilities, or actions which arise out of or are
based upon: (i) any untrue statement, or alleged untrue statement, of a
material fact contained in the registration statement or any post-effective
amendment thereof, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading; (ii) any untrue statement or alleged untrue statement
of a material fact contained in any preliminary prospectus, if used prior to
the effective date of the registration statement, or contained in the
prospectus (as amended or supplemented if SCB shall have filed with the
Securities and Exchange Commission any amendment thereof or supplement
thereto), if used within the period during which SCB is required to keep the
registration statement in which such prospectus is contained current pursuant
to the terms of this Article 5, or the omission or alleged omission to state
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therein a material fact necessary in order to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading, if such statement or omission was made in reliance upon and in
conformity with information furnished to SCB by the PRI Shareholders or on
behalf of the PRI Shareholders by a person authorized to make such disclosures
in writing specifically for use in connection with the preparation of the
registration statement or any such amendment thereof or supplement thereto.
5.5 Indemnification Procedure. Each indemnified party shall
promptly after the receipt of notice of the commencement of any action against
such indemnified party in respect of which indemnity may be sought from an
indemnifying party on account of an indemnity agreement contained in this
Article 5, notify the indemnifying party in writing of the commencement
thereof; provided, however, that the omission to so notify the indemnifying
party shall not relieve the indemnifying party from any other liability which
it may have to such indemnified party. In case any such action shall be
brought against any indemnified party and it shall notify any indemnifying
party of the commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it may wish, jointly and with any
other indemnifying party similarly notified, to assume the defense thereof,
with counsel reasonably satisfactory to such indemnified party, and after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party shall be responsible for
any reasonable legal or other expenses subsequently actually incurred by the
indemnifying party in connection with the defense thereof; provided further,
that if any indemnified party shall have reasonably concluded that there may be
one or more legal defenses available to such indemnified party that are
different from or additional to those available to the indemnifying party, or
that such claim or litigation involves or could have an effect upon matters
beyond the scope of the indemnity agreement provided in this Article 5, the
indemnifying party shall not have the right to assume the defense of such
action on behalf of such indemnified party, and such indemnifying party shall
be required to reimburse such indemnified party and any person controlling such
indemnified party for the reasonable fees and expenses of any counsel retained
by the indemnified party, but not for matters that are beyond the scope of the
indemnity agreement provided in this Article 5; and provided further, that no
such action shall be settled without the consent of the indemnifying party and
the indemnified party, which consent neither party shall unreasonably withhold.
5.6 Contribution. If the indemnification provided for in this
Article 5 is held by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any loss, liability, claim, damage, or
expense referred to herein, then the indemnifying party, in lieu of
indemnifying such indemnified party hereunder, shall contribute to the amount
paid or payable by such indemnified party as a result of such loss, liability,
claim, damage, or expense in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the statements or omissions that resulted
in such loss, liability, claim, damage, or expense as well as any other
relevant equitable considerations. The relative fault of the indemnifying
party and of the indemnified party shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative
intent, knowledge, access to information, and opportunity to correct or prevent
such statement or omission.
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5.7 Orderly Disposition of Shares. Unless otherwise agreed in
writing in advance by SCB, the PRI Shareholders may not, during any 30-day
period, sell in the aggregate, whether through an effective registration
statement or otherwise, more than one-quarter of the total number of Earnout
Shares then currently owned by the PRI Shareholders. All sales of the Earnout
Shares shall be effected by one or more brokers who are mutually agreeable to
SCB and the PRI Shareholders. This Section 5.7 may be enforced by the delivery
of "stop transfer" instructions by SCB to the transfer agent for the SCB Common
Stock. When and as the Earnout Shares are sold pursuant to a registration
statement or otherwise, the PRI Shareholders shall provide SCB with
confirmations or other evidence of the sale thereof and the price therefor.
