<PAGE>
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE PERIOD ENDED SEPTEMBER 30, 1998
Commission file number: 000-23735
PRECEPT BUSINESS SERVICES, INC.
(Exact name of registrant as specified in its charter)
Texas 75-2487353
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1909 Woodall Rodgers Freeway, Suite 500 75201
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 754-6600
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. [X] Yes [ ] No
As of November 12, 1998, there were 55,064,764 outstanding shares of Class A
Common Stock, 4,145,000 outstanding shares of Class B Common Stock and
2,337,500 outstanding warrants to purchase shares of Class A Common Stock.
===============================================================================
<PAGE>
PRECEPT BUSINESS SERVICES, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- ----------- ----
<S> <C> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial statements.................................................. 3
Item 2 Management's discussion and analysis of financial
condition and results of operations................................. 14
PART II OTHER INFORMATION
Item 1 Legal proceedings..................................................... 22
Item 2 Changes in securities and use of proceeds............................. 22
Item 3 Defaults by the company on its senior securities...................... 22
Item 4 Results of votes of holders........................................... 22
Item 5 Other information..................................................... 22
Item 6 Exhibits.............................................................. 23
Signatures............................................................ 24
</TABLE>
2
<PAGE>
PRECEPT BUSINESS SERVICES, INC.
PART I
ITEM I - FINANCIAL INFORMATION
3
<PAGE>
PRECEPT BUSINESS SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, June 30,
1998 1998
------------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................. $ 2,423,343 $ 2,291,303
Trade accounts receivable, net of $410,000 and $404,000
allowance for doubtful accounts, respectively..................... 19,005,109 15,595,234
Accounts receivable from affiliates................................... 1,133,011 1,186,908
Other accounts receivable............................................. 2,117,529 1,609,529
Inventory............................................................. 6,390,981 5,133,484
Other current assets.................................................. 1,504,924 805,151
Deferred income taxes 680,344 499,264
Net assets of discontinued operations................................. - 1,115,125
------------- -------------
Total current assets.............................................. 33,255,241 28,235,998
Property and equipment, net.............................................. 6,205,384 5,751,487
Intangible assets, net................................................... 32,610,307 19,558,050
Deferred income taxes.................................................... 1,109,976 1,102,372
Other assets............................................................. 2,440,667 1,838,697
------------- -------------
Total assets.................................................. $ 75,621,575 $ 56,486,604
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable................................................ $ 9,345,512 $ 5,844,671
Accrued compensation................................................. 1,988,067 1,943,964
Other accounts payable and accrued expenses........................... 4,892,186 5,189,268
Current portion of long-term debt..................................... 1,471,236 1,421,477
------------- -------------
Total current liabilities......................................... 17,697,001 14,399,380
Long-term debt........................................................... 25,866,998 20,084,756
Commitments and contingencies
Shareholders' equity:
Preferred stock, $1.00 par value; 3,000,000 authorized shares, none
issued............................................................ - -
Class A common stock, $0.01 par value; 100,000,000 authorized shares
and 53,191,429 and 48,090,880 issued shares,
respectively...................................................... 531,914 480,909
Class B common stock, $0.01 par value; 10,500,000 authorized shares
and 4,145,000 shares outstanding.................................. 41,450 41,450
Additional paid-in capital............................................ 32,581,346 23,067,285
Retained earnings (accumulated deficit)............................... (905,863) (1,395,905)
------------- -------------
32,248,847 22,193,739
Class A treasury stock - 478,844 shares............................... (191,271) (191,271)
------------- -------------
Total shareholders' equity........................................ 32,057,576 22,002,468
------------- -------------
Total liabilities and shareholders' equity.................... $ 75,621,575 $ 56,486,604
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
PRECEPT BUSINESS SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three months ended
September 30,
-------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Revenue:
Business products........................................................ $ 30,904,655 $ 27,393,512
Transportation services.................................................. 3,913,472 1,638,547
------------- -------------
34,818,127 29,032,059
Costs and expenses:
Cost of goods sold....................................................... 22,998,898 18,455,294
Sales commissions........................................................ 4,279,345 3,562,303
Selling, general and administrative...................................... 5,472,370 5,822,081
Depreciation and amortization............................................ 649,915 286,778
------------- -------------
33,400,528 28,126,456
------------- -------------
Operating income............................................................ 1,417,599 905,603
Interest and other expense:
Interest expense......................................................... 468,086 175,648
Other expense............................................................ 7,124 33,135
------------- -------------
475,210 208,783
------------- -------------
Income from continuing operations before income taxes....................... 942,389 696,820
Income tax provision ....................................................... 452,347 278,728
------------- -------------
Income from continuing operations........................................... 490,042 418,092
------------- -------------
Loss from discontinued operations, net of applicable income taxes........... - (164,977)
------------- -------------
Net income.................................................................. $ 490,042 $ 253,115
============= =============
Basic net income per share:
Income from continuing operations........................................ $ 0.01 $ 0.01
Loss from discontinued operations........................................ - -
-------------- --------------
Net income............................................................... $ 0.01 $ 0.01
============== ==============
Weighted average shares outstanding...................................... 53,599,997 42,623,332
Diluted net income per share:
Income from continuing operations........................................ $ 0.01 $ 0.01
Loss from discontinued operations........................................ - -
-------------- --------------
Net income............................................................... $ 0.01 $ 0.01
============== ==============
Weighted average shares outstanding...................................... 54,909,440 42,623,332
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
PRECEPT BUSINESS SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three months ended
September 30,
-------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income.............................................................. $ 490,042 $ 253,115
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization....................................... 649,915 267,924
Changes in operating assets and liabilities, net of effects from
acquisitions
Trade accounts receivable....................................... 294,609 (1,205,740)
Accounts receivable from affiliates............................. 53,897 (83,419)
Other accounts receivable....................................... (508,000) (218,424)
Inventory....................................................... 326,761 (320,599)
Other current assets............................................ (753,042) (198,077)
Income taxes refundable......................................... - 265,400
Trade accounts payable.......................................... 2,254,422 2,138,107
Accrued compensation............................................ (233,021) (345,628)
Other assets and liabilities, net............................... (125,049) (355,387)
-------------- -------------
Net cash provided by operating activities........................... 2,450,534 197,272
-------------- -------------
Cash flows provided by (used in) investing activities:
Acquisitions of businesses, including earnout payments.................. (5,990,513) (381,941)
Sale of net assets of discontinued operations........................... 1,115,125 -
Acquisition of property and equipment, net.............................. (257,848) (254,645)
-------------- -------------
Net cash used in investing activities............................... (5,133,236) (636,586)
-------------- -------------
Cash flows provided by (used in) financing activities:
Payments on long-term debt.............................................. (192,754) (256,732)
Payments of capital lease obligations................................... (492,504) (70,482)
Borrowings (payments) on revolving line of credit, net.................. 3,500,000 (50,000)
------------- -------------
Net cash provided by (used in) financing activities................. 2,814,742 (377,214)
------------- -------------
Net increase (decrease) in cash and cash equivalents....................... 132,040 (816,528)
Cash and cash equivalents at beginning of period........................... 2,291,303 2,432,202
------------- -------------
Cash and cash equivalents at end of period................................. $ 2,423,343 $ 1,615,674
============= =============
Cash paid for:
Interest................................................................ $ 273,300 $ 251,102
============= =============
Income taxes............................................................ $ 301,815 $ 58,197
============= =============
</TABLE>
See accompanying notes to consolidated financial statements
6
<PAGE>
PRECEPT BUSINESS SERVICES, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
RETAINED
CLASS A CLASS B ADDITIONAL EARNINGS TOTAL
COMMON COMMON PAID-IN (ACCUMULATED SHAREHOLDERS'
STOCK STOCK CAPITAL DEFICIT) OTHER EQUITY
-------- -------- ----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Balance, June 30, 1997 .... $325,204 $101,030 $17,437,778 $ (750,062) $(1,012,307) $16,101,643
Net income ................ -- -- -- 253,115 -- 253,115
-------- -------- ----------- ------------ ----------- ------------
Balance, September 30,
1997..................... $325,204 $101,030 $17,437,778 $ (496,947) $(1,012,307) $16,354,758
======== ======== =========== ============ =========== ============
Balance, June 30, 1998 .... $480,909 $ 41,450 $23,067,285 $(1,395,905) $ (191,271) $22,002,468
Issuance of shares to
acquire businesses ...... 51,005 -- 9,514,061 -- -- 9,565,066
Net income ................ -- -- -- 490,042 -- 490,042
-------- -------- ----------- ------------ ----------- ------------
Balance, September 30,
1998 .................. $531,914 $ 41,450 $32,581,346 $ (905,863) $ (191,271) $32,057,576
======== ======== =========== ============ =========== ============
</TABLE>
See accompanying notes to consolidated financial statements.
7
<PAGE>
PRECEPT BUSINESS SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
1. BUSINESS
Precept Business Services, Inc. and its subsidiaries ("Precept" or
the "Company") primarily engage in business products distribution management
and services and, to a lesser extent, in executive chauffeured limousine,
livery and courier services. The business products management business
comprises arranging for the manufacture, storage, and distribution of
business forms, computer supplies, advertising information and other related
business products for mid-to large-sized corporate customers. Precept
operates from offices throughout the United States. The transportation
services are provided from locations in Texas, New York, Ohio and Michigan.
PUBLICLY TRADED COMPANY
In March 1998, Precept completed its acquisition of U. S.
Transportation Systems, Inc. ("USTS"), a company whose common stock was
publicly traded on the NASDAQ SmallCap Market ("NASDAQ"). As part of this
acquisition, Precept listed its Class A common shares and its warrants to
purchase Class A common shares for public trading with NASDAQ and issued
9,612,500 shares of its Class A common stock to USTS and 1,815,000 warrants
to the former USTS warrant holders. Precept's Class A common stock trades
under the NASDAQ symbol "PBSIA" and its warrants trade under the NASDAQ
symbol "PBSIW."
CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements comprise the accounts of the
Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
PRO FORMA INFORMATION
The pro forma information included in these financial statements and
notes is unaudited.
FISCAL YEAR END AND QUARTERLY REPORTING PERIODS
The Company maintains a June 30 fiscal year end and ends its
quarterly reporting periods on September 30, December 31, and March 31,
respectively. For purposes of the Company's current report on Form 10-Q,
references to 1999 and 1998 are meant to be the quarterly reporting periods
ended September 30, 1998 and 1997, respectively.
REVERSE STOCK SPLIT
On November 11, 1998, the shareholders of the Company approved a one
for seven reverse stock split that is expected to take effect by the end of
November 1998. Since the reverse split will not take effect until after the
date of this report, the financial information of the Company presented in
this Form 10-Q has not been restated to give effect to the reverse split.
8
<PAGE>
PRECEPT BUSINESS SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Significant accounting policies followed in the preparation of the
consolidated financial statements are consistent with the accounting policies
described in the Company's notes to consolidated financial statements
included in the Company's Annual Report to Shareholders and Form 10-K for the
fiscal year ended June 30, 1998.
INTERIM FINANCIAL INFORMATION
The accompanying interim financial statements are unaudited. Certain
information and disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have
been condensed or omitted, although the Company believes that the disclosures
included herein are adequate to make the information presented not
misleading. These interim financial statements should be read in conjunction
with the Company's consolidated financial statements for the year ended June
30, 1998. The interim financial statements include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the Company's financial position, its results of operations
and its cash flows. Operating results for any particular interim period are
not necessarily indicative of the operating results for a full fiscal year.
The financial information for the year ended June 30, 1998 is
derived from the Company's audited financial statements for the same year as
included in the Company's Form 10-K for fiscal year 1998.
COMPREHENSIVE INCOME
There are no significant differences between the Company's
historical income and comprehensive income and, as a result, comprehensive
income is not shown separately on the statement of operations.
3. ACQUISITIONS
During the first quarter of fiscal year 1999, Precept acquired four
business products distribution companies. These acquisitions were accounted
for using the purchase method of accounting. For each of these purchase
acquisitions, the aggregate acquisition cost was allocated to the net assets
acquired based on the fair market value of such net assets. The operating
results of such companies have been included in the Company's historical
results of operations for all periods following the acquisition. The
aggregate acquisition cost for such purchased businesses amounted to $18.6
million and consisted of $5.7 million in cash, funded by working capital and
the Company's revolving line of credit, 5.1 million shares of class A common
stock with an aggregate fair market value of $9.6 million, and $3.3 million
in seller notes and assumed debt.
In fiscal year 1998, the Company issued 6.1 million shares of its
Class A common stock with an aggregate fair market value of $18.3 million at
the date of acquisition in order to acquire two business products
distribution companies, InfoGraphix and MBF. These acquisitions have been
accounted for using the pooling of interests method of accounting. The
Company's consolidated financial statements give retroactive effect to the
acquisitions of such companies for all periods presented.
9
<PAGE>
PRECEPT BUSINESS SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
The following presents the separate results from continuing
operations, in the first quarter of fiscal year 1998, of the Company
(excluding the results of InfoGraphix and MBF prior to the dates on which
they were acquired) and of InfoGraphix and MBF up to the dates on which they
were acquired.
<TABLE>
<CAPTION>
Three months ended
September 30, 1997
------------------
<S> <C>
Revenue:
Company (excluding InfoGraphix and MBF)....................... $ 18,935,478
InfoGraphix................................................... 5,422,768
MBF........................................................... 4,673,813
------------
Company....................................................... $ 29,032,059
============
Net income:
Company (excluding InfoGraphix and MBF)....................... $ 135,108
InfoGraphix................................................... 114,026
MBF........................................................... 168,958
------------
Company....................................................... $ 418,092
============
</TABLE>
During the first quarter of fiscal year 1998, the Company completed
the purchase of two business products distributors for a total of $0.5
million. The acquisitions were accounted for using the purchase method of
accounting with the majority of the purchase price attributable to accounts
receivable, inventory, equipment and goodwill.
The following table summarizes the consideration for the purchase
acquisitions completed and the fair value of the assets acquired.
<TABLE>
<CAPTION>
Three months ended
September 30,
-------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Purchase consideration:
Cash paid..................................................... $ 5,736,000 $ 520,000
Amounts due sellers of acquired businesses.................... 1,380,000 -
Common stock issued........................................... 9,604,000 -
Liabilities assumed........................................... 1,777,000 -
Other......................................................... 107,000 -
------------- -------------
Fair value of net assets acquired.................................. $ 18,604,000 $ 520,000
============= =============
<CAPTION>
Three months ended
September 30,
-------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Allocation of fair value of net assets acquired:
Goodwill and intangible assets................................ $ 13,323,000 $ 507,000
Accounts receivable........................................... 3,704,000 -
Inventory and other, net...................................... 1,577,000 13,000
------------- -------------
$ 18,604,000 $ 520,000
============= =============
</TABLE>
The following table presents the pro forma results of continuing
operations as if all the acquisitions described above had occurred at the
beginning of each period presented. Pro forma adjustments reflect additional
amortization expense since the excess of acquisition cost over the fair value
of the assets acquired is amortized for a full period. Pro forma adjustments
also reflect additional interest expense due to the related debt being
outstanding for a full period. The income tax effect of the pro forma
adjustments has also been reflected. These pro forma results are presented
for comparative purposes only and do not purport to be indicative of what
would have occurred had the businesses actually been acquired as of those
dates or of results which may occur in the future.
10
<PAGE>
PRECEPT BUSINESS SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Three months ended
September 30,
-------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Total revenues............................................... $ 41,201,000 $ 42,490,000
Income before income taxes .................................. $ 1,330,000 $ 1,823,000
Net income................................................... $ 691,000 $ 1,094,000
Diluted net income per share................................. $ 0.01 $ 0.02
</TABLE>
Since September 30, 1998, Precept has acquired one corporate
transportation service company which provides executive town car and
limousine service primarily in the tri-state New York metropolitan area.
Aggregate consideration for this transaction amounted to $9.4 million, paid
$3.4 million in cash, 2.4 million shares of common stock with a market value
of $3.6 million and approximately $2.4 million in debt assumed. Assets with a
preliminary aggregate fair value of $7.0 million were acquired with a
preliminary allocation as follows: $7.9 million to goodwill and intangible
assets, $0.6 million to accounts receivable, $2.4 million to property and
equipment and $3.9 million (net) to other liabilities.
If the acquisitions since July 1, 1998 had been completed at the
beginning of the first quarter of fiscal year 1999, the pro forma results of
continuing operations would have been as shown below. Pro forma adjustments
have been recorded for amortization, interest and income taxes.
<TABLE>
<CAPTION>
Three months ended
September 30, 1998
------------------
<S> <C>
Total revenues.................................................... $ 44,692,000
Income before income taxes........................................ $ 1,730,000
Net income........................................................ $ 900,000
Diluted net income per share...................................... $ 0.02
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
September 30, June 30,
Estimated Lives 1998 1998
--------------- ------------- -------------
<S> <C> <C> <C>
Land $ 441,654 $ 411,000
Buildings 15 to 40 years 1,672,166 1,670,926
Leasehold improvements 1 to 10 years 695,615 455,118
Equipment and vehicles 3 to 5 years 7,610,288 7,020,965
Capitalized leasehold rights 3 to 5 years 1,324,963 1,353,279
------------- -------------
11,744,686 10,911,288
Accumulated depreciation and amortization.................... 5,539,302 5,159,801
------------- -------------
$ 6,205,384 $ 5,751,487
============= =============
</TABLE>
11
<PAGE>
PRECEPT BUSINESS SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
5. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
September 30, June 30,
1998 1998
------------- -------------
<S> <C> <C>
Goodwill........................................................ $ 36,833,360 $ 23,510,689
Non-compete agreements.......................................... 1,200,659 1,200,659
------------- -------------
38,034,019 24,711,348
Accumulated amortization........................................ 5,423,712 5,153,298
------------- -------------
$ 32,610,307 $ 19,558,050
============= =============
</TABLE>
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
September 30, June 30,
1998 1998
------------- -------------
<S> <C> <C>
Revolving line of credit........................................ $ 19,465,478 $ 15,965,478
Note payable and long-term liability to shareholder............. 721,049 813,803
Convertible notes payable to sellers............................ 3,459,900 2,114,435
Capitalized lease obligations and other notes payable........... 3,691,807 2,612,517
------------- -------------
27,338,234 21,506,233
Less current portion due within one year........................ 1,471,236 1,421,477
------------- -------------
Long-term debt.................................................. $ 25,866,998 $ 20,084,756
============= =============
</TABLE>
REVOLVING LINE OF CREDIT
The Company's revolving line of credit with its bank has $25.0
million available for borrowing to finance working capital and acquisition
needs. The line of credit bears interest at prime (8.25% at September 30,
1998) or at LIBOR plus a maximum margin of 2.75%. The margin rate may be
lower based on the Company's ratio of debt to earnings before interest,
taxes, depreciation and amortization ("EBITDA"). As of September 30, 1998,
the margin rate was 2.5%. The revolving line of credit includes restrictions
as to the current ratios and debt service coverage as well as borrowing
restrictions based upon accounts receivable, inventory and property and
equipment. The line of credit is secured by substantially all of the assets
of the Company. The revolving line of credit is due and payable on March 31,
2001.
7. SEGMENT INFORMATION
The table below presents certain segment information from continuing
operations for the quarters ended September 30, 1998 and 1997. Intersegment
sales included in operating income below amounted to $1,671 and $20,596 for
the business products segment and $141,380 and $164,348 for the
transportation services segment for the quarters ended September 30, 1998 and
1997, respectively.
<TABLE>
<CAPTION>
Three months ended
September 30,
------------- -------------
1998 1997
------------- -------------
<S> <C> <C>
Operating income:
Business products............................................ $ 879,569 $ 922,182
Transportation services...................................... 646,962 26,799
Other........................................................ (108,932) (43,378)
------------- -------------
Total operating income................................... 1,417,599 905,603
Interest and other expense........................................ (475,210) (208,783)
------------- -------------
Income before income taxes........................................ $ 942,389 $ 696,820
============= =============
</TABLE>
12
<PAGE>
PRECEPT BUSINESS SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
Three months ended
September 30,
-------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Identifiable assets:
Business products............................................ $ 56,124,427 $ 29,560,462
Transportation services...................................... 17,444,535 1,945,521
Other........................................................ 2,052,613 4,410,147
------------- -------------
Total identifiable assets................................ $ 75,621,575 $ 35,916,130
============= =============
</TABLE>
8. WEIGHTED AVERAGE SHARES OUTSTANDING
The following table provides information to reconcile the basic and
diluted weighted average shares outstanding for the three-month periods ended
September 30, 1998 and 1997.
<TABLE>
<CAPTION>
Three months ended
September 30,
--------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Basic weighted average shares outstanding:
Common shares, Class A and Class B, outstanding at the
beginning of the period ............................................ 51,757,036 42,623,332
Common shares used to acquire businesses during the period ............. 5,100,520 --
----------- -----------
Common shares, Class A and Class B, outstanding at the end of
the period ......................................................... 56,857,556 42,623,332
=========== ===========
Weighted average number of common shares outstanding during the
period based on the number of days outstanding (A) ................. 53,599,997 42,623,332
=========== ===========
Diluted weighted average shares outstanding:
Common stock options:
Number of outstanding options ...................................... 3,586,848 324,832
Number of options vested ........................................... 446,516 324,832
Number of options which would be exercised based on average market
value of common stock during the period ....................... -- 324,852
Proceeds from exercise of options .................................. $ 373,344 $ --
Common shares repurchased with proceeds ............................ 145,941 --
Common shares issued from exercise of options, net (B) ............. 178,910 --
=========== ===========
Warrants to purchase common stock:
Number of warrants outstanding ..................................... 2,337,500 --
Number of warrants which would be exercised based on average market
value of common stock during the period ....................... 170,000 --
Net proceeds from exercise of warrants ............................. $ 12,781 $ --
Common shares repurchased with proceeds ............................ 4,966 --
Common shares issued from exercise of warrants (C) ................. 165,004 --
=========== ===========
Convertible notes payable:
Face value of notes which would be converted based on average market
value of common stock during the period $ 2,470,000 $ 440,000
Common shares issued upon conversion (D) ........................... 965,529 --
=========== ===========
Interest expense reduction, net of income taxes, associated
with notes which are converted ................................ $ 34,412 --
=========== ===========
Diluted weighted average common shares outstanding
(A + B + C + D) .................................................... 54,909,440 42,623,332
=========== ===========
</TABLE>
13
<PAGE>
PRECEPT BUSINESS SERVICES, INC.
PART I
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
14
<PAGE>
OVERVIEW
Precept is an independent distributor of custom and stock business
products and provider of document management services ("Business Products")
to businesses in a variety of industries throughout the United States.
Precept also operates six corporate transportation service ("Transportation
Services") companies in the United States.
Precept was one of the first organizations to begin nationwide
consolidation of operating companies in the Business Products industry. Since
1991, Precept has acquired 25 companies in the Business Products industry
plus 10 in the Transportation Services industry.
A component of Precept's business strategy is to increase the size
of its operations through strategic acquisitions and internally generated
growth. Precept places substantial emphasis on improving operational and
information system capabilities while integrating acquired operations.
Precept's operational focus also includes continuous upgrading of management
systems allowing improved customer access to financial inventory and order
status information; new product and service offerings; preferred vendor
programs incorporating volume purchasing; regional and district management
oversight; and recruiting experienced sales individuals. Precept believes
that these strategies will lead to lower cost of goods and increased sales of
various products and services to existing and new customers.
This section should be read in conjunction with the Company's
financial statements included in this report and with the Company's annual
report on Form 10-K for the year ended June 30, 1998.
ACQUISITIONS
The Company's results of operations and the comparability of the
Company's results of operations from period to period have been significantly
affected by businesses acquired in each period. From 1991 through the end of
the first quarter of fiscal year 1999, the Company completed 35 acquisitions:
25 business products distribution companies and 10 transportation service
companies. Two business products companies acquired in fiscal year 1998 were
accounted for using the pooling-of-interests method and, as a result, the
consolidated financial statements of the Company have been restated to
combine the financial statements of the Company with the pooled companies'
financial statements for all periods presented. The remaining acquisitions
have been accounted for following the purchase method and, as a result, the
results of operations of the acquired companies have been included in the
Company's results of operations from the dates of acquisition.
In the three month period ended September 30, 1998, the Company
completed the acquisitions of four business products companies located in
Salt Lake City, Utah; Houston, Texas; Bangor, Maine; and Florence, South
Carolina with combined annual revenues of $34.3 million. Such acquisitions
were paid for with an aggregate of $5.8 million in cash, financed by the
Company's working capital revolving line of credit, $1.4 million in seller
notes, 5.3 million shares of Class A common stock with a fair market value of
$9.6 million, and $1.8 million in assumed debt.
In the three month period ended September 30, 1997, the Company
completed the acquisition of two business products company located in New
York and Fort Worth, Texas with annual revenues of $0.6 million. Such
acquisition was paid for with $0.5 million in cash, financed by the Company's
revolving line of credit.
Since September 30, 1998, the Company has acquired one corporate
transportation services company located in North Arlington, New Jersey, which
provides executive limousine and town car service to the tri-state New York
metropolitan area with annual revenues of $14.0 million. Such acquisition was
paid for with $3.4 million in cash, financed by the Company's revolving line
of credit, $3.6 million in fair market value of 2.4 million shares of Class A
common stock, and $2.4 million in assumed debt.
15
<PAGE>
PURCHASE ACCOUNTING EFFECTS
The Company's acquisitions have been primarily accounted for using
the purchase accounting method. The acquisitions have currently affected, and
will prospectively affect, the Company's results of operations in certain
significant respects. The Company's revenues and operating expenses will be
directly affected by the timing of the acquisitions. The aggregate
acquisition costs, including assumption of debt, are allocated to the net
assets acquired based on the fair market value of such net assets. The
allocations of the purchase price results in an increase in the historical
book value of certain assets, including property and equipment, and may
generally result in the allocation of a portion of the purchase price to
goodwill, which results in incremental annual and quarterly amortization
expense.
RESULTS OF OPERATIONS
The following table sets forth various items from continuing
operations as a percentage of revenues for the three-month periods ended
September 30, 1998 and 1997.
<TABLE>
<CAPTION>
Three months ended
September 30,
-----------------------
1998 1997
----- -----
<S> <C> <C>
Revenue:
Business products ...................... 94.3% 94.0%
Transportation services ................ 5.7% 6.0%
----- -----
100.0% 100.0%
Costs and operating expenses:
Cost of goods sold ..................... 66.1% 63.6%
Sales commissions ...................... 12.3% 12.3%
Selling, general and administrative .... 15.7% 20.1%
Depreciation and amortization .......... 1.8% 0.9%
----- -----
95.9% 96.9%
----- -----
Operating income ............................ 4.1% 3.1%
Interest and other expense:
Interest expense ....................... 1.4% 0.6%
Other expense .......................... 0.0% 0.1%
----- -----
1.4% 0.7%
----- -----
Income before income taxes .................. 2.7% 2.4%
Income tax provision ........................ 1.3% 1.0%
----- -----
Net income .................................. 1.4% 1.4%
===== =====
</TABLE>
THREE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THREE MONTHS ENDED
SEPTEMBER 30, 1997
REVENUE for 1999 increased by $5.8 million, or 19.9%, from $29.0
million in 1998 to $34.8 million in 1999. In 1999, Business Products revenue
increased by $3.5 million or 12.8% and Transportation Services revenue
increased by $2.3 million or 138.8%. The increase in Business Products
revenue was due to the acquisition of nine business products companies during
fiscal years 1998 and 1999, which accounted for $3.0 million, and internal
growth of $0.5 million. Of the total increase in Transportation Services
revenue in 1999, $2.1 million was due to the acquisition of four
transportation companies, one of which was acquired in the second quarter of
fiscal year 1998 and three of which were acquired at the end of the third
quarter of fiscal year 1998.
COST OF GOODS SOLD for 1999 increased by $4.5 million, or 24.6%,
from $18.5 million in 1998 to $23.0 million in 1999. Cost of goods sold for
Business Products increased by $3.0 million of which approximately $2.2
million was due to companies acquired after the first quarter of fiscal year
1998 and the remainder was due to internal growth. Transportation Services
cost of goods sold increased by $1.5 million due primarily to the four
transportation companies acquired during 1998. As a percentage of revenue,
cost of goods sold for 1999 increased by 2.5% from 63.6% in 1998 to 66.1% in
1999. This percentage increase was primarily the result of proportionately
higher sales of lower gross profit product categories.
16
<PAGE>
SALES COMMISSIONS increased by $0.7 million, or 20.1%, in 1999, from
$3.6 million in 1998 to $4.3 million in 1999 due primarily to the increased
level of Business Products revenue. As a percentage of revenue, sales
commissions have been consistent at 12.3% in 1998 and 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE decreased by $0.3
million or 6.0% in 1999 from $5.8 million in 1998 to $5.5 million in 1999.
Increased expenses of $0.9 million from business products and transportation
services companies acquired were offset by $1.2 million in reduced expenses
in existing business products and transportation companies. As a percentage
of revenue, selling, general and administrative expenses have declined by
4.4% from 20.1% in 1998 to 15.7% in 1999. The reduced expenses in existing
operations are primarily a result of the Company's continuing efforts and
strategy to realize synergies from acquisitions by merging common
administrative and support functions.
DEPRECIATION AND AMORTIZATION EXPENSE increased $0.3 million in 1999
from $0.3 million in 1998 to $0.6 million in 1999 due largely to the size and
timing of the companies acquired in 1998 and the first quarter of 1999.
INTEREST AND OTHER EXPENSE increased by $0.3 million or 127.6%
during 1999, from $0.2 million in 1998 to $0.5 million in 1999 principally
due to additional debt incurred by the Company in 1998 and 1999 to finance
its business acquisitions.
INCOME TAXES are provided at a 48.0% effective rate in 1999 compared
to a 40.0% rate in 1998. This increase is due primarily to an increase in the
level of non-deductible expenses, primarily goodwill amortization.
NET INCOME FROM CONTINUING OPERATIONS increased by $0.1 million or
17.2% in 1999, from $0.4 million in 1998 to $0.5 million in 1999, due to the
reasons described above.
LIQUIDITY AND CAPITAL RESOURCES
NET CASH FLOWS FROM OPERATING ACTIVITIES. In the first quarter of
fiscal year 1999, the Company generated $2.5 million in cash from operations
as compared to $0.2 million generated in the first quarter of fiscal year
1998. During the first quarter of 1999, the Company's net income, adjusted
for non-cash charges, amounted to $0.9 million. In addition, the Company
reduced its working capital by $1.5 million. During the first quarter of
1998, the Company's net income from continuing operations generated the cash
flow from operating activities as the Company maintained a relatively stable
level of working capital.
NET CASH FLOWS FROM INVESTING ACTIVITIES. During the first quarter
of fiscal year 1999, Precept used $5.1 million in cash for investing
activities as compared to a use of $0.6 million for investing activities in
the first quarter of fiscal year 1998. During 1999, the Company acquired four
products distribution businesses and used $6.0 in cash to finance these
acquisitions and to pay for contingent consideration on previous
acquisitions. In addition, the Company purchased $0.3 million of equipment
for its existing operations. During 1998, the Company acquired two products
business for $0.3 million in cash and acquired $0.3 million of equipment.
NET CASH FLOWS FROM FINANCING ACTIVITIES. In the first quarter of
1999, $2.8 million of cash was generated by financing activities as compared
to $0.4 million of cash used by financing activities in the first quarter of
fiscal year 1998. During the first quarter of 1999, Precept increased its
outstanding revolving line of credit balance by approximately $3.5 million in
order to finance acquisitions. In addition, the Company repaid $0.7 million
of existing long-term debt, including capital lease obligations. During the
first quarter of 1998, the Company repaid $0.3 million in long-term debt and
$0.1 million on its revolving line of credit.
17
<PAGE>
Management believes that based on current levels of operations, cash
flow from operations, the existing revolving line of credit agreement and
available cash on hand at September 30, 1998 of $2.4 million will be adequate
for fiscal year 1999 to make required payments of principal and interest on
the Company's indebtedness, to fund anticipated capital expenditures of
approximately $1.5 million for the remainder of fiscal year 1999, and to meet
working capital needs.
The amount of debt available under the Company's current revolving
line of credit is $25.0 million. The revolving line of credit bears interest
at the lower of prime or LIBOR plus a margin range. The Company has the
option of electing a prime or LIBOR based interest rate. The margin range is
determined based on the Company's performance against certain ratios,
primarily debt and interest coverage. Substantially all the Company's
operating assets are pledged as collateral under this line of credit. As of
November 12, 1998, the Company had approximately $24.5 million outstanding
under the credit facility at an annual interest rate of approximately 8.5%
and $0.5 million available for future borrowing.
During the first quarter of fiscal year 1999, the Company modified
its revolving line of credit from an asset-based facility to a cash flow
based facility. Under terms of the revolving line of credit agreement, the
Company may borrow up to $25 million with the availability determined by a
2.75 multiple of pro forma EBITDA. EBITDA is defined as earnings before
interest, taxes, depreciation and amortization. Such amount is adjusted, on a
pro forma basis, for the EBITDA of companies acquired by Precept for the
portion of a trailing twelve-month period when not owned by Precept. In
addition, the pro forma EBITDA includes adjustments for certain costs,
principally owners' compensation, which Precept identifies as non- recurring
after the acquisition is completed. For the quarter ended September 30, 1998,
Precept's pro forma EBITDA amounted to $12.6 million. The Company has been
orally informed by Wells Fargo, its existing lender, that the available
revolving line of credit will not be extended beyond $25.0 million until the
fourth quarter of fiscal year 1999. The Company is in the process of working
with its current lender and other commercial lenders to implement a larger
debt facility.
During the first quarter of fiscal year 1999 and through the date of
this report, the Company has continued to evaluate the debt and equity
capital markets. Based on current market conditions, the Company believes
that financing strategies available in connection with incurring subordinated
debt or a secondary offering of equity are unattractive. The Company is
continuing to explore debt and equity financing strategies. Until favorable
financing is available to the Company, it is likely that the rate at which
the Company acquires companies will be reduced as compared with the rate of
acquisitions in the first quarter of fiscal year 1999 or during fiscal year
1998. It is also likely that the Company's rate of growth in revenue,
operating income and net income related to acquisitions will likewise be
reduced as compared to the first quarter of fiscal year 1999 and fiscal year
1998.
18
<PAGE>
OTHER
INFLATION
Certain of Precept's business product offerings, particularly paper
products, have been and are expected to continue to be subject to significant
price fluctuations due to inflationary and other market conditions. In the
last five to ten years, the prices for commodity grades of paper have shown
considerable volatility. Precept generally is able to pass such increased
costs on to its customers through price increases, although it may not be
able to adjust its prices immediately. Significant increases in paper and
other costs in the future could materially affect Precept's profitability if
these costs cannot be passed on to customers. In general, Precept does not
believe that inflation has had a material effect on its results of operations
in recent years. However, there can be no assurance that Precept's business
will not be affected by inflation in the future.
YEAR 2000 ISSUE
During the first quarter of fiscal year 1999, there have been no
events which would significantly change the Company's year 2000 disclosure as
presented in its Form 10-K for the year ended June 30, 1998.
FINANCIAL ACCOUNTING STANDARDS
The Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES, that is effective for reporting periods
beginning after June 15, 1999. As this statement requires only additional
disclosures or does not cover matters relating to Precept, it will have no
effect on Precept's financial position, results of operations or cash flows.
Precept intends to adopt the disclosure requirements of this standard during
its fiscal year ended June 30, 2000.
DISCLOSURE ABOUT MARKET RISK
The Company's revolving line of credit provides for interest to be
charged at the prime rate or at a LIBOR rate plus a margin of 2.75%. Based on
the Company's current level of outstanding revolving line of credit, a 1.0%
change in interest rate would result in a $0.2 million annual change in
interest expense. The remainder of the Company's debt is at fixed interest
rates that are not subject to changes in interest rates. The Company does not
own nor is the Company obligated for other debt or equity securities that
would be affected by fluctuations in market risk.
FORWARD-LOOKING STATEMENTS
The Company is including the following cautionary statement in this
Form 10-Q to make applicable and take advantage of the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995 for any
forward-looking statements made by, or on behalf of, the Company. This
section should be read in conjunction with the "Risk Factors Affecting the
Company's Prospects" located in Item I of the Company annual report on Form
10-K for the year ended June 30, 1998. Forward-looking statements include
statements concerning plans, objectives, goals, strategies, future events or
performance, and underlying assumptions and other statements which are other
than statements of historical facts. From time to time, the Company may
publish or otherwise make available forward-looking statements of this
nature. All such subsequent forward-looking statements, whether written or
oral and whether made by or on behalf of the Company, are also expressly
qualified by these customary statements. Certain statements contained herein
are forward-looking statements and accordingly involve risks and
uncertainties that could cause actual results or outcomes to differ
materially from those expressed in the forward-looking statements. The
forward-looking statements contained herein are based on various assumptions,
many of which are based, in turn, upon further assumptions. The Company's
expectations, beliefs and projections are expressed in good faith and are
believed by the Company to have a reasonable basis, including without
limitation,
19
<PAGE>
management's examination of historical operating trends, data contained in
the Company's records and other data available from third parties, but there
can be no assurance that management's expectations, beliefs or projections
will result or be achieved or accomplished. In addition to the other factors
and matters discussed elsewhere herein, the following are important factors
that, in the view of the Company, could cause actual results to differ
materially from those discussed in the forward-looking statements.
1. Changes in economic conditions, in particular those that affect the end
users of business products and transportation services, primarily
corporations.
2. Changes in the availability and/or price of paper, in particular if
increases in the price of paper are not passed along to the Company's
customers.
3. Changes in executive and senior management or control of the Company.
4. Inability to obtain new customers or retain existing customers.
5. Significant changes in competitive factors, including product-pricing
conditions, affecting the Company.
6. Governmental and regulatory actions and initiatives, including those
affecting financing.
7. Significant changes from expectations in operating expenses.
8. Occurrences affecting the Company's ability to obtain funds from
operations, debt or equity to finance needed capital acquisitions and
other investments.
9. Significant changes in rates of interest, inflation or taxes.
10. Significant changes in the Company's relationship with its employees and
the potential adverse effects if labor disputes or grievance were to
occur. 11. Changes in accounting principles and/or the application of
such principles to the Company.
12. Vendors and customers inability to address year 2000 issues on a timely
basis.
The foregoing factors could affect the Company's actual results and
could cause the Company's actual results during fiscal year 1999 and beyond
to be materially different from any anticipated results expressed in any
forward-looking statement made by or on behalf of the Company.
The Company disclaims any obligation to update any forward-looking
statements to reflect events or other circumstances after the date of this
report on Form 10-Q.
DISCONTINUED OPERATIONS
As part of its business strategy, Precept has decided to focus on
its core businesses and discontinue certain non-core business operations.
During the first quarter of 1998, the losses from discontinued operations
consisted principally of the losses from Precept Holdings, Inc., which owned
and operated certain real estate related investments. In September 1998, the
Company sold the remaining assets of its discontinued operations consisting
of land, a building and an interest in a restaurant to the Company's majority
shareholder for $1.2 million in cash.
20
<PAGE>
PRECEPT BUSINESS SERVICES, INC.
PART II - OTHER INFORMATION
21
<PAGE>
ITEM 1 LEGAL PROCEEDINGS
During the first quarter of fiscal year 1999 and through the date of
this report, there have been no significant changes to the legal proceedings
which affect the Company and are disclosed in the Company's Form 10-K for the
year ended June 30, 1998.