5.8 PRI Shareholder Information. Each of the PRI Shareholders
shall promptly furnish SCB, upon request, with all information as may be
reasonably required for inclusion in the registration statement, or any
amendment or supplement thereto. Such information shall be furnished during
the period within which SCB is required to effect such registration pursuant to
this Article 5 and shall include, without limitation, a description of the
nature and method of the proposed offer and sale of the shares.
5.9 No Injunction. None of the PRI Shareholders shall have any
right to take any action to restrain, enjoin, or otherwise delay any
registration as a result of any controversy that might arise with respect to
the interpretation or implementation of this Article 5.
5.10 Nonassignable. The rights of the PRI Shareholders pursuant to
this Article 5 are not transferable or assignable to any person.
5.11 Nonexclusivity. Nothing in this Article 5 shall prohibit SCB
from including in the registration statement subject to this Article 5 any
shares of SCB Common Stock it chooses to register on behalf of SCB or any
holders other than the PRI Shareholders, on substantially the same terms and
conditions.
ARTICLE 6.
SURVIVAL OF REPRESENTATIONS AND
WARRANTIES; INDEMNIFICATION
6.1 Survival of Representations and Warranties. The
representations and warranties of the parties contained in Articles 2 and 3 of
this Agreement, and the parties' rights to pursue any claim under this Article
6, shall survive for a period of one year from the Effective Date (regardless
of any investigation conducted by the parties with respect thereto) and no
claim for a misrepresentation or breach of warranty, including, without
limitation, any claim for indemnification arising from an alleged
misrepresentation or breach of warranty, may be made hereunder by either party
unless such party has given the other party written notice of the claim on or
before July 31, 1998.
6.2 Indemnification by the PRI Shareholders. Subject to the
provisions of this Article 5 and the Escrow Agreement, the PRI Shareholders,
jointly and severally, in accordance with the
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Escrow Agreement, agree to indemnify and hold harmless SCB and PRI and PCG
following the Effective Date (each being an "SCB Indemnified Party"), from and
against, and will reimburse any SCB Indemnified Party for, any and all claims,
losses, damages, liabilities, and expenses (including, without limitation,
settlement costs and any reasonable legal or other fees or expenses for
investigating or defending any actions or threatened actions), or diminution in
value (in excess of $100,000 on a cumulative aggregate basis), whether or not
involving a third-party claim, arising from or in connection with each and all
of the following:
(a) any misrepresentation or breach of any warranty made
by the PRI Shareholders in this Agreement;
(b) the nonfulfillment or breach of any covenant,
agreement, or obligation of the PRI Shareholders contained in this
Agreement;
(c) any misrepresentation or breach of any warranty
contained in any written statement, certificate, or other document
furnished by the PRI Shareholders pursuant to this Agreement or in
connection with the transaction contemplated by this Agreement;
(d) amounts in excess of the Westchester Reserve properly
reimbursed to IBM or any other person in accordance with or pursuant
to the terms of the Westchester Contract, which amounts arise out of
or relate to the termination, amendment, or modification of the
Westchester Contract by IBM or at the direction of any judicial or
regulatory authority;
(e) any amounts paid to any of Messrs. Dunne, Linklater,
Causse, Hamel, or ▇▇▇▇▇▇ pursuant to any employment or consulting
contract entered into prior to the Closing Date in excess of such
person's base salary as of the Closing Date as reflected in the books
and records of PRI or PCG;
(f) any attempt (whether or not successful) by any person
to cause or require such SCB Indemnified Party to pay or discharge any
debt, obligation, liability, or commitment, the existence of which
would entitle such SCB Indemnified Party to indemnification pursuant
to clauses (a) through (e) of this Section 6.2.