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS
As discussed more fully in Item 4 and as disclosed in the Company's
Proxy to shareholders, a 1 for 7 reverse stock split was voted upon and
approved by the Company's shareholders at the Company's annual shareholder
meeting. In addition, the Company's shareholders approved an amendment to the
Company's articles of incorporation to change the vote required for certain
actions. The exhibits to this Form 10-Q include the Proxy and the amendment
to the articles of incorporation.
ITEM 3 DEFAULTS BY THE COMPANY ON ITS SENIOR SECURITIES
As of September 30, 1998, the Company was not in default of any of
its debt or equity securities.
ITEM 4 RESULTS OF VOTES OF HOLDERS
The Company's annual shareholder meeting was held in Dallas, Texas
on November 11, 1998. At such meeting, the following proposals were voted
upon and approved by the Company's shareholders. The Class B shareholder
voted all 4,145,000 shares in favor of all four proposals.
<TABLE>
<CAPTION>
Class A and Common Shares Voted
---------------------------------------------
Withheld/
Proposal Description For Against Abstained
- -------- ----------- ---------- --------- -----------
<S> <C> <C> <C> <C>
1. Election of the following directors:
J. Livingston Kosberg 43,257,761 110,206
William W. Solomon, Jr. 37,177,559 6,190,408
Sheldon I. Stein 43,254,727 113,240
2. Approval of a 1:7 reverse stock split. 40,523,551 2,798,442 45,974
3. Amendment to the Company's articles of
incorporation to change vote required for
certain actions. 40,695,138 756,164 1,916,665
4. Ratification of Ernst & Young LLP as independent
auditors for the fiscal year ending June
30, 1999. 42,668,197 638,643 61,127
</TABLE>
ITEM 5 OTHER INFORMATION
There is no other significant information that the Company believes
should be disclosed in this report other than the information that is
presented herein and by exhibit.
22
<PAGE>
ITEM 6(a) EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
2.1 Forum of Amended and Restated Articles of Incorporation
approved by the Company's shareholders and to be filed
with the Texas Secretary of State. (1)
2.2 Stock Purchase Agreement by and among Precept Business
Products, Inc., Precept Business Services, Inc., MBF
Corporation and J.D. Greco. (2)
2.3 Agreement and Plan of Merger by and among Precept Business
Services, Inc., Creative Acquisition Corp., Creative, and
Edward Curtis and Robert Bazinet. (2)
2.4 Agreement and Plan of Merger dated as of August 26, 1998, by
and among Precept Business Services, Inc., Precept Acquisition
Corporation, Southern and the shareholders of Southern. (2)
2.5 Agreement and Plan of Merger dated as of October 2, 1998, by
and among Precept Business Services, Inc., Precept
Transportation Services, LLC, Garden State Acquisition
Corporation, Garden State Leasing & Rent-a-Car and John Rose.
(3)
2.6 Technical amendment to agreement listed in exhibit 2.5. (3)
10.1 Fifth Amendment to First Amended and Restated Credit Agreement
dated September 29, 1998. (3)
22.1 Form of Proxy mailed to the Company's shareholders in
connection with the Company's 1988 annual meeting of
shareholders. (1)
27 Financial Data Schedule (3)
</TABLE>
(1) Previously included with the Company's Schedule 14 A filed October 23,
1998.
(2) Previously included with the Company's report on Form 8-K for the
related acquisition. See Item 6(b) for a list of Forms 8-K filed by the
Company during this reporting period.
(3) Included as an exhibit to this report.
ITEM 6(b) REPORTS ON FORM 8-K FILED DURING THE PERIOD FROM JULY 1, 1998
THROUGH NOVEMBER 12, 1998 (not filed as exhibits to this report)
On July 6, 1998, the Company filed a report on Form 8-K in connection
with its acquisition of all of the issued and outstanding stock of MBF
Corporation.
On September 14, 1998, the Company filed a report on Form 8-K in
connection with its preliminary earnings release for the year ended June 30,
1998.
On September 14, 1998, the Company filed a report on Form 8-K/A in
connection with its sale of its 75% interest in U.S. Trucking, Inc.
On September 14, 1998, the Company filed a report on Form 8-K/A in
connection with the audited financial statements of MBF Corporation, a business
that the Company acquired in June 1998.
On September 18, 1998, the Company filed a report on Form 8-K in
connection with its acquisition of Creative, a Maine corporation.
On September 25, 1998, the Company filed a report on Form 8-K in
connection with its acquisition of Southern Systems Business Forms & Data
Supplies Inc., a South Carolina corporation.
On October 2, 1998, the Company filed a report on Form 8-K in connection
with the condensed summary results of operations for the two months ended August
31, 1998.
23
<PAGE>
SIGNATURES
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, as of November 12, 1998.
PRECEPT BUSINESS SERVICES, INC.
- ------------------------------------ --------------------------------------
David L. Neely William W. Solomon, Jr.
Chairman and Chief Executive Officer Senior Vice President and Chief
Financial Officer
24
<PAGE>
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
PRECEPT TRANSPORTATION SERVICES, LLC,
PRECEPT BUSINESS SERVICES, INC.,
GARDEN STATE ACQUISITION CORPORATION,
GARDEN STATE LEASING & RENT-A-CAR CORPORATION
AND
JOHN ROSE
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of October 2, 1998, effective as of October 1, 1998, by and among
Precept Transportation Services, LLC, a Nevada limited liability company
("Precept Transportation"), Precept Business Services, Inc., a Texas
corporation ("Precept"), Garden State Acquisition Corporation, a Texas
corporation ("Merger Sub"), Garden State Leasing & Rent-A-Car Corporation, a
New Jersey corporation (the "Company"), and John Rose (the "Stockholder").
RECITALS:
WHEREAS, all of the issued and outstanding capital stock of the Company
consists of an aggregate of five (5) shares of Common Stock, without par
value (the "Shares"), all of which are owned by the Stockholder; and
WHEREAS, Precept (as the sole shareholder of Merger Sub), Merger Sub and
the Company have each approved the merger of Company with and into the Merger
Sub (the "Merger") in accordance with the New Jersey Business Corporation Act
(the "New Jersey Law") and the Texas Business Corporation Act (the "Texas
Law") and the provisions of this Agreement; and
WHEREAS, it is intended for federal income tax purposes that the Merger
qualify as a reorganization within the meaning of Sections 368(a)(1)(A) and
368 (a)(2)(D) of the Internal Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants, promises, representations, warranties and agreements
contained herein, and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE 1
DEFINITIONS
1.1 DEFINITIONS. As used in this Agreement, the following terms
shall have the meanings set forth below or in the section of this Agreement
referenced below:
"Accounts Receivable" is defined in Section 3.9.
"Actual Net Worth" is defined in Section 2.7.1.
"Affiliate" shall mean any director, officer, employee or
shareholder of any Person, or member of the family of any such Person, or any
corporation, partnership, trust or other entity in which any such Person, or
any member of the family of any such Person, has a substantial interest or is
an officer, director, trustee, partner or holder of more than five percent
(5%) of the outstanding capital stock thereof.
"Agreement" shall mean this Agreement and Plan of Merger.
1
<PAGE>
"Buyer Party" is defined in Section 7.1.
"CERCLA" is defined in Section 3.26.
"Claim" is defined in Section 7.3.
"Closing" is defined in Section 2.7.
"Closing Date" is defined in Section 2.7.
"Closing Date Price" is defined in Section 2.5.1.2.
"Code" is defined in the recitals.
"Company" shall mean Garden State Leasing & Rent-A-Car
Corporation, a New Jersey corporation.
"Constituent Corporations" is defined in Section 2.1.
"Disclosure Schedule" is defined in the introductory paragraph to
Article III.
"Effective Time" is defined in Section 2.3
"Employee Agreement" is defined in Section 2.6.3.
"Environmental Laws" shall mean any and all laws, statutes,
ordinances, rules, regulations, or orders of any Governmental Body pertaining
to health or the environment currently in effect in any and all jurisdictions
in which the Company owns property or conducts business, including without
limitation, the Clean Air Act, as amended, the Comprehensive Environmental,
Response, Compensation, and Liability Act of 1980 ("CERCLA"), as amended, the
Federal Water Pollution Control Act, as amended, the Occupational Safety and
Health Act of 1970, as amended, the Resource Conservation and Recovery Act of
1976 ("RCRA"), as amended, the Safe Drinking Water Act, as amended, the Toxic
Substances Control Act, as amended, the Hazardous & Solid Waste Amendments
Act of 1984, as amended, the Superfund Amendments and Reauthorization Act of
1986, as amended, the Hazardous Materials Transportation Act, as amended, the
Oil Pollution Act of 1990, any state laws implementing the foregoing federal
laws, and all other environmental conservation or protection laws. For
purposes of this Agreement, the terms "hazardous substance" and "release"
have the meanings specified in CERCLA and RCRA, and the term "disposal" has
the meaning specified in RCRA; PROVIDED, HOWEVER, that to the extent the laws
of the state in which the property is located establish a meaning for
"hazardous substance," "release," or "disposal" that is broader than that
specified in either CERCLA or RCRA, such broader meaning will apply.
"ERISA" is defined in Section 3.17.1.
"Financial Statements" is defined in Section 3.8.
"GAAP" shall mean United States generally accepted accounting
principles as may be modified from time to time.
"Governmental Body" is defined in Section 3.7.
2
<PAGE>
"Indemnified Party" is defined in Section 7.3.
"Indemnifying Party" is defined in Section 7.3.
"Intellectual Property" is defined in Section 3.22.
"Liabilities" is defined in Section 3.10.
"Lien" is defined in Section 3.5.
"Losses" is defined in Section 7.1.
"Material Adverse Effect" shall mean a material adverse effect on
business, operations and assets.
"Material Agreements" is defined in Section 3.20.
"Merger Consideration" is defined in Section 2.5.2.
"Merger" is defined in the Recitals.
"Merger Sub" shall mean Garden State Acquisition Corporation, a
Texas corporation.
"New Jersey Law" is defined in the Recitals.
"Parent Class A Common Stock" shall mean the Class A Common
Stock, par value $.10 per share, of Precept Business Services, Inc., a Texas
corporation.
"Permits" is defined in Section 3.15.
"Person" is defined in Section 3.13.
"Precept" shall mean Precept Business Services, Inc., a Texas
corporation.
"Pre-Tax Earnings" is defined in Section 2.6.1.
"Precept Transportation" shall mean Precept Transportation
Services, LLC, a Nevada limited liability company.
"Registered Intellectual Property" is defined in Section 3.22.
"Registration Date" is defined in Section 4.7.2.
"S-4 Registration Statement" is defined in Section 4.7.1.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" is defined in Section 4.7.2.
3
<PAGE>
"Seller Party" is defined in Section 7.2.
"Shares" is defined in the Recitals.
"Surviving Corporation" is defined in Section 2.1.
"Tax" means any federal, state, local, or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental, 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. "Tax Return" means any return,
declaration, report, claim for refund, information return or statement
relating to Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
"Texas Law" is defined in the Recitals.
"Trading Day" shall mean each day on which there is active
trading on NASDAQ and on which the Parent Class A Common Stock is so traded.
"Transaction Documents" is defined in Section 3.2.
"10-K Date" is defined in Section 4.9.
ARTICLE 2
THE MERGER, EFFECTIVE TIME, CONVERSION OF SHARES
2.1 THE MERGER. At the Effective Time (as defined in Section 2.3
below), in accordance with this Agreement, the New Jersey Law and the Texas
Law, the Company shall be merged with and into Merger Sub, the separate
existence of the Company shall cease, and Merger Sub shall continue as the
surviving corporation. Merger Sub is sometime referred to herein as the
"Surviving Corporation." Merger Sub and the Company are hereinafter
collectively referred to as the "Constituent Corporations," and each
individually a "Constituent Corporation."
1.2 EFFECT OF THE MERGER. When the Merger has been effected, the
Surviving Corporation shall thereupon and thereafter possess all of the
public and private rights, privileges, powers and franchises and be subject
to all the restrictions, disabilities and duties of each of the Constituent
Corporations; and all and each of the rights, privileges, powers and
franchises of each of the Constituent Corporations and all property, real,
personal and mixed, and all debts due to either of the Constituent
Corporations on whatever account, as well for stock subscriptions and all
other things in action or belonging to each of such corporations, shall be
vested in the Surviving Corporation; and all property, rights, privileges,
powers and franchises, and all and every other interest shall be thereafter
as effectually the property of the Surviving Corporation as they were of the
respective Constituent Corporations, and the title to any real estate vested
by deed or otherwise, in any of such Constituent Corporations, shall not
revert or be in any way
4
<PAGE>
impaired by reason of the Merger; but all rights of creditors and all liens
upon any property of any of the Constituent Corporations shall be preserved
unimpaired, and all debts, liabilities and duties of the respective
Constituent Corporations shall thenceforth attach to the Surviving
Corporation, and may be enforced against it to the same extent as if such
debts, liabilities and duties had been incurred or contracted by it.
1.3 CONSUMMATION OF THE MERGER. As soon as is practicable after the
satisfaction or waiver of the conditions set forth in Article VI hereof, the
parties hereto will cause the Merger to be consummated by filing with the
Secretary of State of New Jersey a Certificate of Merger in such form as
required by, and executed in accordance with, the relevant provisions of the
New Jersey Law, and by filing with the Secretary of Texas Articles of Merger
in such form as required by, and executed in accordance with, the relevant
provisions of the Texas Law. The Effective Time of the Merger (the
"Effective Time") shall be the later of the effectiveness of such filings.
1.4 CERTIFICATE OF INCORPORATION; BYLAWS, DIRECTORS AND OFFICERS.
The Certificate of Incorporation and Bylaws of the Surviving Corporation
shall be the Certificate of Incorporation and Bylaws of Merger Sub as in
effect immediately prior to the Effective Time. At the Effective Time, David
L. Neely, Ronald P. Sorci, William Solomon, Layne Deutscher and John Rose
shall be the initial directors of the Surviving Corporation and shall serve
until their successors have been duly elected or appointed and qualified or
until their earlier death, resignation or removal in accordance with the
Surviving Corporation's Certificate of Incorporation and Bylaws and
applicable law. At the Effective Time, Ronald P. Sorci shall be Chief
Executive Officer, John Rose shall be the President, William Solomon shall be
the Senior Vice President, Chief Financial Officer and Treasurer and Layne
Deutscher shall be the Senior Vice President, General Counsel and Secretary,
respectively, of the Surviving Corporation and shall serve until their
successors have been duly elected or appointed and qualified or until their
earlier death, resignation or removal in accordance with the Surviving
Corporation's Certificate of Incorporation and Bylaws and applicable law.
The name to be used by the Surviving Corporation in New Jersey shall be
Garden State Limousine, Inc. if such name is available.
1.5 MERGER CONSIDERATION; CONVERSION OF SHARES.
1.5.1 The aggregate consideration to be received at the Effective
Time by the Stockholder in connection with the Merger (upon conversion of
the Shares as set forth below) shall be the amount of $7,000,000, payable
51% in shares of Parent Class A Common Stock and 49% in cash (collectively,
the "Merger Consideration"), payable by Precept as follows:
1.5.1.1 $3,430,000 in cash (the "Cash Merger
Consideration"); and
1.5.1.2 $3,570,000 in shares of Parent Class A Common
Stock (the "Stock Merger Consideration"). The number of
shares of Parent Class A Common Stock which the Stockholder
shall be entitled to receive at Closing shall equal
2,351,779, which amount is $3,570,000 divided by
5
<PAGE>
$1.518 (the "Closing Date Price"). Notwithstanding the
foregoing, and subject to Section 5.11 below, in the event
that at any time within one (1) year immediately following
the Closing Date, the Stockholder sells any shares of Parent
Class A Common Stock issued to him pursuant to this Agreement
at a price less than $1.1385 (as adjusted for stock splits
and similar transactions) and at the time of such sale the
closing trading price of Parent Class A Common Stock as
reported on NASDAQ (or other applicable exchange) has been
less than $1.1385 for the immediately preceding ten (10)
consecutive Trading Days, then, as soon as practical after
receipt of notice of such sale and the price thereof,
together with evidence of the terms of such sale as Precept
shall reasonably request, Precept shall cause to be delivered
to Stockholder a number of shares of Parent Class A Common
Stock equal to (i) $1.518 less the price per share realized
in the Stockholder's sale, times (ii) the number of shares
so sold by the Stockholder, divided by (iii) the average
closing price of Precept Common Stock on the NASDAQ small
cap market for the ten (10) consecutive Trading Days prior
to the sale. The foregoing adjustment shall not be
cumulative from quarter to quarter. For example, if during
any calendar quarter in the one (1) year period immediately
following the Closing Date, the Stockholder sells 5,000
shares of Parent Class A Common Stock issued to him hereunder
at a sales price of $1.10 per share, Precept shall
immediately issue to the Stockholder additional shares of
Parent Class A Common Stock equal to .418 times 5,000
divided by such ten (10) day average closing price. (For
purposes of clarification, the price adjustment described
in this paragraph and the restrictions on sale or other
transfer contained in Section 5.11 of this Agreement shall
not apply to West WorldWide Industries, Inc. and the
shares of Parent Class A Common Stock transferred to it by
the Stockholder at Closing as payment of brokerage fees).
1.5.1.3 At the Effective Time, by virtue of the Merger
and without any action on the part of Precept Transportation,
Precept, Merger Sub, the Company or the Stockholder, the
Shares issued and outstanding immediately prior to the
Effective Time (other than Shares held in treasury of the
Company) shall be canceled and retired and be converted into
the right to receive, in the aggregate, the Merger
Consideration. Each Share issued and outstanding immediately
prior to the Effective Time and held in the treasury of the
Company shall be canceled and retired and no payment shall be
made with respect thereto.
1.5.1.4 As a result of the Merger and without action on
the part of Precept Transportation, Precept, Merger Sub, the
Company or the Stockholder, all Shares shall cease to be
outstanding and shall be canceled and returned and shall
cease to exist, and each certificate formerly
6
<PAGE>
representing any Shares shall thereafter cease to have any
rights with respect to such Shares, except the right to
receive the Merger Consideration and other consideration
set forth in this Agreement.
1.5.1.5 No fractional shares of Parent Class A Common
Stock shall be issued in connection with the Merger. In lieu
thereof, one additional share of Parent Class A Common Stock
will be issued for any fractional share that would have
otherwise been issued.
1.5.1.6 At the Effective Time, each share of Common
Stock, par value $0.01 per share, of Merger Sub issued and
outstanding immediately prior to the Effective Time as a
result of the Merger shall be automatically converted into
one newly and validly issued, fully paid and nonassessable
share of Common Stock of the Surviving Corporation.
1.6 ADDITIONAL MERGER CONSIDERATION.
2.1.0 In addition to the Merger Consideration to be delivered to the
Stockholder at Closing, Precept shall deliver to the Stockholder post-Closing
earn-out payments (the "EARN-OUT PAYMENTS"), calculated as follows:
2.1.0.1 Fifty percent (50%) of the amount by which the
Pre-Tax Earnings of the Company for the twelve-month period
ended September 30, 1999, exceed $1,400,000; and
2.1.0.2 Fifty percent (50%) of the amount by which the
Pre-Tax Earnings of the Company for the twelve-month period
ended September 30, 2000, exceed $1,540,000; and
2.1.0.3 Fifty percent (50%) of the amount by which the
Pre-Tax Earnings of the Company for the twelve-month period
ended September 30, 2001, exceed $1,690,000.