6.3 Indemnification by SCB. Subject to the provisions of this
Article 6, SCB shall indemnify, defend, and hold harmless, the PRI Shareholders
and their respective estates (each being a "Seller Indemnified Party"), and
will reimburse any Seller Indemnified Party for any and all claims, losses,
damages, liabilities, and expenses (including, without limitation, settlement
costs and any legal or other fees or expenses for investigating or defending
any actions or threatened actions) arising from or in connection with each and
all of the following:
(a) any misrepresentation or breach of any warranty made
by SCB in this Agreement;
(b) the nonfulfillment or breach of any covenant,
agreement, or obligation of SCB contained in this Agreement;
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(c) any misrepresentation or breach of any warranty
contained in any statement, certificate, or other document furnished
by SCB pursuant to this Agreement or in connection with the
transactions contemplated by this Agreement;
(d) any attempt (whether or not successful) by any person
to cause or require such Seller Indemnified Party to pay or discharge
any debt, obligation, liability, or commitment, the existence of which
would entitle such Seller Indemnified Party to indemnification
pursuant to clauses (a) through (c) of this Section 6.3; and
(e) a loss by a PRI Shareholder (up to an aggregate of
$5,400,000 for all PRI Shareholders) pursuant to a guarantee by such
PRI Shareholder of an obligation of PRI, provided that such guarantee
has been disclosed to SCB prior to the Closing Date.
6.4 Indemnification Procedure. Subject to the differing
provisions of the Escrow Agreement governing procedures for indemnification if
the Escrow Agreement is still in effect, an indemnified party shall promptly
notify the indemnifying party of any claim, demand, action, or proceeding for
which indemnification will be sought under Section 6.2 or 6.3 of this
Agreement, and, if such claim, demand, action, or proceeding is a third party
claim, demand, action, or proceeding, the indemnifying party will have the
right at its expense to assume the defense thereof using counsel reasonably
acceptable to the indemnified party. The indemnified party shall have the
right to participate, at its own expense, with respect to any such third party
claim, demand, action, or proceeding. In connection with any such third party
claim, demand, action, or proceeding, SCB and the PRI Shareholders shall
cooperate with each other and provide each other with access to relevant books
and records in their possession. No such third party claim, demand, action, or
proceeding shall be settled without the prior written consent of the
indemnified party. If a firm written offer is made to settle any such third
party claim, demand, action, or proceeding and the indemnifying party proposes
to accept such settlement, and the indemnified party refuses to consent to such
settlement, then: (i) the indemnifying party shall be excused from, and the
indemnified party shall be solely responsible for, all further defense of such
third party claim, demand, action, or proceeding; and (ii) the maximum
liability of the indemnifying party relating to such third party claim, demand,
action, or proceeding shall be the amount of the proposed settlement if the
amount thereafter recovered from the indemnified party on such third party
claim, demand, action, or proceeding is greater than the amount of the proposed
settlement.
6.5 Right of Set-Off. SCB shall have a right of set-off against
the Escrow Amount, subject to and in accordance with the provisions of and the
procedures described in the Escrow Agreement, and against any and all amounts
due and owing the PRI Shareholders as Earnout Consideration, if any, pursuant
to this Agreement (the exercise of which set-off in good faith, whether or not
ultimately determined to be justified, will not constitute a breach of Article
I hereof) to satisfy any indemnification right of SCB hereunder or any
obligation or agreement of the PRI Shareholders hereunder.
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ARTICLE 7.
GENERAL PROVISIONS
7.1 Notices. Any notice required to be given hereunder shall be
sufficient if in writing, by courier service (with proof of service), hand
delivery or certified or registered mail (return receipt requested and
first-class postage prepaid), addressed as follows:
If to SCB: If to the PRI
Shareholders:
▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇. At their addresses identified
President and Chief on the signature page hereto
Executive Officer
SCB Computer Technology, Inc.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
with a copy to: with a copy to:
▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
Bass, ▇▇▇▇▇ & ▇▇▇▇ PLC Peskind ▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, P.C.
2700 First American Center ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
or to such other address as any party shall specify by written notice so given,
and such notice shall be deemed to have been delivered as of the date so
personally delivered or mailed.
7.2 Assignment; Binding Effect; Benefit. Neither this Agreement
nor any of the rights, interests, or obligations hereunder shall be assigned by
any of the parties hereto (whether by operation of law or otherwise) without
the prior written consent of the other parties, at each such party's sole
discretion. Subject to the preceding sentence, this Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns.
7.3 Entire Agreement. This Agreement, the Exhibits, the PRI
Disclosure Letter, the SCB Disclosure Letter, and any documents delivered by
the parties in connection herewith constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior and
contemporaneous agreements and understandings among the parties with respect
thereto. No addition to or modification of any provision of this Agreement
shall be binding upon any party hereto unless made in writing and signed by all
parties hereto.
7.4 Amendment. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties hereto.
7.5 Governing Law. The validity of this Agreement, the
construction of its terms and the determination of the rights and duties of the
parties hereto shall be governed by and construed in
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accordance with the laws of the State of Tennessee applicable to contracts made
and to be performed wholly within such state.
7.6 Counterparts. This Agreement may be executed by the parties
hereto in separate counterparts, each of which when so executed and delivered
shall be an original, but all such counterparts shall together constitute one
and the same instrument. Each counterpart may consist of a number of copies
hereof each signed by less than all, but together signed by all of the parties
hereto.
7.7 Waivers. Except as provided in this Agreement, no action
taken pursuant to this Agreement, including, without limitation, any
investigation by or on behalf of any party, shall be deemed to constitute a
waiver by the party taking such action of compliance with any representations,
warranties, covenants, or agreements contained in this Agreement. The waiver
by any party hereto of a breach of any provision hereunder shall not operate or
be construed as a waiver of any prior or subsequent breach of the same or any
other provision hereunder.
7.8 Incorporation of Exhibits. The PRI Disclosure Letter, the SCB
Disclosure Letter, and the Exhibits attached hereto and referred to herein are
hereby incorporated herein and made a part hereof for all purposes as if fully
set forth herein.
7.9 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of
this Agreement is so broad as to be unenforceable, the provision shall be
interpreted to be only so broad as is enforceable.
7.10 Expenses. Each party to this Agreement shall bear its own
expenses in connection with the transactions contemplated hereby; provided,
however, that all expenses of PRI in connection herewith shall be borne by the
PRI Shareholders.
7.11 Enforcement of Agreement. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions hereof in any court of
competent jurisdiction, this being in addition to any other remedy to which
they are entitled by contract, at law, or in equity.
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IN WITNESS WHEREOF, the parties have executed this Agreement and
caused the same to be duly delivered on their behalf to be effective on the day
and year first written above.
SCB COMPUTER TECHNOLOGY, INC.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------------------------
Title: Senior Vice President
----------------------------------
THE PRI SHAREHOLDERS:
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
----------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Address: ▇▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇
--------------------------------
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
----------------------------------------
----------------------------------------
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Address: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇.
--------------------------------
▇▇▇▇▇, ▇▇ ▇▇▇▇▇
----------------------------------------
----------------------------------------
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ by ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇ as attorney in fact
----------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Address:
--------------------------------
----------------------------------------
----------------------------------------
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Address: 1124 Miramar
--------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
----------------------------------------
----------------------------------------
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ATTACHMENTS AND EXHIBITS
PRI Disclosure Letter
SCB Disclosure Letter
Exhibit A -- PRI Shareholder Allocations and Wire Transfer Instructions
Exhibit B -- Indemnity and Escrow Agreement
Exhibit C -- Purchase Price Allocations
Exhibit D -- Form of SCB Counsel Legal Opinion
Exhibit E -- Form of Employment Agreement
Exhibit F -- Form of PRI Counsel Legal Opinion
Exhibit G -- Form of Non-Competition Agreement
Exhibit I -- Assignment and Assumption Agreement
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