As used in this Section 2.6.1, "Pre-Tax Earnings" shall mean
the earnings before federal, state and local income taxes, and
before the Earn-Out Payments calculated in this Section,
determined in accordance with generally accepted accounting
principles applied consistently with the Company's past
practices; PROVIDED, HOWEVER, that the determination of
Pre-Tax Earnings shall not include (a) any general corporate
overhead charge (as opposed to specific corporate overhead
charges to pay or reimburse Precept or any of Precept's
Affiliates for the actual cost of personnel, travel,
accounting, legal, professional services, computer services,
insurance and other similar charges incurred or paid on behalf
of the Company) or management fee of Precept or any Affiliate
of Precept; or
7
<PAGE>
(b) any earnings or expense attributable to any other company or
business acquired by or transferred to the Surviving Corporation
(each, an "Acquired Entity") including any expense of any earn-out
payments or other compensation or benefits payable by the
Surviving Corporation to any stockholder, director, officer or
employee of any Acquired Entity. It is intended, for purposes of
the Earn-Out Payments, that the existing operations of the Company
be treated as an independent profit center, without considering
the effect of future acquisitions that may be transferred to or
become part of the Company's operations except as expressly
provided in the Employment Agreement.
1.6.1 Each Earn-Out Payment shall be made annually within
forty-five (45) days after the end of the period to which such payment
relates. Each Earn-Out Payment shall be accompanied by supporting
documentation and financial statements. The Earn-Out Payments shall be
paid in shares of Parent Class A Common Stock, valued for such purpose at
the average closing price of the Parent Class A Common Stock as reported on
NASDAQ (or, in the event that such shares are not traded on NASDAQ, on such
other applicable exchange or market system) selected by the Stockholder)
for the last ten (10) consecutive Trading Days of the applicable period.
1.6.2 During the three year earn-out period described in Section
2.6.1 above and any other earn-out period described in the Employment
Agreement dated the date hereof by and between the Stockholder and the
Company (the "Employment Agreement"), Precept shall maintain the business
and operations of the Company and shall not, without the consent of the
Stockholder, which shall not be unreasonably withheld, take any action to
(i) reduce the Earn-Out Payments in any material respect or (ii) circumvent
its obligations under these Earn-Out arrangements.
1.6.3 In the event the Stockholder disputes Precept's determination
of any Earn-Out Payment, the Stockholder shall notify Precept of such
dispute within thirty (30) days of receipt of notification of the amount
thereof. For a period of thirty (30) days after such notification, Precept
shall provide the Stockholder with reasonable access to its books and
records, and the parties agree to negotiate in good faith to resolve such
dispute. In the event the parties are unable to resolve their dispute
within thirty (30) days, Precept shall provide reasonable access to its
books and records to an independent public accounting firm mutually agreed
upon by Precept and the Stockholder for the purpose of auditing Precept's
determination of such Earn-Out Payment. The determination of such
independent accounting firm shall be conclusive and binding upon all
parties hereto. All costs of such audit shall be the responsibility of
Stockholder unless the independent accounting firm determines that the
amount of any additional Earn-Out Payment due is more than seven and
one-half percent (7.5%) of the Earn-Out Payment as calculated by Precept
and the Stockholder would then bear all expenses associated with said
audit.
8
<PAGE>
1.6.4 For purposes of Sections 2.6.2, 2.6.3 and 2.6.4 above, the
term "Earn-Out" shall include any earn-out, profit participation or similar
payment due to the Stockholder pursuant to the terms of the Employment
Agreement.
The Earn-Out shall terminate in the event that Stockholder shall
voluntarily leave the employment of the Company (other than by reason of the
monetary default by the Company or Precept with respect to any of their
respective obligations to the Stockholder under the Transaction Documents, which
default is not cured within thirty (30) days after receipt of written notice
thereof) or in the event that the Company shall terminate the Employment
Agreement for cause thereunder; and in such events, Precept shall have no
further obligation to Stockholder under this Section 2.6.
9
<PAGE>
1.7 NET WORTH.
1.7.1 As soon as practicable after the Closing (but in no
event later than forty-five (45) days after the Closing), the
Stockholder shall deliver to Precept a balance sheet of the Company
for each of the nine-month and one-month periods ending on September
30, 1998 as of the Closing Date (together, the "Closing Balance
Sheet"). The Closing Balance Sheet shall be prepared in accordance
with GAAP and the Company's prior practices, PROVIDED, HOWEVER, that
the amount of certain computer equipment, computer software and
equipment leases required to have been treated as capital items in
accordance with GAAP but that previously were expensed by the
Company shall be restated and treated as capital assets of the
Company. The Merger Consideration received by the Stockholder
pursuant to this Agreement will then be adjusted downward by the
amount, if any, by which the "Actual Net Worth" (as hereinafter
defined) of the Company at Closing is less than zero (the "Merger
Consideration Deduction"). For purposes hereof, "Actual Net Worth"
means the net worth of the Company determined in accordance with
GAAP, as reflected on the Closing Balance Sheet. The Merger
Consideration Deduction, if any, shall be returned by the
Stockholder to Precept Transportation from the Merger Consideration
held in escrow pursuant to Section 7.6 hereof. Such Merger
Consideration Deduction shall be made pro rata, based on the amount
of assets held in such escrow account. Parent Class A Common Stock
will be valued for such purpose at the Closing Date Price.
1.7.2 The calculation of Actual Net Worth shall become final
and binding upon the parties on the thirtieth (30th) calendar day
following receipt thereof by Precept unless Precept delivers written
notice of its disagreement ("Notice of Disagreement") to the
Stockholder prior to such date. Any Notice of Disagreement shall
specify the amounts set forth on the Closing Balance Sheet with
which Precept disagrees. If a Notice Disagreement is sent by
Precept, then the Actual Net Worth (as recalculated in accordance
with clause (x) or (y)) below shall become final and binding upon
the parties on the earlier of (x) the date the parties hereto
resolve in writing any differences they have with respect to any
matter specified in the Notice of Disagreement, or (y) the date any
disputed amounts are finally determined in accordance with the
balance of this paragraph. During the thirty (30) day period
following the delivery of a Notice of Disagreement, the Stockholder
and Precept shall seek in good faith to resolve in writing any
differences which they may have with respect to any amount specified
in the Notice of Disagreement or identified by the Stockholder
during said thirty (30) day period. If, at the end of such thirty
(30) day period, the Stockholder and Precept have not reached
agreement on such amounts, the amounts which remain in dispute shall
be recalculated by an accounting firm mutually agreed upon by the
Stockholder and the Precept (the "Independent Accountants"). The
Independent Accountants shall make a ratable allocation of its
charges for such work as a part of its determination based on the
proportion by which the amount in dispute was determined in favor of
one party or the other. Any amounts so recalculated shall be final
and binding on the parties.
10
<PAGE>
1.8 CLOSING. The closing of the Merger contemplated by this
Agreement (the "Closing") will take place at the offices of Sills Cummis
Zuckerman Radin Tischman Epstein & Gross, P.A., One Riverfront Plaza, Newark,
New Jersey 07102 as of October 1, 1998 (the "Closing Date"), or at such other
place and on such other date as the parties may agree.
1.9 CLOSING DELIVERIES. At the Closing, the certificate(s),
documents and other items listed below will be executed and delivered by the
appropriate parties:
1.9.1 The Stockholder will deliver to Precept Transportation for
cancellation stock certificate(s) representing all of the Shares;
1.9.2 Except as provided in Section 7.6 below or in the Merger
Consideration Agreement dated the date hereof by and among the parties
hereto, Precept Transportation will deliver to the Stockholder (a) several
stock certificates representing the shares of Parent Class A Common Stock
to be delivered to the Stockholder as the Stock Merger Consideration; and
(b) federal funds wire transfer of immediately available funds in the
amount of the Cash Merger Consideration.
1.9.3 The parties thereto will execute and deliver an Affiliate
Agreement in a mutually agreed upon form;
1.9.4 The Stockholder and the Company will execute and deliver to
Precept a Closing Certificate in a mutually agreed upon form;
1.9.5 Precept and Merger Sub will execute and deliver to the
Company and the Stockholder a Closing Certificate in a mutually agreed upon
form;
1.9.6 The Company will execute and deliver to Precept and Merger
Sub and Precept and Merger Sub will execute and deliver to the Company and
the Stockholder, a Secretary's Certificate in a mutually agreed upon form;
and
1.9.7 The Stockholder will execute and deliver to Precept
Transportation and Merger Sub, and Precept Transportation will execute and
deliver to the Stockholder, an Employment Agreement in a mutually agreed
upon form;
1.9.8 The attorneys for the parties shall execute and deliver legal
opinions in mutually agreed upon forms. [caad 214]
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE STOCKHOLDER
11
<PAGE>
The Company (until the Closing) and the Stockholder, jointly and
severally, hereby represent and warrant to Precept and Merger Sub that the
statements contained in this Article III are true, correct and complete as of
the date of this Agreement and will be correct and complete as of the Closing
Date (as though made then and as though the Closing Date were substituted for
the date of this Agreement throughout this Article III), except as set forth
in the Disclosure Schedule attached hereto and delivered by the Stockholder
to Precept and Merger Sub on the date hereof (the "Disclosure Schedule").
The Disclosure Schedule will be arranged in sections corresponding to the
lettered and numbered sections contained in this Article III.
3.1 ORGANIZATION. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of New
Jersey and has full corporate power to own its properties and to conduct its
business as presently conducted. The Company is duly authorized, qualified
or licensed to do business and is in good standing as a foreign corporation
in each state or other jurisdiction in which its assets are located or in
which its business or operations as presently conducted make such
qualification necessary, except where the failure to be so licensed or
qualified would not be expected to have a Material Adverse Effect on the
Company. The jurisdictions wherein the Company is so qualified are listed in
Section 3.1 of the Disclosure Schedule.
3.2 AUTHORITY. The Company has all requisite corporate power and
authority, and the Stockholder has all requisite power and authority, to
execute, deliver and perform under this Agreement and, where applicable,
other instruments, agreements or documents to be delivered pursuant to this
Agreement (collectively, the "Transaction Documents"). The execution,
delivery and performance of the Transaction Documents, by the Company and the
Stockholder, as the case may be, have been duly authorized by all necessary
action, corporate or otherwise, on the part of the Company and the
Stockholder. This Agreement has been, and the other Transaction Documents at
Closing will be, duly executed and delivered by the Company and the
Stockholder and, where applicable, each of the Transaction Documents will be
legal, valid and binding agreements of the Company and the Stockholder,
respectively, enforceable against each of them in accordance with their
respective terms, except (a) as may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting enforcement of creditors' rights generally, and (b) as may be
limited by laws relating to the availability of specific performance,
injunctive relief or other equitable remedies.
3.3 MINUTE BOOKS. The Company has delivered to Precept
Transportation true, correct and complete copies of the Company's charter,
bylaws, minute books (other than minutes related to certain bank loans),
stock certificate books and stock record books. To the best knowledge of
Stockholder, all entries in such documents are true and accurate.
3.4 CAPITALIZATION. The authorized capital stock of the Company
consists of one hundred (100) shares of common stock, without par value, of
which five (5) shares are issued and outstanding and all of which are held
beneficially and of record by the Stockholder. All of the Shares are validly
issued, fully paid and non-assessable and are held by the Stockholder free
and
12
<PAGE>
clear of preemptive or similar rights. The Shares constitute all of the
issued and outstanding capital stock of the Company. There are no
outstanding options, warrants, convertible securities or other rights,
agreements, arrangements or commitments obligating the Company, the
Stockholder or any other person or entity to issue or sell any securities or
ownership interests in the Company. Except as set forth in Section 3.4 of the
Disclosure Schedule, there are no stockholders' agreements, voting
agreements, voting trusts or similar agreements or restrictions binding on
the Stockholder or applicable in any way to the Shares. To the Company's and
the Stockholder's knowledge, all of the outstanding capital stock of the
Company has been offered and sold in compliance with all applicable
securities laws, rules and regulations. Attached hereto as Appendices A, B,
and C respectively, are copies of (a) an Agreement of Sale between the
Stockholder and James B. Rose relating to the Stockholder's purchase from
James B. Rose of capital stock of the Company previously owned by James B.
Rose (the "Acquired Shares"), and (b) a canceled stock certificate previously
representing the Acquired Shares.
3.5 TITLE TO THE SHARES. Except as set forth in Section 3.5 of the
Disclosure Schedule, the Stockholder owns the Shares, of record and
beneficially, free and clear of any lien, pledge, security interest,
liability, charge or other encumbrance or claim of any person or entity,
voting trusts, proxies, preemptive rights, rights of first refusal, buy-sell
arrangements or other stockholder agreements (a "Lien").
3.6 NO VIOLATION. Except as described in Section 3.6 of the
Disclosure Schedule, neither the execution nor the delivery of the
Transaction Documents nor the consummation of the transactions contemplated
thereby, including without limitation, the transfer of the Shares to Precept
Transportation, will conflict with, contravene or result in the material
breach of any term or provision of, or violate, or constitute a material
default under, or result in the creation of any Lien on the Company's assets
pursuant to, or relieve any third party of any obligation or give any third
party the right to terminate or accelerate any obligation under any charter
provision, bylaw, or Material Agreement (as listed in Section 3.20 of the
Disclosure Schedule) or with any customer set out in such Section 3.21 of the
Disclosure Schedule, Permit, order, law or regulation to which the
Stockholder is a party or by which the Company, the Stockholder or any of
their assets are in any way bound or obligated, except where the foregoing
will not have a Material Adverse Effect on the Company.
3.7 GOVERNMENTAL CONSENTS. Except as described in Section 3.7 of the
Disclosure Schedule, to the knowledge of Company and Stockholder, no consent,
approval, order or authorization of, or registration, qualification,
designation, declaration or filing with, any governmental or
quasi-governmental agency, authority, commission, board or other body
(collectively, a "Governmental Body") is required on the part of the Company
or the Stockholder in connection with the transactions contemplated by this
Agreement.
3.8 FINANCIAL STATEMENTS. Attached as Section 3.8 of the Disclosure
Schedule are true and complete copies of the unaudited balance sheet of the
Company and the unaudited statements of income, retained earnings and cash
flows for the periods ended December 31, 1996, December 31, 1997 and May 31,
1998, all of which have been prepared by the Company (collectively, the
13
<PAGE>
"Financial Statements"). The Financial Statements present fairly the
financial condition of the Company at the date specified and the results of
its operations for the periods specified and have been prepared in accordance
with GAAP, except for the absence of footnotes and year-end adjustments, the
method of the depreciation of certain assets and certain computer equipment,
computer software and equipment leases that should have been capitalized
rather than expensed in accordance with GAAP. The Financial Statements do
not contain any material items of a special or nonrecurring nature, except as
expressly stated therein. The Financial Statements have been prepared from
the books and records of the Company, which fairly reflect in all material
respects all the transactions of, acquisitions and dispositions of assets by,
and incurrence of liabilities by the Company.
3.9 ACCOUNTS RECEIVABLE. Section 3.9 of the Disclosure Schedule sets
forth the accounts receivable of the Company as of September 30, 1998 (not
including any unbilled accounts receivable) from sales made as of the date
set forth therein (the "Accounts Receivable"), and the payments and rights to
receive payments related thereto. Except as set forth in Section 3.9 of the
Disclosure Schedule, the amounts of all Accounts Receivable, unbilled
invoices and other debts due or recorded in the records and books of account
of the Company as being due to the Company as of the Closing Date constitute
valid claims against third parties not affiliated with the Stockholder or the
Company and arise from bona fide transactions in the ordinary course of the
business of the Company. Except as set forth in Section 3.9 of the
Disclosure Schedule, the Accounts Receivable arose in the ordinary course of
business and are not subject, to the knowledge of the Company and the
Stockholder, to (a) any counterclaim, or (b) any set-off or other reduction.
3.10 ABSENCE OF UNDISCLOSED LIABILITIES. The Company does not have
any direct or indirect debts, obligations or liabilities, whether absolute,
accrued, contingent, liquidated or otherwise, and whether due or to become
due, asserted or, to the knowledge of the Company and the Stockholder,
unasserted (collectively, "Liabilities"), except for (a) Liabilities
specifically identified in the Financial Statements, (b) obligations to be
performed in the ordinary course of business or under the Material Agreements
(as defined in Section 3.20 below), and (c) as disclosed in Section 3.10 of
the Disclosure Schedule.
3.11 ABSENCE OF MATERIAL ADVERSE CHANGE. Since the date of the most
recent Financial Statements and except as otherwise set forth in Section 3.11
of the Disclosure Schedule, there has not been: (a) any material adverse
change in the condition (financial or otherwise), results of operations,
business, assets or Liabilities of the Company; (b) any payment (including
without limitation any dividend or other distribution or repayment of
indebtedness) to the Stockholder, other than payment of compensation to
employees of the Company in the ordinary course of business and consistent
with past practices; (c) any material breach or default (or event that with
notice or lapse of time or both would constitute a breach or default),
termination or, to the knowledge of the Company and the Stockholder,
threatened termination under any Material Agreement; (d) any material theft,
damage, destruction, casualty loss, condemnation or eminent domain proceeding
affecting the Company's assets, in the aggregate, not covered by insurance;
(e) any sale, assignment or transfer of any of the assets of the Company,
except in the ordinary
14
<PAGE>
course of business and consistent with past practices; (f) any waiver by the
Company of any material rights related to the Company's business, operations
or assets, except in the ordinary course of business and consistent with past
practices; (g) any other material transaction, agreement or commitment
entered into by the Company or its stockholders affecting the Company's
business, operations or assets, except in the ordinary course of business and
consistent with past practices; or (h) any agreement or understanding to do
or resulting in any of the foregoing.
3.12 TAXES.
1.9.9 FILING OF TAX RETURNS. The Company has duly and timely
filed with the appropriate governmental agencies all income, excise,
corporate, franchise, property, sales, use, payroll, withholding and other
Tax Returns (including information returns) and reports required to be
filed by the United States or any state or any political subdivision
thereof or any foreign jurisdiction. All such Tax Returns or reports are
complete and accurate in all material respects and reflect the taxes of the
Company for the periods covered thereby.
3.12.1 PAYMENT OF TAXES. The Company has paid or accrued all
Taxes, penalties and interest that have become due with respect to any Tax
Returns that it has filed and any assessments of which it is aware. The
Company is not delinquent in the payment of any Tax, assessment or
governmental charge.
3.12.2 NO PENDING DEFICIENCIES, DELINQUENCIES, ASSESSMENTS OR
AUDITS. Except as disclosed on Schedule 3.12 of the Disclosure Schedule,
no Tax deficiency or delinquency has been asserted against the Company.
Except as disclosed on Schedule 3.12 of the Disclosure Schedule, to the
knowledge of the Company and the Stockholder, there is no unpaid
assessment, proposal for additional taxes, deficiency or delinquency in the
payment of any of the Taxes of the Company that could be asserted by any
taxing authority. There is no taxing authority audit of the Company
pending or, to the knowledge of the Company or the Stockholder, threatened,
and the results of any completed audits are properly reflected in the
Financial Statements. The Company has not violated any federal, state,
local or foreign tax law, which violation will have a Material Adverse
Effect on the Company.
3.12.3 NO EXTENSION OF LIMITATION PERIOD. The Company has not been
granted an extension by any taxing authority of the limitation period
during which any tax liability may be assessed or collected or waived any
statute of limitation in respect of Taxes.
3.12.4 ALL WITHHOLDING REQUIREMENTS SATISFIED. Except as
disclosed on Schedule 3.12 of the Disclosure Schedule, all monies required
to be withheld by the Company and paid to governmental agencies for all
income, social security, unemployment insurance, sales, excise, use and
other Taxes have been (i) collected or
15
<PAGE>
withheld and either paid to the respective governmental agencies or set
aside in accounts for such purpose, or (ii) properly reflected in the
Financial Statements.
3.12.5 STATE UNEMPLOYMENT TAXES. In respect of the Company's most
recently completed reporting period, the Company has paid all state
unemployment taxes, if any, to the State of New Jersey of the wages paid by
the Company during such period that are subject to such tax. The Company
does not know of any increase in the rate of such state unemployment tax
for any period in the future.
3.12.6 TAX LIABILITY IN FINANCIAL STATEMENTS. Except as
disclosed on Schedule 3.12 of the Disclosure Schedule, the liabilities
(including deferred taxes) shown in the Financial Statements and to be
accrued on the books and records of the Company through the Closing Date
for Taxes, interest and penalties are and will be, to the knowledge of the
Company and the Stockholder, adequate accruals and have been and will be
accrued in a manner consistent with sound accounting practices.
3.12.7 TAX EXEMPT USE PROPERTY. None of the assets of the Company
is "tax-exempt use property" within the meaning of Section 168(h) of the
Code.
3.12.8 COLLAPSIBLE CORPORATION. The Company has not at any time
consented to have the provisions of Section 341(f)(2) of the Code apply to
it.
3.12.9 INDEPENDENT CONTRACTORS. Except as set forth in Section
3.12 of the Disclosure Schedule, all persons characterized as independent
contractors, and not as employees, were properly characterized for all
purposes under applicable laws (including, without limitation, their
characterization as independent contractors for income and employment tax
withholdings and payments).
3.12.10 LIENS. There are no liens for Taxes (other than for current
Taxes not yet due and payable) upon the assets of the Company.
3.12.11 SECURITY FOR TAX EXEMPT OBLIGATIONS. None of the assets of
the Company directly or indirectly secures any debt the interest on which
the Company has been advised is tax exempt under Section 103(a) of the
Code.
3.12.12 PARACHUTE PAYMENTS. The Company is not a party to any
agreement, contract, arrangement or plan that has resulted or would result,
separately or in the aggregate, in the payment of any "excess parachute
payments" within the meaning of Section 280G of the Code or any similar
provision of foreign, state or local law.
3.12.13 EXISTING PARTNERSHIPS. The Company is not a party to any
joint venture, partnership, or other arrangement or contract which could be
treated as a partnership for federal income tax purposes.
16
<PAGE>
3.12.14 NO RULINGS OR REQUESTS FOR RULINGS. There are no
outstanding rulings of, or requests for rulings with, any Tax authority
addressed to the Company that are, or if issued would be, binding on the
Company.
1.10 LITIGATION. Except as described in Section 3.13 of the
Disclosure Schedule, there are currently no pending or, to the knowledge of
the Company and the Stockholder, threatened claims, actions, lawsuits,
administrative proceedings or reviews, or formal or informal complaints or
investigations by any individual, corporation, partnership, Governmental Body
or other entity (collectively, a "Person") against or relating to the Company
or any of its directors, employees or agents (in their capacities as such) or
to which any assets of the Company are subject. The Company is not subject
to or bound by any currently existing judgment, order, writ, injunction or
decree.
3.13 COMPLIANCE WITH LAWS AND REGULATIONS. The Company is currently
complying with and has at all times complied with, and the use, operation and
maintenance of its assets comply with and have at all times complied with,
and neither the Company, its assets nor the use, operation or maintenance of
such assets is in violation or contravention of (a) any applicable statute,
law, ordinance, decree, order, rule or regulation, of any Governmental Body,
or (b) any federal, state and local laws relating to occupational health and
safety, employment and labor matters, except where the foregoing will not
have a Material Adverse Effect on the Company.
3.14 PERMITS. To the knowledge of the Company and the Stockholder,
the Company owns or possesses from each appropriate Governmental Body all
right, title and interest in and to all permits, licenses, authorizations,
approvals, quality certifications, franchises or rights, including any
special permits (collectively, "Permits") issued by any Governmental Body
necessary to conduct its business, except where the failure to do so will not
have a Material Adverse Effect on the Company. No loss or expiration of any
such Permit is pending or, to the knowledge of the Company and the
Stockholder, threatened, other than expiration in accordance with the terms
thereof of Permits that may be renewed in the ordinary course of business
without lapsing, except where the foregoing will not have a Material Adverse
Effect on the Company. Set forth in Section 3.15 of the Disclosure Schedule
is a list of all Permits.
3.15 EMPLOYEE MATTERS. Set forth in Section 3.16 of the Disclosure
Schedule is a complete list of all current employees of the Company,
including date of employment, current title and compensation, and date and
amount of last increase in compensation. The consummation of the
transactions contemplated by this Agreement will not accelerate the time of
payment or vesting or increase the amount of compensation due to any
director, officer or employee (present or former) of the Company. The Company
does not have any collective bargaining, union or labor agreements, contacts
or other arrangements with any group of employees, labor union or employee
representative. Neither the Company nor the Stockholder knows of any
organization effort currently being made or threatened by or on behalf of any
labor union with respect to employees of the Company. In addition, (a) the
Company is in compliance with all federal, state or other applicable laws,
domestic or foreign, respecting employment and employment practices, terms
and conditions of employment and wages and hours, and has not
17
<PAGE>
and is not engaged in any unfair labor practice, except where any such
non-compliance will not have a Material Adverse Effect on the Company; (b) no
unfair labor practice complaint against the Company is pending before the
National Labor Relations Board or any similar agency; (c) there is no labor
strike, dispute, slow down or stoppage actually pending or, to the Company's
and the Stockholder's knowledge, threatened against or involving the Company;
(d) no collective bargaining agreement is currently being negotiated by the
Company; (e) the Company has not experienced any material labor difficulty or
organizing activity during the last three years; and (f) except as set forth
in Section 3.16 of the Disclosure Schedule, to the Company's and the
Stockholder's knowledge, no director, officer or other key employee of the
Company intends to terminate his or her employment with the Company.
3.16 EMPLOYEE BENEFIT PLANS. Neither the Company nor any Affiliate of
the Company now or has ever had any "employee pension benefit plans," as
defined in Section 3(2) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), ever maintained or contributed to (or required to
be contributed to) by the Company or any Affiliate. As used in this Section
3.17, "Affiliate" means any corporation, trade or business the employees of
which, together with the employees of the Company, are required to be treated
as employed by a single employer under the provisions of ERISA or Section 414
of the Code.
3.17 TITLE TO ASSETS; REAL PROPERTY. Set forth in Section 3.18 of the
Disclosure Schedule is a complete list of (a) all real property leased by the
Company; (b) each vehicle owned or leased by the Company; and (c) each asset
of the Company with a book value or fair market value greater than $5,000.
The Company has good and marketable title to, or a valid leasehold interest
in, all of its assets, including without limitation, the assets listed in
Section 3.18 of the Disclosure Schedule, and the assets reflected on the
Financial Statements (except for assets disposed of in the ordinary course of
business and consistent with past practices since the Financial Statements
and except for assets held under leases or licenses disclosed pursuant to
Section 3.20), subject to no Liens, except for (a) Liens for current taxes
not yet due or being contested in good faith; (b) minor imperfections of
title and encumbrances that do not materially detract from or interfere with
the present use or value of such assets; and (c) Liens disclosed in Section
3.18 of the Disclosure Schedule.
3.18 CONDITION OF PROPERTIES; INSURANCE. All facilities, machinery,
equipment, fixtures, vehicles and other tangible property owned, leased or
used by the Company are in good operating condition and repair, normal wear
and tear excepted, are reasonably fit and usable for the purposes for which
they are being used, to the knowledge of the Company and the Stockholder,
will not likely require major overhaul or repair immediately following
Closing, are adequate and sufficient for the Company's business as currently
operated and, to the knowledge of the Company and the Stockholder,
substantially conform with all applicable laws, rules and regulations. The
Company maintains policies of insurance issued by insurers of recognized
responsibility insuring the Company and its assets and business against such
losses and risks as are normally insured by companies similar to the Company.
3.19 MATERIAL AGREEMENTS.
18
<PAGE>
1.10.1 Section 3.20.1 of the Disclosure Schedule lists each written
agreement and arrangement to which the Company is a party or a beneficiary
or by which the Company or any of its assets is bound and which is material
to the Company (collectively, the "Material Agreements"), including without
limitation (i) any real estate leases; (ii) any contracts for the provision
of goods or services by the Company; (iii) agreements evidencing, securing
or otherwise relating to any indebtedness for which the Company is liable;
(iv) any capital or operating leases, value-added reseller, reseller or
conditional sales agreements relating to vehicles, equipment or other
assets of the Company; (v) any supply or manufacturing agreements or
arrangements pursuant to which the Company is entitled or obligated to
acquire any assets from a third party; (vi) insurance policies; (vii) any
employment, consulting, noncompetition, separation, collective bargaining,
union or labor agreements or arrangements; (viii) any agreement with the
Stockholder, any director, officer or employee of the Company, or any
Affiliate or family member thereof; (ix) any joint marketing or similar
agreement or arrangement; and (x) any other agreement or arrangement
pursuant to which, based on historical or projected volume, the Company
could be required to make, or be entitled to receive, aggregate payments in
excess of $10,000 during any calendar year.
1.10.2 To the knowledge of the Company and the Stockholder, the
Company has performed all obligations required to be performed by it in
connection with the Material Agreements and is not in receipt of any claim
of default under any Material Agreement; the Company has no present
expectation or intention of not fully performing any material obligation
pursuant to any Material Agreements; and neither the Company nor the
Stockholder has any knowledge of any breach or anticipated breach by any
other party to any Material Agreement.
1.10.3 The Company has made available to Precept a copy of the
Material Agreements and its standard form of customer agreement.
3.20 CUSTOMERS. 3.21 CUSTOMERS. Set forth in Section 3.21 of the
Disclosure Schedule is a complete list of customers of the Company as of
September 30, 1998. Except as set forth in Section 3.21 of the Disclosure
Schedule, no customer has advised the Company of such customer's intent to
discontinue doing business with the Company or to reduce the volume of goods
or services purchased from or supplied to the Company. Except as set forth
in Section 3.21 of the Disclosure Schedule, the Company has not received from
any customer written notice of such customer's intention to terminate its
account with the Company.
3.21 INTELLECTUAL PROPERTY RIGHTS. Set forth in Section 3.22 of the
Disclosure Schedule is a complete list of all registered patents, trademarks,
service marks, trade names and copyrights, and applications for and licenses
(to or from the Company) with respect to any of the foregoing (collectively,
"Registered Intellectual Property"), owned by the Company. To the knowledge
of the Company and the Stockholder, the Company has the sole and exclusive
right to use all Registered Intellectual Property and other computer software
(both proprietary and third party)
20
<PAGE>
and software licenses, intellectual property, proprietary information, trade
secrets, trademarks, trade names, copyrights, material and manufacturers
specifications, drawings and designs (collectively, "Intellectual Property")
used by the Company or necessary in connection with the operation of the
Company's business, without infringing on or otherwise acting adversely to
the rights or claimed rights of any Person, and neither the Company nor the
Stockholder has knowledge of any obligation to pay any royalty or other
consideration to any Person in connection with the use of any such
Intellectual Property. To the knowledge of the Company and the Stockholder,
no other Person is infringing the rights of the Company with respect to any
of its Intellectual Property. The Company is the sole and exclusive owner of
all rights in and to the software described in Section 3.22 of the Disclosure
Schedule, including all source and object code and documentation related
thereto, except the third party software listed in Section 3.22 of the
Disclosure Schedule, as to which the Company has been granted all rights and
licenses necessary for the Company to sublicense such software to third
parties or to provide services to third parties in the manner in which the
Company has done so through the date hereof and the date of Closing. There
are no existing material defaults, events of default or events, occurrences,
acts or omissions that, with the giving of notice or lapse of time or both,
would constitute material defaults by the Company or, to the Company's and
the Stockholder's knowledge, the other parties thereto, with respect to the
Company's licenses of the software to licensees or the Company's licenses
with third parties with respect to third party software included in the
Company's software.
3.22 SUBSIDIARIES AND INVESTMENTS. Other than marketable securities,
the Company does not own any direct or indirect equity or debt interest in
any other Person, including without limitation, any interest in a partnership
or joint venture, and is not obligated or committed to acquire any such
interest.
3.23 COMPETING INTERESTS. Except as disclosed in Section 3.24 of the
Disclosure Schedule, neither the Company, the Stockholder nor any director,
officer, relative or Affiliate of any of the foregoing owns, directly or
indirectly, an interest in any Person that is a competitor, customer or
supplier of the Company or that otherwise has material business dealings with
the Company.
3.24 ILLEGAL OR UNAUTHORIZED PAYMENTS; POLITICAL CONTRIBUTIONS.
Neither the Company nor any of its officers, directors, employees, agents or
other representatives or, to the knowledge of the Company and the
Stockholder, any other business entity or enterprise with which the Company
is or has been affiliated or associated, has, directly or indirectly,
knowingly made or authorized any payment, contribution or gift of money,
property or services, in contravention of applicable law, (a) as a kickback
or bribe to any Person; or (b) to any political organization, or the holder
of or any aspirant to any elective or appointive public office except for
personal political contributions not involving the direct or indirect use of
funds of the Company. Set forth in Section 3.25 of the Disclosure Schedule
is a list of all political contributions made by the Company in the twelve
(12) months immediately preceding the Closing Date. To the knowledge of the
Company and the Stockholder, the Company has not violated any federal or
state antitrust
20
<PAGE>
statutes, rules or regulations, including without limitation those relating
to unfair competition, price fixing or collusion.
3.25 ENVIRONMENTAL MATTERS. Except for matters disclosed in Section
3.26 of the Disclosure Schedule, (a) to the knowledge of the Company and the
Stockholder, the properties, operations and activities of the Company are in
compliance in all material respects with all applicable Environmental Laws;
(b) the Company and the properties and operations of the Company are not
subject to any existing, pending, or, to the knowledge of the Company and the
Stockholder, threatened action, suit, claim, investigation, inquiry or
proceeding by or before any governmental entity under any Environmental Laws;
(c) to the knowledge of the Company and the Stockholder, all notices,
permits, licenses or similar authorizations, if any, required to be obtained
or filed by the Company under any Environmental Laws in connection with any
aspect of the business of the Company have been duly obtained or filed and
will remain valid and in effect after the Closing, and the Company is in
substantial compliance with the terms and conditions of all such notices,
permits, licenses, and similar authorizations except where the foregoing will
not have a Material Adverse Effect on the Company; (d) to the knowledge of
the Company and the Stockholder, there are no physical or environmental
conditions existing on any property of the Company or resulting from the
Company's operations or activities, past or present, at any location, that
would give rise to any on-site or off-site remedial obligations imposed on
the Company under any Environmental Laws; (e) to the knowledge of the Company
and the Stockholder, there has been no material release of hazardous
substances into the environment by the Company; and (f) the Company has made
available to the Precept all internal and external environmental audits and
studies and all correspondence on substantial environmental matters in the
possession of the Company relating to any of the current or former properties
or operations of the Company.
3.26 BROKERS. Except for West WorldWide Industries, Inc., no broker,
finder or investment banker is entitled to any brokerage, finder's or other
fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Company or the
Stockholder.
3.27 INSURANCE. Set forth in Section 3.28 of the Disclosure Schedule
is a list of all insurance policies currently in effect under which the
Company is a beneficiary or an insured. Such insurance coverage will remain
in effect (or will be replaced by similar policies) with respect to the
Company and its properties as to all events occurring on or prior to the
Closing. As of the date of this Agreement, neither the Company nor the
Stockholder has received any notice that any of the policies listed in
Section 3.28 of the Disclosure Schedule has been or will be canceled prior to
its scheduled termination date, or would not be renewed substantially on the
same terms now in effect if the insured party requested renewal or has
received notice from any of its insurance carriers that any insurance
premiums will be subject to increase in an amount materially disproportionate
to the amount of the increases with respect thereto (or with respect to
similar insurance) in prior years. The Company is not in material default
under any such policy and all premiums due and payable with respect to such
coverage have been paid or accrued.
21
<PAGE>
3.28 BANK ACCOUNTS, POWERS OF ATTORNEY AND PHONE NUMBERS. Set forth
in Section 3.29 of the Disclosure Schedule is a complete list of (a) the name
and address of each bank or other depository institution in which the Company
has an account or safe deposit box, the number of such account or safe
deposit box and the names of all persons authorized to draw thereon or to
have access thereto; (b) the names of all persons, if any, holding powers of
attorney from the Company and a summary statement of the terms thereof; (c)
all of the Company's telephone numbers, and (d) account balances (including
overdrafts) as of September 30, 1998.
3.29 WARRANTIES. Section 3.30 of the Disclosure Schedule summarizes
all claims outstanding, pending or, to the knowledge of the Company and the
Stockholder, threatened for breach of any warranty relating to any products
or services sold by the Company prior to the date hereof. The description of
the Company's product and service warranties set forth in Section 3.30 of the
Disclosure Schedule is correct and complete.
3.30 NO PARTS INVENTORY. The Company does not have any inventory
consisting of automotive parts.
3.31 AFFILIATE TRANSACTIONS. Except as disclosed in Section 3.32 of
the Disclosure Schedule and other than pursuant to this Agreement and the
Transaction Documents, neither the Stockholder nor any Affiliate of the
Stockholder has any agreement, undertaking or understanding with the Company
(other than normal employment arrangements) or any interest in any property,
real, personal or mixed, tangible or intangible (including, without
limitation, intellectual property rights), used in or pertaining to the
business of the Company (other than ownership of capital stock of the
Company). Neither the Stockholder nor any Affiliate of the Stockholder has
any direct or indirect interest in any competitor, supplier or customer of
the Company or in any person, firm or entity from whom or to whom the Company
leases any property, or in any other person, firm or entity with whom the
Company transacts business of any nature. For purposes of this Section 3.32
the members of the immediate family of a director, officer, employee or
shareholder shall consist of the spouse, parents, children, siblings,
mothers-and fathers-in-law, sons- and daughters-in-law, and brothers- and
sisters in-law of such director, officer, employee or shareholder.
1.11 REORGANIZATION MATTERS.
1.11.1 The fair market value of the Parent Class A Common Stock and
other consideration received by the Stockholder will be approximately equal
to the fair market value of the Shares surrendered by the Stockholder in
the Merger.
1.11.2 Pursuant to the Merger, the Surviving Corporation will
acquire at least ninety (90%) percent of the fair market value of the net
assets and at least seventy (70%) percent of the fair market value of the
gross assets held by the Company at the time discussions were initiated
which led to execution of this Agreement. For purposes of this
representation, Company assets used to pay its merger expenses, and all
redemptions and
22
<PAGE>
distributions made by the Company at any time after discussions were
initiated which led to execution of this Agreement will be included
as assets of the Company.
1.11.3 The fair market value of the assets of the Company
immediately following the Merger will equal or exceed the sum of the
liabilities of the Company, including, without limitation, any liabilities
to which such assets are subject.
1.11.4 There is no intercorporate indebtedness existing between
Precept and the Company or between Merger Sub and the Company that was
issued, acquired, or will be settled at a discount.
1.11.5 None of the Parent Class A Common Stock to be received by
the Stockholder will be separate consideration for, or allocable to, any
employment agreement and the compensation paid by the Surviving Corporation
to the Stockholder as an employee will be for services actually rendered
and will be commensurate with the amount which would be paid to third
parties bargaining at arm's length for similar services.
1.11.6 In contemplation of the Merger, (i) neither the Company nor
any party related to the Company within the meaning of Treasury Regulations
Section 1.368-1(e)(3) has redeemed or acquired any of the Shares, and (ii)
the Company has not made any extraordinary distribution within the meaning
of Treasury Regulations Section 1.368-1(e)(1)(ii)(A) with respect to the
Shares.
1.11.7 The Company is not an investment company as defined in the
Code.
1.11.8 The Company is not under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the
Code.
1.12 NO MISREPRESENTATIONS. Since May 31, 1998, neither the Company nor
the Stockholder has received any appraisal, report or other information relating
to the value or condition of the Company or that indicates a material adverse
change in the value or condition of the Company or any of its material assets.
The representations, warranties and statements made by the Company and the
Stockholder in or pursuant to this Agreement (including the Disclosure Schedule)
are true, complete and correct in all material respects and do not contain any
untrue statement of a material fact or omit to state any material fact necessary
to make any such representation, warranty or statement, under the circumstances
in which it is made, not misleading.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF
PRECEPT TRANSPORTATION, MERGER SUB AND PRECEPT
23
<PAGE>
Precept Transportation, Merger Sub and Precept, Respectively, Represent
and Warrant to the Company (until the Closing) and the Stockholder as follows:
4.1 ORGANIZATION. Precept is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas, Merger
Sub is a corporation duly organized, validly existing and in good standing
under the laws of the State of Texas, and Precept Transportation is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of Nevada. Each of Precept Transportation, Merger Sub
and Precept is duly authorized, qualified or licensed to do business and is
in good standing as a foreign entity in each state or other jurisdiction in
which its assets are located or in which its business or operations as
presently conducted make such qualification necessary, except where the
failure to be so licensed or qualified would not be expected to have a
Material Adverse Effect on Precept Transportation, Merger Sub or Precept.
4.2 AUTHORITY. Precept Transportation, Merger Sub and Precept have
all requisite corporate power and authority to execute, deliver and perform
under the Transaction Documents. The execution, delivery and performance of
the Transaction Documents by Precept Transportation, Merger Sub and Precept
have been duly authorized by all necessary action, corporate or otherwise, on
the part of Precept Transportation, Merger Sub and Precept. This Agreement
has been, and the Transaction Documents at Closing will be, duly executed and
delivered by Precept Transportation, Merger Sub and Precept and are legal,
valid and binding agreements of Precept Transportation, Merger Sub and
Precept, enforceable against each of them in accordance with their respective
terms, except (a) as may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors' rights generally; and (b) as may be limited by laws
relating to the availability of specific performance, injunctive relief or
other equitable remedies.
4.3 CAPITALIZATION. The authorized capital stock of Precept consists
of (a) 110,500,000 shares of Common Stock, of which 100,000,000 shares have
been designated Class A Common Stock, $0.01 par value per share, of which
52,712,556 shares are issued and outstanding as of September 30, 1998; and
10,500,000 shares of which have been designated Class B Common Stock, of
which 4,145,000 shares are issued and outstanding as of September 30, 1998,
and (b) 3,000,000 shares of Preferred Stock, of which no shares are issued
and outstanding as of September 30, 1998. All outstanding shares are validly
issued, fully paid and non-assessable and were offered and sold in compliance
with all applicable securities laws and regulations.
4.4 PARENT CLASS A COMMON STOCK. The shares of Parent Class A Common
Stock to be issued pursuant to this Agreement will be duly authorized,
validly issued, and upon receipt of the consideration contemplated hereby,
fully paid and nonassessable.
4.5 NO VIOLATION. The execution, delivery and performance of the
Transaction Documents by Precept Transportation, Merger Sub and Precept will
not conflict with or result in the breach of any term or provision of, or
violate or constitute a default under any charter provision or bylaw or under
any material agreement, instrument, order, law or regulation to
24
<PAGE>
which Precept Transportation, Merger Sub or Precept is a party or by which
Precept Transportation, Merger Sub or Precept is in any way bound or
obligated.
4.6 GOVERNMENTAL CONSENTS. To the knowledge of Precept
Transportation, Merger Sub and Precept, no consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any Governmental Body is required on the part of Precept
Transportation, Merger Sub or Precept in connection with the transactions
contemplated by this Agreement.
4.7 SEC DOCUMENTS.
1.12.1 Precept has furnished or made available to the Company or
the Stockholder a true and complete copy of its Registration Statement on
Form S-4 filed under the Securities Act of 1933, as filed with the SEC and
declared effective on February 10, 1998 (the "S-4 Registration Statement").
The S-4 Registration Statement is currently effective, and the shares of
Parent Class A Common Stock to be delivered to the Stockholder at the
Closing will be registered under the Securities Act pursuant to the S-4
Registration Statement.
1.12.2 The S-4 Registration Statement was prepared in compliance in
all material respects with the applicable requirements of the Securities
Act of 1933, as amended (the "Securities Act"). As of February 10, 1998
(the "Registration Date"), the S-4 Registration Statement (i) complied as
to form in all material respects with the applicable requirements of the
Securities Act, and (ii) 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 not misleading. The
prospectus relating to the S-4 Registration Statement (i) complied as to
form in all material respects with the applicable requirements of the
Securities Act as of the date thereof, and (ii) did not contain any untrue
statement of a material fact required to be stated therein or necessary to
make the statements made therein, in light of the circumstances under which
they were made, not misleading. Each of the consolidated balance sheets of
Precept included in the S-4 Registration Statement (including the related
notes and schedules) fairly presents the consolidated financial position of
Precept as of the dates set forth therein and each of the consolidated
statements of income, cash flows and shareholders' equity included in the
S-4 Registration Statement (including any related notes and schedules)
fairly presents the results of income, cash flows and shareholders' equity,
as the case may be, of Precept for the periods set forth therein (subject,
in the case of unaudited statements, to normal year-end audit adjustments
that would not be material in amount or effect), in each case in accordance
with GAAP consistently applied during the periods involved.
4.8 FINDERS' FEES. There is no investment banker, broker, finder or
other intermediary that has been retained by or is authorized to act on
behalf of Precept Transportation, Merger Sub or Precept who might be entitled
to any fee or commission from the Stockholder or the Company upon
consummation of the transactions contemplated by this Agreement.
25
<PAGE>
4.9 LITIGATION. Except as set forth in Precept's 10-K filed on
September 29, 1998 for the fiscal year ending June 30, 1998 (the "10-K Date")
there are currently no pending or, to the knowledge of Precept, Merger Sub or
Precept Transportation, threatened material claims, actions, lawsuits,
administrative proceeding or reviews of formal or informal complaints or
investigations by any Person against or relating to Precept, Merger Sub or
Precept Transportation or any of its directors, employees, or agents (in
their capacities as such) or to which any assets of Precept, Merger Sub or
Precept Transportation are subject. Except as otherwise set forth in the S-4
Registration Statement, neither Precept, Merger Sub, or Precept
Transportation is bound by, or subject to, any currently existing judgment,
order, writ, injunction or decree that would have a Material Adverse Effect
on Precept Transportation, Merger Sub or Precept.
4.10 ABSENCE OF MATERIAL ADVERSE CHANGE. Since the 10-K Date there
has not been: (a) any material adverse change in the condition (financial or
otherwise), results of operations, business, assets or Liabilities of
Precept, Merger Sub or Precept Transportation; (b) any payment (including,
without limitation, any dividend or other distribution or repayment of
indebtedness) to any shareholder of Precept, Merger Sub or Precept
Transportation other than payment of compensation to employees of Precept,
Merger Sub or Precept Transportation in the ordinary course of business and
consistent with past practices; (c) any breach or default (or event that with
notice or lapse of time or both would constitute a breach or default),
termination or, to the knowledge of the executive officers of Precept, Merger
Sub and Precept Transportation threatened termination, under any material
agreement of Precept, Merger Sub or Precept Transportation; (d) any material
theft, damage, destruction, casualty loss, condemnation or eminent domain
proceeding affecting any of assets of Precept, Merger Sub or Precept
Transportation, not covered by insurance; (e) any sale, assignment or
transfer of any of the assets of Precept, Merger Sub or Precept
Transportation, except in the ordinary course of business and consistent with
past practices; (f) any waiver by Precept, Merger Sub or Precept
Transportation of any material rights related to Precept's, Merger Sub's or
Precept Transportation's respective business, operations or assets; (g) any
other material transaction, agreement or commitment entered into by the
Precept, Merger Sub or Precept Transportation or their significant
shareholders affecting Precept's, Merger Sub's or Precept Transportation's
respective business, operations or assets, except in the ordinary course of
business and consistent with past practices, or (h) any agreement or
understanding to do or resulting in any of the foregoing.
1.13 REORGANIZATION MATTERS.
1.13.1 Merger Sub has been formed solely for the purposes of
effecting the Merger and, immediately prior to the Merger, Precept will
"control" Merger Sub within the meaning of Section 368(c) of the Code.
1.13.2 Neither Precept nor any party related to Precept within the
meaning of Treasury regulations Section 1.368-1(e)(3) has any present plan
or intention to redeem or acquire any of the Parent Class A Common Stock
issued in connection with the Merger.
26
<PAGE>
1.13.3 Precept has no present plan or intention to sell or
otherwise dispose of any of the assets or stock of the Surviving
Corporation, except for dispositions made in the ordinary course of
business or transfers described in Section 368(a)(2)(C) of the Code.
1.13.4 Following the Merger, the Surviving Corporation will
continue the Company's historic business or use a significant portion of
the Company's historic business assets in a business.
1.13.5 Precept is not an investment company as defined in the Code.
1.13.6 Precept is not under the jurisdiction of a court in a title
11 or similar case within the meaning of Section 368(a)(3)(A) of the Code.
4.11 TRANSFERABILITY. The Parent Class A Common Stock to be issued as
part of the Merger Consideration has been registered pursuant to a
Registration Statement under the Securities Act, and is freely transferable
except to the extent such transfer is limited under Rule 145 of the
Securities Act.
4.13 NO MISREPRESENTATIONS. The representations, warranties and
statements made by Precept Transportation and Precept in or pursuant to this
Agreement (including the Disclosure Schedule) are true, complete and correct
in all material respects and do not contain any untrue statement of a
material fact or omit to state any material fact necessary to make any such
representation, warranty or statement, under the circumstance in which it was
made, not misleading.
ARTICLE 5
ADDITIONAL COVENANTS AND AGREEMENTSCOVENANTS AND AGREEMENTS
5.1 INFORMATION FOR FILINGS. The Stockholder and the Company will
furnish Precept with all information concerning the Company as is required
for inclusion in any application or filing made by Precept to any
Governmental Body in connection with the transactions contemplated by this
Agreement.
5.2 FULFILLMENT OF CONDITIONS BY THE COMPANY AND THE STOCKHOLDER.
The Company and the Stockholder agree not to take any action that would cause
the conditions on the obligations of the parties to effect the transactions
contemplated hereby not to be fulfilled, including without limitation, by
taking or causing to be taken any action that would cause the representations
and warranties made by the Company or the Stockholder herein not to be true
and correct as of the Closing. The Company and the Stockholder will take all
reasonable steps to cause to be fulfilled the conditions precedent to Precept
Transportation's, Merger Sub's and Precept's obligations to consummate the
transactions contemplated hereby that are dependent on the actions of the
Company or the Stockholder, respectively.
27
<PAGE>
5.3 FULFILLMENT OF CONDITIONS BY PRECEPT TRANSPORTATION, PRECEPT AND
MERGER SUB. Precept Transportation, Merger Sub and Precept agree not to take
any action, unless otherwise required by applicable legal requirements, that
would cause the conditions on the obligations of the parties to effect the
transactions contemplated hereby not to be fulfilled, including without
limitation, by taking or causing to be taken any action that would cause the
representations and warranties made by Precept Transportation, Merger Sub or
Precept herein not to be true and correct as of the Closing. Precept
Transportation, Merger Sub and Precept will take all reasonable steps to
cause to be fulfilled the conditions precedent to the Company's and the
Stockholder's obligations to consummate the transactions contemplated hereby
that are dependent on the actions of Precept Transportation, Merger Sub or
Precept, respectively.
5.4 PUBLICITY. Precept Transportation, Merger Sub, Precept, the
Company and the Stockholder will cooperate with each other in the development
and distribution of all news releases and other public disclosures relating
to the transactions contemplated by this Agreement. Neither Precept
Transportation, Merger Sub or Precept, on the one hand, nor the Company or
the Stockholder, on the other hand, will issue or make, or allow to have
issued or made, any press release or public announcement concerning the
transactions contemplated by this Agreement without the advance approval in
writing of the form and substance thereof by the other parties, unless
otherwise required by applicable legal requirements; PROVIDED, HOWEVER, that
such approval shall not be unreasonably withheld or delayed. The press
release agreed upon by the parties at the Closing may be released immediately.
5.5 RELEASES. Except as provided herein and in the other
Transaction Documents, effective upon the Closing, the Stockholder and his
executors, administrators, successors and assigns, hereby fully and
unconditionally releases and forever discharges and holds harmless the
Company and its employees, officers, directors, successors and assigns from
any and all claims, demands, losses, costs, expenses (including reasonable
attorneys' fees and expenses), obligations, liabilities and/or damages of
every kind and nature whatsoever, whether or not now existing or known,
relating in any way, directly or indirectly, to the Company that the
Stockholder may now have or may hereafter claim to have against the Company
or any of such employees, officers, directors, successors or assigns,
including, without limitation, with respect to loans by the Stockholder to
the Company which have been canceled without payment thereof.
5.6 COVENANTS RELATING TO TAXES.
1.13.7 Precept shall cause the Surviving Corporation to duly,
accurately and timely (with regard to any duly granted extensions) file all
Tax Returns for the Company for all periods ending on or prior to the
Closing Date that are required to be filed after the Closing Date and pay
all Taxes due thereon.
1.13.8 Notwithstanding anything to the contrary contained herein,
Precept Transportation shall file any necessary Tax Return or other
documentation with respect to all transfer, sales, stamp, registration or
other similar Taxes or fees incurred in connection with this Agreement and
shall be responsible for payment of any such Tax.
28
<PAGE>
1.13.9 Except as otherwise provided in the Agreement, the
Stockholder, the Company and Precept Transportation agree to cooperate
fully with each other with respect to the preparation of all Tax Returns
and with respect to all matters relating to Taxes, and to keep each other
advised as to any issue relating to Taxes which could have a bearing on
such other party's responsibilities hereunder.
5.7 TAX TREATMENT. From and after the date of this Agreement, none
of Precept Transportation, Precept, Merger Sub, the Company or the
Stockholder shall take, or cause or permit any of their affiliates to take,
any action that would preclude qualification of the transactions contemplated
by this Agreement as a reorganization within the meaning of Sections
368(a)(1)(A) and 368 (a)(2)(D) of the Code. Each of the Company and Precept
Transportation shall comply with the reporting position on any Tax Return
inconsistent with qualification of the transactions contemplated by this
Agreement as a reorganization with the meaning of the Sections 368 (a)(1)(A)
and 368 (a)(2)(D) of the Code.
5.8 CONFIDENTIALITY. From the date hereof to and including the
Closing Date, the parties hereto shall maintain, and cause their directors,
employees, agents and advisors to maintain, in confidence and not disclose or
use for any purpose, except the evaluation of the transactions contemplated
hereby and the accuracy of the respective representations and warranties of
the parties hereto contained herein, information concerning the other parties
hereto and obtained directly or indirectly from such parties, or their
directors, employees, agents or advisors, except such information as is or
becomes (a) available to the non-disclosing party from third parties not
subject to an undertaking of confidentiality or secrecy; (b) generally
available to the public other than as a result of a breach by the
non-disclosing party hereunder; or (c) required to be disclosed under
applicable law; and except such information that was in the possession of
such party prior to obtaining such information from such other party (as to
which the fact of prior possession such possessing party shall have the
burden of proof). In the event that the transactions contemplated hereby
shall not be consummated, all such information that is in writing shall be
returned to the party furnishing the same, including to the extent reasonably
practicable, copies or reproductions thereof which may have been prepared.
5.9 REPORTING. Precept shall file in a timely manner any and all
reports required to be filed and shall take all actions necessary to maintain
its status as a reporting company under the Securities Exchange Act of 1934,
as amended.
5.10 PRECEPT TRANSPORTATION GOVERNING BODY. If and when Precept
Transportation appoints a governing body such as Board of Directors or
Management Committee, the Stockholder shall be appointed as a member of such
governing body for as long as the Employment Agreement is in effect.
1.14 SALE OF PRECEPT STOCK . The Stockholder hereby agrees that during
the period of one hundred (100) days immediately following the Closing Date,
and for each subsequent three (3) month period, he shall not sell or
otherwise transfer more than twenty-five (25%) percent of the
29
<PAGE>
shares of Parent Class A Common Stock issued to him at Closing (including any
such shares held in escrow).
1.15 STOCKHOLDER GUARANTEES. Precept and the Surviving Corporation
agree to use their respective best efforts to cause the Stockholder to be
removed as a guarantor or obligor of all (a) purchase money debt for
equipment, (b) indebtedness for borrowed money and all contractual lease
obligation, and (c) all trade credit guaranteed by the Stockholder or with
respect to which he may have any liability as an obligor, and Precept and the
Surviving Corporation shall indemnify, defend and hold the Stockholder
harmless from any such debts, obligations and liabilities; PROVIDED, that
Precept and the Surviving Corporation shall not have any obligation under
this Section 5.12 with respect to any undisclosed debts, obligations or
liabilities in breach of the representations of the Stockholder contained
herein or which are expressly provided herein to remain the obligations of
the Stockholder.
1.16 CONVERSION OF THE COMPANY DEBT. At the Effective Time, the
indebtedness of the Company to the Stockholder shall be converted to paid in
capital.
ARTICLE 6
CONDITIONS TO CLOSING
6.1 CONDITIONS TO OBLIGATIONS OF PRECEPT TRANSPORTATION, MERGER SUB
AND PRECEPT. The obligations of Precept Transportation, Merger Sub and
Precept under this Agreement are subject to the satisfaction at or prior to
the Closing of the following conditions, but compliance with any such
conditions may be waived by Precept Transportation, Merger Sub or Precept.
1.16.1 All representations and warranties of the Company and the
Stockholder contained in this Agreement shall be true and correct at and as
of the Closing Date with the same effect as though such representations and
warranties were made at and as of the Closing Date.
1.16.2 The Company and the Stockholder shall have performed and
complied with all the covenants and agreements and satisfied the conditions
required by this Agreement to be performed, complied with or satisfied by
them at or prior to the Closing Date, including without limitation the
delivery of all items required to be delivered by them hereunder.
1.16.3 There shall be no pending or threatened litigation in any
court or any proceeding before or by any Governmental Body against the
Stockholder, the Company, Precept, Merger Sub or Precept Transportation to
restrain or prohibit or obtain damages or other relief with respect to this
Agreement or the consummation of the transactions contemplated hereby.
30
<PAGE>
1.16.4 All necessary contractual, governmental or other (including
stockholder) consents, approvals, orders or authorizations, if any,
necessary to permit the consummation of the transactions contemplated by
this Agreement shall have been obtained and all necessary contractual,
governmental or other notices, if any, necessary to permit the consummation
of the transactions contemplated by this Agreement shall have been given.
1.16.5 No supplemental disclosure to the Disclosure Schedules
pursuant to Section 5.4 of this Agreement shall have been made by the
Stockholder or the Company that discloses any fact or event that, in
Precept Transportation's reasonable opinion, could have a Material Adverse
Effect on the Company.
1.16.6 There shall have been no material adverse change in the
assets, liabilities or financial condition of the Company prior to Closing
as reflected in the Financial Statements.
6.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE STOCKHOLDER.
The obligations of the Company and the Stockholder under this Agreement are
subject to the satisfaction at or prior to the Closing of the following
conditions, but compliance with any such conditions may be waived by the
Company or the Stockholder.
1.16.7 All representations and warranties of Precept
Transportation, Merger Sub and Precept contained in this Agreement shall be
true and correct at and as of the Closing Date with the same effect as
though such representations and warranties were made at and as of the
Closing Date.
1.16.8 Precept Transportation, Merger Sub and Precept shall have
performed and complied with the covenants and agreements and satisfied the
conditions required by this Agreement to be performed, complied with or
satisfied by them at or prior to the Closing Date, including without
limitation the delivery of all items required to be delivered by them
hereunder.
1.16.9 There shall be no pending or threatened litigation in any
court or any proceeding before or by any Governmental Body against the
Stockholder, the Company, Precept, Merger Sub or Precept Transportation to
restrain or prohibit or obtain damages or other relief with respect to this
Agreement or the consummation of the transactions contemplated hereby.
1.16.10 All necessary contractual, governmental, or other consents,
approvals, orders or authorizations shall have been obtained and all
necessary governmental notices shall have been given.
1.16.11 No supplemental disclosure to the Disclosure Schedules
pursuant to Section 5.4 of this Agreement shall have been made by Precept,
Merger Sub or Precept
31
<PAGE>
Transportation that discloses any fact or event that, in the Stockholder's
reasonable opinion, could have Material Adverse Effect on Precept, Merger
Sub or Precept Transportation.
1.16.12 There shall have been no material adverse change in the
assets, liabilities or financial condition of Precept Transportation,
Merger Sub or Precept prior to the Closing.
ARTICLE 7
INDEMNIFICATION
7.1 INDEMNIFICATION OF PRECEPT TRANSPORTATION AND PRECEPT. The
Company (until the Closing) and the Stockholder (after the Closing), hereby
agree to indemnify, defend and hold Precept, Precept Transportation and their
subsidiaries (including the Merger Sub after the Closing) and their
respective directors, officers, employees and agents (each a "Precept Party"
and collectively, the "Precept Parties") harmless from any and all direct
liabilities, obligations, claims, contingencies, damages, costs and expenses,
including all court costs and reasonable attorneys' fees (collectively,
"Losses"), that any Precept Party may suffer or incur as a result of or
relating to (a) a breach of any agreement, representation, warranty or
covenant made by the Company or the Stockholder in this Agreement or pursuant
hereto, or in any exhibit, Disclosure Schedule, certificate or financial
statement delivered hereunder or in any document required to be delivered on
the Closing Date by the Stockholder or the Company, but, in any event, only
to the extent such Losses exceed $20,000 individually or in the aggregate, in
which case the Stockholder shall only be responsible for such indemnifiable
damages in excess of $20,000 in the aggregate, and (b) any Loss arising out
of the matters described in, Sections 3.12 and 3.13 of the Disclosure
Schedule. The Escrow Fund (as hereinafter defined) shall first be used to
satisfy any indemnification obligations of the Stockholder under this Section
7.1. Thereafter, the Stockholder may, at his option, satisfy any or all of
his indemnification obligations required pursuant to this Article VII by
returning shares of Parent Class A Common Stock to Precept. For purposes of
the foregoing sentence, the shares of Parent Class A Common Stock returned
shall be valued at the average closing price of the Precept Shares as
reported on NASDAQ (or, in the event that such shares are not traded on
NASDAQ, the highest closing price on any other applicable exchange or market
system) for the period of ten (10) Trading Days immediately preceding the
date such return is made. To the extent that any Precept Party recovers
indemnifiable damages pursuant to this Article VII in respect of uncollected
receivables of the Company, such Precept Party shall assign to the
Stockholder its rights to such uncollected receivables. Notwithstanding the
foregoing, Losses to be indemnified pursuant to this Section 7.1 shall be net
of the dollar value of any economic benefit received by any Precept Party as
a result of a condition, event or occurrence indemnified hereunder,
including, without limitation, receipt of insurance proceeds. To the extent
the Stockholder has made indemnification payments hereunder, the Stockholder
shall be subrogated to rights of Precept or the Company under any applicable
insurance coverages; provided that the Company and/or Precept have first
right to be made whole under such policies. The maximum amount of Losses for
which the Precept Parties
32
<PAGE>
shall be entitled to indemnification hereunder shall be an amount equal to
$3,500,000, except with respect to intentional misrepresentations or fraud by
the Stockholder or the Company (if applicable), in which case the limitation
on indemnification set forth in the preceding sentence shall not apply.
7.2 INDEMNIFICATION OF STOCKHOLDER. The Merger Sub (after the
Closing), the Precept Transportation and Precept hereby agree to indemnify,
defend and hold the Stockholder and his heirs, successors and assigns (each a
"Seller Party" and collectively, the "Seller Parties") harmless from any and
all Losses than any Seller Party may suffer or incur as a result of or
relating to a breach of any agreement, representation, warranty or covenant
made by the Precept Transportation, Precept, or, with respect to post-Closing
agreements and covenants, the Merger Sub, in this Agreement or pursuant
hereto, or in any exhibit, Disclosure Schedule or certificate delivered
hereunder or in any document required to be delivered on the Closing Date by
the Precept Transportation or Precept.
7.3 NOTIFICATION OF CLAIM; SET OFF. Any of the Precept
Transportation Parties or Seller Parties seeking indemnification under this
Article VII (collectively, the "Indemnified Parties") will promptly give
notice to the Persons to provide indemnification (collectively, the
"Indemnifying Parties") of any Losses or claims as to which it asserts a
right to indemnification (a "Claim"), and within thirty (30) days thereafter,
further notify the Indemnifying Parties of the details of such Claim and the
amount thereof; PROVIDED, HOWEVER, that the failure to give such notification
shall not relieve the Indemnifying Parties from any liability that they may
have pursuant to the provisions of this Article VII as long as the failure to
give such notice within such time is not prejudicial to the Indemnifying
Parties. Notice to one of the Indemnifying Parties for the purpose of this
Section 7.3 shall mean the filing of the service upon Indemnifying Parties of
any legal action, receipt of any claim in writing or similar form of actual
notice. Precept and Merger Sub shall be entitled, but not required, to set
off the amount of any Claim or Claims in respect of which Precept Parties are
entitled to indemnification against any payments becoming due to the
Stockholder pursuant to this Agreement, the Transaction Documents (other than
the Employment Agreement) or otherwise.
7.4 DEFENSE OF CLAIMS. If any Claim by one of the Indemnified
Parties arises out of a claim by a person other than one of the Indemnified
Parties, the Indemnified Parties will promptly give notice to the
Indemnifying Parties (or the Indemnifying Parties) of any such Claim, and
thereafter the Indemnifying Parties may, by written notice, undertake to
conduct any proceedings or negotiations in connection therewith or necessary
to defend the Indemnified Parties and take all other steps or proceedings to
settle or contest such claim, including, without limitation, the employment
of counsel; PROVIDED, HOWEVER, that (a) the Stockholder (or the Company, if
applicable) shall not enter into any agreement in compromise or settlement of
any claim that could affect the Taxes attributable to any taxable period of
the Company beginning on or after the Closing Date without the prior written
consent of Precept Transportation (which consent shall not be unreasonably
withheld or delayed), and (b) the Indemnifying Parties shall reasonably
consider the advice of the Indemnified Parties as to the defense and
settlement of such claim and the Indemnified Parties shall have the right to
participate, at their own expense, in such defense. Except as otherwise
provided herein, control of such litigation and settlement shall remain with
the Indemnifying Parties. The Indemnified Parties shall provide all
reasonable cooperation in connection with any such defense by the Indemnified
Parties. Counsel and auditor fees, filing fees and court fees of all
proceedings, contests or lawsuits with respect to any such claim shall be
borne by the Indemnified Parties, except that with respect to the litigation
disclosed in paragraph 1 of Section 3.13 of the Disclosure Schedule, the
Surviving Corporation shall be responsible for and promptly pay all counsel,
expert, filing and court fees
33
<PAGE>
relating thereto (whether incurred prior to or after the Closing Date) . In
the event that the Stockholder and/or the Surviving Corporation receives any
recovery in any of the litigations described in paragraphs 1, 2 or 3 of
Section 3.13 of the Disclosure Schedule (whether by settlement, payment in
respect of any judgment or otherwise), such recovery shall first be applied
to reimburse the Stockholder and the Surviving Corporation for any and all
expenses incurred by them in connection with such litigations (and if such
recovery is insufficient to reimburse such expenses in their entirety, the
amount thereof shall be allocated between the Stockholder and the Surviving
Corporation PRO RATA in proportion to the amount of their respective
expenses), and any recovery in excess of the amount of such expenses shall be
shared equally by the Stockholder and the Surviving Corporation. If any such
Claim is made hereunder and the Indemnifying Parties elect not to undertake
the defense thereof by written notice to the Indemnified Parties, the
Indemnified Parties shall be entitled to indemnification with respect thereto
pursuant to the terms of this Article VII.
1.17 SURVIVAL. All representations and warranties made in or pursuant to
this Agreement will survive the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby for a period of one
(1) year after the Closing Date and the right to indemnification with respect
thereto shall expire on such date (unless there is a Claim made on or prior
to such date, in which case the indemnification obligations hereunder shall
continue until the final resolution of such Claim); PROVIDED, HOWEVER, that
the representations and warranties made in Sections 3.12, 3.17 and 3.26 shall
survive for a period of three (3) years after the Closing Date. All
statements contained in any Schedule to this Agreement will constitute
representations and warranties under this Agreement.
1.18 ESCROW.
1.18.1 ESCROW FUNDS. At the Closing, 263,505 shares of Parent
Class A Common Stock to be issued to the Stockholder at Closing under this
Agreement (plus any additional New Shares (as defined below) as may be
issued in respect thereof after the Closing) (collectively, the "Escrow
Shares"), shall be issued in the name of the Stockholder and held by Thomas
& Self, a Professional Corporation ("Escrow Agent") to partially secure the
indemnification obligations of the Stockholder under Section 7.1.
Additionally, at the Closing, Three Hundred Thousand Dollars ($300,000) of
the Cash Merger Consideration, plus interest accrued thereon (the "Escrow
Cash" and, together with the Escrow Shares, the "Escrow Funds") shall be
held in an interest-bearing account for the benefit of the Stockholder to
secure the indemnification obligations of the Stockholder under Section
7.1. Promptly following Closing, the parties shall execute and deliver to
Escrow Agent a mutually acceptable Escrow Agreement in accordance with the
terms hereof. The Stockholder hereby grants to Precept a security interest
in the Escrow Shares to secure Stockholder's obligations to the Precept
Parties under Section 7.1 above and, promptly following Closing,
Stockholder shall deliver to the Escrow Agent such stock powers to give
effect to such grant.
1.18.2 RELEASE OF ESCROW FUNDS. The Escrow Funds shall be retained
by Escrow Agent for a period of three (3) years from the Closing Date (the
"Escrow Period"), subject to the following:
34
<PAGE>
7.6.2.1 On the first anniversary of the Closing Date,
the Escrow Agent shall release from escrow and deliver to the
Stockholder an amount of Escrow Funds equal to the difference
between Two Hundred Thousand Dollars ($200,000) and the amount of
the Losses, if any, as to which any of the Precept Parties has
properly made an unresolved Claim under Section 7.2. The amount, if
any, of such Two Hundred Thousand Dollars ($200,000) retained by
Escrow Agent shall continue to be retained until any such Claims
have been resolved. Within five (5) business days following
resolution of any such Claims, Escrow Agent shall deliver to the
Stockholder that portion of the Two Hundred Thousand Dollars
($200,000) retained by the Escrow Agent and not required to satisfy
such Claims.
7.6.2.2 On the second anniversary of the Closing Date,
the Escrow Agent shall release from escrow and deliver to the
Stockholder an amount of Escrow Funds equal to the difference
between Four Hundred Thousand Dollars ($400,000) and the amount of
the Losses, if any, as to which any of the Precept Parties has
properly made an unresolved Claim under Section 7.2. The amount, if
any, of such Four Hundred Thousand Dollars ($400,000) retained by
Escrow Agent shall continue to be retained until any such Claims
have been resolved. Within five (5) business days following
resolution of any such Claims, Escrow Agent shall deliver to the
Stockholder that portion of the Four Hundred Thousand Dollars
($400,000) retained by Escrow Agent and not required to satisfy such
Claims.
7.6.2.3 On the last day of the Escrow Period, Escrow Agent
shall release from escrow and deliver to the Stockholder all of the
Escrow Funds less the amount of the Losses, if any, as to which any
of the Precept Parties has properly made an unresolved Claim under
Section 7.2. The amount, if any, of such Escrow Funds retained by
Escrow Agent shall continue to be retained until any such Claims
have been resolved. Within five (5) business days following
resolution of such Claims, Escrow Agent shall deliver to the
Stockholder that portion of the Escrow Funds retained by Escrow
Agent and not required to satisfy such Claims.
7.6.2.4 Any release of Escrow Funds made pursuant to this
Section shall be made in Escrow Cash and Escrow Shares, PRO RATA
based on the aggregate value of the Escrow Cash and Escrow Shares.
For purposes of such valuation, each share of Parent Class A Common
Stock held in escrow shall be valued at the average closing price of
the Parent Class A Common Stock on NASDAQ (or, if not traded on
NASDAQ, such other market or system where such stock is most
frequently traded) for the last ten (10) Trading Days of such
applicable year.
1.18.3 PROTECTION OF ESCROW FUNDS. Escrow Agent shall hold and
safeguard the Escrow Funds, shall invest the Escrow Cash in a manner
approved in writing by the parties shall treat such Escrow Funds as a trust
fund in accordance with the terms of this Agreement and
35
<PAGE>
not as the property of Precept, and shall hold and dispose of the Escrow
Funds solely in accordance with the terms hereof.
1.18.4 THE ESCROW SHARES. Any shares of Parent Class A Common Stock
or other equity securities issued or distributed by Precept (including
shares issued upon a stock split) (the "New Shares") in respect of Escrow
Shares that have not been released to the Stockholder shall be added to the
Escrow Shares and become a part thereof. New Shares issued in respect of
Escrow Shares that have been released shall not be added to the Escrow
Shares, but shall be distributed to the holders thereof. When and if cash
dividends on Escrow Shares shall be declared and paid, they shall not be
added to the Escrow Shares but shall be paid to the holders thereof.
1.18.5 REPLENISHMENT OF ESCROW. If at any time the value of the
Escrow Account falls below ($100,000), upon written notice thereof by
Precept to the Stockholder, the Stockholder shall contribute cash to the
Escrow Amount in the amount of One Hundred Thousand Dollars ($100,000)
(which amount shall be deemed "Escrow Cash.") For purposes of such
valuation, each share of Parent Class A Common Stock held in escrow shall
be valued at the average closing price of the Parent Class A Common stock
on NASDAQ (or, if not traded on NASDAQ, such other market or system where
such stock is most frequently traded) for the last ten (10) Trading Days
immediately preceding the date such valuation is made.
1.18.6 PROVISIONS RELATING TO ESCROW AGENT.
1.18.6.1 Escrow Agent agrees to serve as Escrow Agent
without fee, except that Precept Transportation and the
Stockholder agree to reimburse Escrow Agent for Escrow
Agent's reasonable fees and other expenses (including
reasonable attorney's fees) incurred by Escrow Agent in
connection with services required hereunder or on account of
disputes between Precept and the Stockholder. Precept
Transportation, Precept, the Merger Sub and the Stockholder,
jointly and severally, shall indemnify and hold harmless
Escrow Agent against and in respect of any and all claims,
suits, actions, proceedings (formal and informal),
investigations, judgments, deficiencies, damages,
settlements, liabilities, and legal and other expenses
(including reasonable legal fees and expenses of attorneys
chosen by Escrow Agent) as and when incurred, arising out of
or based upon any act, omission, alleged act, or alleged
omission by Escrow Agent or any other cause, in any case in
connection with the acceptance of, or the performance or
non-performance by Escrow Agent of, any of Escrow Agent's
duties under this Agreement, except as the result of Escrow
Agent's intentional misconduct or gross negligence as
finally determined by a court of competent jurisdiction.
Except in cases of Escrow Agent's bad faith or gross
negligence, Escrow Agent shall be fully protected by acting
in reliance upon any notice, advice, direction or other
document in accordance with the provisions hereof, in
connection with this Agreement, or in connection with Escrow
Agent's duties under this Agreement, has been duly
authorized so to do, or by acting or failing to act in good
faith
36
<PAGE>
on the advice of any counsel retained by Escrow Agent.
Escrow Agent shall not be liable for any mistake of fact or
of law or any error of judgment, or for any act or any
omission, except as a result of Escrow Agent's intentional
misconduct or gross negligence as finally determined by a
court of competent jurisdiction.
1.18.6.2 Escrow Agent shall have no duties or
responsibilities except those expressly set forth herein.
Escrow Agent shall not be bound by any waiver, modification,
amendment, termination, cancellation or revision of this
Agreement, unless in writing and signed by Escrow Agent and
the other parties hereto. Escrow Agent shall not be bound
by any assignment by any party hereto of its rights
hereunder unless Escrow Agent shall have received written
notice thereof from the assignor. Escrow Agent shall
perform any acts ordered by a court of competent
jurisdiction.
1.18.6.3 If Escrow Agent shall be uncertain as to Escrow
Agent's duties or rights hereunder, or shall receive any
notice, advice, direction or other document from any other
party with respect to the Escrow Amount which, in Escrow
Agent's opinion, is in conflict with any of the provisions
of this Agreement, or shall be advised that a dispute has
arisen with respect to the payment, ownership or right of
possession of the Escrow Amount or any part thereof (or as
to the delivery, non-delivery or content of any notice,
advice, direction or other document), Escrow Agent shall be
entitled, without liability to anyone, to refrain from
taking any action other than to use Escrow Agent's
reasonable efforts to keep safely the Escrow Amount until
Escrow Agent shall be directed otherwise in writing by all
other parties hereto or by an order, decree or judgment of a
court of competent jurisdiction which has been finally
affirmed on appeal or which by lapse of time or otherwise is
no longer subject to appeal, but Escrow Agent shall be under
no duty to institute or to defend any proceeding, although
Escrow Agent may, in Escrow Agent's discretion and at the
expense of Precept and the Stockholder, institute or defend
such proceedings. The parties hereto authorize Escrow
Agent, if Escrow Agent is threatened with litigation or is
sued, to interplead all interested parties in any court of
competent jurisdiction and to deposit the Escrow Amount with
the clerk of that court.
1.18.6.4 If Escrow Agent shall be unable to act or shall
resign as Escrow Agent hereunder, the successor escrow agent
shall be such escrow agent as shall be mutually agreed upon
by the parties. Escrow Agent may at any time give written
notice of its resignation to the other parties hereto, which
resignation shall be effective upon successor escrow agent
selected by the parties becoming the Escrow Agent hereunder.
Escrow Agent's responsibilities and liabilities hereunder,
except as a result of Escrow Agent's own intentional
misconduct or gross negligence, will terminate upon the
delivery by Escrow Agent of all the Escrow Amount under any
provision of this Agreement.
ARTICLE 8
MISCELLANEOUS
37
<PAGE>
1.19 NOTICES. All notices that are required or may be given pursuant to this
Agreement must be in writing and delivered personally, by a recognized
courier service, by a recognized overnight delivery service, by facsimile or
by registered or certified mail, postage prepaid, to the parties at the
following addresses (or to the attention of such other person or such other
address as any party may provide to the other parties by notice in accordance
with this Section 8.2):
<TABLE>
<S> <C>
If to Precept Transportation, Precept Business Services, Inc.
Precept or Merger Sub: 1909 Woodall Rodgers Freeway, Suite 500
Dallas, Texas 75201
Attention: General Counsel
Facsimile No.: (214) 220-1082
with a copy to: Thomas & Self, P.C.
5339 Spring Valley Road
Dallas, TX 75420-3009
Attention: Rudy Beuttenmuller, Esq.
Facsimile No.: (972) 991-2121
If to the Stockholder: Mr. John Rose
121 Bathurst Avenue
North Arlington, NJ 07031
with a copy to: Sills Cummis Zuckerman Radin
Tischman Epstein & Gross, P.A.
One Riverfront Plaza
Newark, New Jersey 07102
Attention: Ira A. Rosenberg, Esq.
Facsimile No.: (973) 643-6500
</TABLE>
Any such notice or other communication will be deemed to have been given
and received (whether actually received or not) on the day it is personally
delivered or delivered by courier or overnight delivery service or by
facsimile or, if mailed, when actually received.
8.5 EXPENSES. The parties hereto will each bear their own respective
costs and expenses in connection with the transactions contemplated by this
Agreement. The Stockholder shall bear any costs, expenses or fees payable to
any financial advisors, attorneys, accountants or other representatives
(collectively, "Professionals") retained by the Company or the Stockholder on
their behalf with regard to the transactions contemplated by this Agreement.
Precept and its Affiliates shall bear any costs, expenses or fees payable to
any Professional retained by Precept or its Affiliates with regard to the
transactions contemplated by this Agreement. If any Professional's fees or
costs are incurred to secure performance of any obligations under this
Agreement or any agreement contemplated hereby, or to establish damages for
the breach thereof or to obtain any other appropriate relief, whether by way
of prosecution or defense, the prevailing
38
<PAGE>
party will be entitled to recover reasonable attorneys' fees and costs
incurred in connection therewith. Except as otherwise provided herein, the
Company shall bear the costs, expenses or fees payable to any Professionals
retained by the Company or the Stockholder in connection with any matter not
related directly to the transactions contemplated by this Agreement.
8.6 FURTHER ASSURANCES. Each party agrees to execute any and all
documents and to perform such other acts as may be necessary or expedient to
further the purposes of this Agreement and the transactions contemplated
hereby, including, without limitation, with respect to obtaining any consent
required by the terms of any Material Agreements.
8.7 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder will be assigned or delegated by the
Company, the Stockholder, Precept, Merger Sub or Precept Transportation,
without the prior written consent of the other parties hereto; except that
Precept Transportation may assign its rights and obligations under this
Agreement to any direct or indirect subsidiary of Precept (provided that
Precept Transportation shall remain obligated to perform Precept
Transportation's obligations hereunder) and except that the rights of the
Stockholder shall inure to the benefit of his executors, administrators and
beneficiaries. This Agreement is not intended to confer any rights or
benefits to any Person (including without limitation any employees of the
Company) other than the parties hereto.
8.8 ENTIRE AGREEMENT. This Agreement, the other Transaction
Documents, and the documents contained as Exhibits, Attachments and
Disclosure Schedules hereto contain the entire understanding of the parties
relating to the subject matter hereof and supersede all prior written or oral
and all contemporaneous oral agreements and understandings relating to the
subject matter hereof. This Agreement cannot be modified or amended except
in writing signed by the party against whom enforcement is sought. The
Exhibits, Attachments and Disclosure Schedules to this Agreement are hereby
incorporated by reference into and made a part of this Agreement for all
purposes.
8.9 SEVERABILITY. If any provision of this Agreement is declared or
found to be illegal, unenforceable or void, in whole or in part, then the
parties will be relieved of all obligations arising under such provision, but
only to the extent it is illegal, unenforceable or void. The intent and
agreement of the parties to this Agreement is that this Agreement will be
deemed amended by modifying any such illegal, unenforceable or void provision
to the extent necessary to make it legal and enforceable while preserving its
intent, or if that is not possible, by substituting another provision that is
legal and enforceable and achieves the same objectives as the provisions.
Notwithstanding the foregoing, if the remainder of this Agreement will not be
affected by such declaration or finding and is capable of substantial
performance, then each provision not so affected will be enforced to the
extent permitted by law.
8.10 GOVERNING LAW. This Agreement will be governed by and construed
and interpreted in accordance with the substantive laws of the State of Texas
without giving effect to any conflicts of law rule or principle that might
require the application of the laws of another jurisdiction.
39
<PAGE>
8.11 ARBITRATION PROCEEDINGS.
8.11.1 NEGOTIATION PERIOD. Any dispute, controversy or claim
arising out of or relating to this Agreement, or any alleged breach hereof,
will be subject to binding arbitration in accordance with this Section 8.8.
If such a dispute, controversy or claim exists, the parties shall attempt
for a 30-day period (the "Negotiation Period") from the date any party
gives any one or more of the other parties notice (a "Dispute Notice")
pursuant to this Section, to negotiate in good faith, a resolution of the
dispute. The Dispute Notice shall set forth with specificity the basis of
the dispute. During the Negotiation Period, representatives of each party
involved in the dispute who have authority to settle the dispute shall meet
at mutually convenient times and places and use their best efforts to
resolve the dispute.
8.11.2 COMMENCEMENT OF ARBITRATION. If a resolution is not reached
by the parties prior to the end of the Negotiation Period, either party may
provide a written request to the American Arbitration Association within
ten (10) days from the end of such period requesting the selection of three
(3) arbitrators (the "Panel") to arbitrate the parties' respective rights
and obligations with respect to the matter set forth in the Dispute Notice.
Each arbitrator on the Panel shall be experienced in the arbitration of
complex commercial disputes.
8.11.3 DISCOVERY. Each party to an arbitration shall be entitled
to such discovery as the Panel shall determine is appropriate.
8.11.4 EXPENSES OF ARBITRATORS. The expenses of the Panel shall be
paid by the party that does not substantially prevail on the merits in the
arbitration (as determined by the award of the Panel).
8.11.5 LOCATION OF ARBITRATION. The arbitration shall take place
in New York, New York.
8.11.6 AAA RULES. Except as expressly provided in this Section
8.8, the arbitration shall be conducted in accordance with the Commercial
Rules of the American Arbitration Association as then in effect.
8.11.7 FEES AND EXPENSES. The party that substantially prevails on
the merits of the arbitration (as determined by the Panel) shall be
entitled to reasonable attorneys' fees, costs, expenses and necessary
disbursements in addition to any other relief to which such party may be
entitled.
8.12 INTERPRETATION. When used in this Agreement, the masculine,
feminine or neuter gender and the singular or plural number shall each be
deemed to include the others whenever the context so indicates or permits.
40
<PAGE>
8.13 COUNTERPARTS; FACSIMILE SIGNATURES. One or more counterparts of
this Agreement may be delivered by facsimile transmission, with the intention
that they shall have the same effect as an original counterpart hereof. This
Agreement may be executed by the parties on one or more counterparts, all of
which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
8.14 HEADINGS. The Section headings contained in this Agreement are
included for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
8.15 CONSTRUCTION. The parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be
construed as if drafted jointly by the parties and no presumption or burden
of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement.
1.20 TIME OF THE ESSENCE. Time is of the essence with respect to all
payments to be made to Stockholder hereunder and the other Transaction
Documents.
1.21 ADJUSTMENT OF MERGER CONSIDERATION. In the event that,
subsequent to the date of this Agreement, the outstanding shares of Parent
Class A Common Stock shall have been changed into a different number of
shares or a different class as a result of a stock split, reverse stock
split, stock dividend, subdivision, reclassification, split, combination,
exchange, recapitalization or other similar transaction, the number of shares
and share prices described in this Agreement or the Employment Agreement
shall be appropriately adjusted.
[signature page follows]
41
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
PRECEPT TRANSPORTATION: COMPANY:
PRECEPT TRANSPORTATION GARDEN STATE LEASING &
SERVICES, LLC, a Nevada RENT-A-CAR CORPORATION, a New
limited liability company Jersey corporation
By:
By: -----------------------------------
---------------------------------- John Rose, President
STOCKHOLDER:
PRECEPT:
PRECEPT BUSINESS SERVICES, INC.,
a Texas corporation
-----------------------------------
By: JOHN ROSE
----------------------------------
MERGER SUB:
GARDEN STATE ACQUISITION CORPORATION,
a Texas corporation
By:
----------------------------------
For purposes of Article VII only:
ESCROW AGENT:
THOMAS & SELF
a Professional Corporation
By:
----------------------------------
[signature page]
<PAGE>
EXHIBIT 2.6
TECHNICAL AMENDMENTS TO MERGER AGREEMENT
THESE TECHNICAL AMENDMENTS TO MERGER AGREEMENT (the "Amendments") are
made and entered into this 5th day of October, 1998, by and among Precept
Transportation Services, LLC, a Nevada limited liability company ("Precept
Transportation"), Precept Business Services, Inc., a Texas corporation
("Precept"), Garden State Acquisition Corporation, a Texas corporation
("Merger Sub"), Garden State Leasing & Rent-A-Car Corporation, a New Jersey
corporation (the "Company") and John Rose (the "Stockholder"); to amend and
correct certain provisions of that certain Agreement and Plan of Merger dated
October 2, 1998, to be effective as October 1, 1998, by and among Precept
Transportation, Precept, Merger Sub, the Company and the Stockholder (the
"Merger Agreement");
RECITALS
WHEREAS, the Merger Agreement, as originally writtten, contained certain
errors and ambiguities that Precept Transportation, Precept, Merger Sub, the
Company and the Stockholder wish to correct and clarify;
AGREEMENT
NOW, THEREFORE, in consideration of premises, and the mutual promises
and covenants hereinafter set forth, the parties hereto, intending to be
legally bound, agree as follows:
1. SECTION 2.5.1.2. The example at the end of Section 2.5.1.2 of the
Merger Agreement is hereby amended to reflect that Precept's duty to issue
additional shares of its Class A Common Stock under such example is subject
to the condition set forth earlier in that Section that the closing trading
price of such shares as reported on NASDAQ (or other applicable exchange)
shall have been below $1.1385 per share for the immediately preceding ten
(10) consecutive Trading Days prior to the sale described in such example.
2. SECTION 2.6.1. Section 2.6.1 of the Merger Agreement is hereby
amended by the deletion of the words "except as otherwise provided in the
Employment Agreement" at the end of such Section and by the addition of the
following sentence: "Stockholder's profits participation related to any such
future acquisitions is provided for and shall accrue solely under the
Employment Agreement."
3. SECTION 2.6.2. Section 2.6.2 of the Merger Agreement is hereby
amended by the deletion of the words "selected by the Stockholder" in the
second to last line of that Section.
4. SECTION 2.6.4. The last sentence of Section 2.6.4 of the Merger
Agreement is hereby amended and restated to read in its entirety as follows:
"All costs of such audit shall be the responsibility of Stockholder, unless
the independent accounting firm determines that the amount of any
additional Earn-Out Payment over and
PAGE 1
<PAGE>
above that calculated by Precept and due to Stockholder as described
above is more than seven and one-half percent (7-1/2%) of the Earn-Out
Payment as calculated by Precept, and if the additional payment due is
more than such seven and one-half percent (7-1/2%) of that offered by
Precept, the costs of audit shall be borne by Precept."
5. SECTION 2.6.5. Section 2.6.5 of the Merger Agreement is hereby
amended and supplemented by the addition of the following sentence:
"It is expressly provided, however, that all shares of Parent Class A Stock
received by Stockholder under any earn out in the Employment Agreement are
to be received and represent fair value and arms'-length consideration for
services actually to be rendered by Stockholder only after the Merger
solely in his capacity as an employee of the Surviving Corporation and as
agent for Precept Transportation. Such shares are not a part of the Merger
Consideration. References to such shares in this Section are therefore for
convenience only. Even though certain provisions set forth in this
Agreement are equally applicable to such shares, such shares are being
issued for separate consideration and a separate purpose."
6. SECTION 2.7.1. The fifth to last line of Section 2.7.1 of the
Merger Agreement is hereby amended to delete the word "Transportation" in
such line.
7. SECTION 2.9.1 The first line of Section 2.9.1 of the Merger
Agreement is hereby amended to delete the word "Transportation" in such line.
8. SECTION 2.9.2 The second line of Section 2.9.2 of the Merger
Agreement is hereby amended to delete the word "Transportation" in such line.
9. SECTION 3.6 The third line of Section 3.6 of the Merger Agreement
is hereby amended to delete the word "Transportation" in such line.
10. SECTION 7.3 The parenthetical clause in the last two lines of
Section 7.3 of the Employment Agreement is hereby amended and restated to
read in its entirety as follows: "(including earn-outs or profits
participations, but not to include wages or salary, provided for under the
Employment Agreement)."
11. SECTION 7.4, FIRST SENTENCE The first sentence, tenth line of
Section 7.4 of the Merger Agreement, is hereby amended to delete the word
"Transportation" in such line.
12. SECTION 7.4, THIRD SENTENCE The third sentence of Section 7.4 of
the Merger Agreement is hereby amended and restated to read in its entirety
as follows:
"The Indemnified Parties shall provide all reasonable cooperation in
connection with any such defense by the Indemnifying Parties."
PAGE 2
<PAGE>
13. SECTION 7.4, FOURTH SENTENCE The fourth sentence of Section 7.4
of the Merger Agreement is hereby amended and restated to read in its
entirety as follows:
"Counsel and auditor fees, filing fees and court fees of all proceedings,
contests or lawsuits with respect to any such claim shall be borne by the
Indemnifying Parties, whether or not the Indemnifying Parties elect to
control the defense as set forth above, except that with respect to the
litigation disclosed in paragraph 1 of Section 3.13 of the Disclosure
Schedule, the Surviving Corporation shall be responsible for and promptly
pay all counsel, expert, filing and court fees relating thereto (whether
incurred prior to or after the Closing Date)."
14. SECTION 7.6.2. Section 7.6.2 of the Merger Agreement is hereby
amended and supplemented by the addition of the following Section 7.6.2.5:
"7.6.2.5 Each release of Escrow Funds required under this Section shall in
each case be reduced also by the amount of any Losses paid out from escrow
during the applicable periods prior to release."
15. GOVERNING LAW. These Amendments shall be governed by and
interpreted in accordance with the laws of the State of Texas applicable to
contracts made and to be performed therein, without resort to the conflict of
law principles thereof.
16. RATIFICATION; COMPLETE AGREEMENT. Except for the amendments
specifically set forth therein, all terms and conditions of the Merger
Agreement are hereby ratified and confirmed and shall remain in full force
and effect. No further alteration, addition or other change to the Merger
Agreement or these Amendments shall be binding unless in writing signed by
the party to be bound.
IN WITNESS WHEREOF, the parties have executed these Amendments as of the
date first above written.
PRECEPT TRANSPORTATION:
PRECEPT TRANSPORTATION SERVICES, LLC, GARDEN STATE LEASING & RENT-A-CAR
a Nevada limited liability company CORPORATION, a New Jersey corporation
By:
----------------------------------
By
---------------------------------
PRECEPT: JOHN ROSE
PRECEPT BUSINESS SERVICES, INC.,
a Texas corporation
By:
----------------------------------
COMPANY:
PAGE 3
<PAGE>
STOCKHOLDER:
- -------------------------------------
JOHN ROSE
MERGER SUB:
GARDEN STATE ACQUISITION CORPORATION,
a Texas corporation
By:
----------------------------------
PAGE 4
<PAGE>
FIFTH AMENDMENT TO FIRST AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIFTH AMENDMENT TO FIRST AMENDED AND RESTATED CREDIT AGREEMENT
(this "Amendment") is entered into as of September 29, 1998, by and between
Precept Business Services, Inc, a Texas corporation ("PBS"), Precept Business
Products, Inc., a Delaware corporation ("PBI"), Wingtip Couriers, Inc., a
Texas corporation ("Wingtip"), Precept Transportation Services of Texas,
Inc., a Texas corporation ("PTST"), Precept Transportation Services, L.L.C.,
a Nevada limited liability company ("PLLC"), and Relay Couriers, Inc., a
Texas corporation ("Relay"), (PBS, PBI, Wingtip, PTST, PLLC and Relay are
individually hereinafter referred to as a "Borrower"), and WELLS FARGO BANK
(TEXAS), NATIONAL ASSOCIATION ("Bank").
RECITALS
WHEREAS, Borrower is currently indebted to Bank pursuant to the terms
and conditions of that certain First Amended and Restated Credit Agreement
between Borrower and Bank dated as of March 20, 1998, as amended from time to
time ("Credit Agreement").
WHEREAS, Bank and Borrower have agreed to certain changes in the terms
and conditions set forth in the Credit Agreement and have agreed to amend the
Credit Agreement to reflect said changes.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree that the Credit
Agreement shall be amended as follows:
1. Section 1.1.(a) is hereby amended by deleting "Twenty Million
Dollars ($20,000,000.00)" as the maximum principal amount available under the
Line of Credit, and by substituting for said amount "Twenty-Five Million
Dollars ($25,000,000.00)," with such change to be effective upon the
execution and delivery to Bank of a promissory note substantially in the
form of Exhibit A attached hereto (which promissory note shall replace and be
deemed the Line of Credit Note defined in and made pursuant to the Credit
Agreement) and all other contracts, instruments and documents required by
Bank to evidence such change.
2. Section 1.1.(b) is hereby deleted in its entirety, and the following
substituted therefor:
"(b) Outstanding Borrowings under the Line of Credit, to a maximum of
the principal amount set forth above, shall not at any time exceed an
aggregate of Pro Forma
<PAGE>
Historical EBITDA multiplied by Two and Three-Fourths (2.75). As used
herein, "Pro Forma Historical EBITDA" shall be defined as EBITDA of
Borrowers for the immediately preceding 12 month period ending on the
last day of the immediately preceding fiscal month plus any adjustments
to EBITDA as agreed to in writing by Bank."
3. Section 4.3.(c) is hereby deleted in its entirety, and the following
substituted therefor:
"(c) Contemporaneously with each monthly financial statement of
Borrowers, required hereby, a borrowing base certificate showing
at least Borrowers calculation of EBITDA and Pro Forma Historical
EBITDA."
4. Borrower shall pay to Bank a non-refundable commitment fee for the
Line of Credit equal to $25,000.00 which fee shall be due and payable in full
on the date Borrower acknowledges this Amendment.
6. Except as specifically provided herein, all terms and conditions of
the Credit Agreement remain in full force and effect, without waiver or
modification. All terms defined in the Credit Agreement shall have the same
meaning when used in this Amendment. This Amendment and the Credit Agreement
shall be read together, as one document.
7. Borrower hereby remakes all representations and warranties contained
in the Credit Agreement and reaffirms all covenants set forth therein.
Borrower further certifies that as of the date of this Amendment there exists
no Event of Default as defined in the Credit Agreement, nor any condition,
act or event which with the giving of notice or the passage of time or both
would constitute any such Event of Default.
NOTICE: THIS DOCUMENT AND ALL OTHER DOCUMENTS RELATING TO THE INDEBTEDNESS
CONSTITUTE A WRITTEN LOAN AGREEMENT WHICH REPRESENTS THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES RELATING TO THE INDEBTEDNESS.
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the day and year first written above.
PRECEPT BUSINESS SERVICES, INC. WELLS FARGO BANK (TEXAS),
NATIONAL ASSOCIATION
By: William W. Solomon, Jr. By:
---------------------------------- -----------------------------------
Brent Bertino
Title: Senior VP & CFO Relationship Manager/
----------------------------- Assistant Vice President
PRECEPT BUSINESS PRODUCTS, INC. WINGTIP COURIERS, INC.
By: William W. Solomon, Jr. By: William W. Solomon, Jr.
---------------------------------- --------------------------------------
Title: Senior VP & CFO Title: Senior VP & CFO
----------------------------- ------------------------------
PRECEPT TRANSPORTATION SERVICES OF
TEXAS, INC. PRECEPT TRANSPORTATION SERVICES, L.L.C.
By: William W. Solomon, Jr. By: William W. Solomon, Jr.
--------------------------------- ----------------------------------
Title: Senior VP & CFO Title: Senior VP & CFO
----------------------------- ------------------------------
RELAY COURIERS, INC.
By: William W. Solomon, Jr.
---------------------------------
Title: Senior VP & CFO
-----------------------------
-3-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1998
<CASH> 2,423,343
<SECURITIES> 0
<RECEIVABLES> 19,005,109<F1>
<ALLOWANCES> 410,000
<INVENTORY> 6,390,981
<CURRENT-ASSETS> 33,255,241
<PP&E> 6,205,384
<DEPRECIATION> 649,915
<TOTAL-ASSETS> 75,621,575
<CURRENT-LIABILITIES> 17,697,001
<BONDS> 0
0
0
<COMMON> 573,364
<OTHER-SE> 31,484,212<F2>
<TOTAL-LIABILITY-AND-EQUITY> 75,621,575
<SALES> 34,818,127
<TOTAL-REVENUES> 34,818,127
<CGS> 22,998,898
<TOTAL-COSTS> 10,401,630
<OTHER-EXPENSES> 7,124
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 468,086
<INCOME-PRETAX> 942,389
<INCOME-TAX> 452,347
<INCOME-CONTINUING> 490,042
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 490,042
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
<FN>
<F1>Amount represents net accounts receivable.
<F2>Amount includes additional paid-in capital, retained earnings, and treasury
stock.
</FN>
</TABLE>
