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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 8-K/A
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
DATE OF REPORT (Date of earliest event reported): JUNE 19, 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
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1
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ITEM I. ACQUISITION OR DISPOSITION OF ASSETS
On June 19, 1998, Precept Business Services, Inc. a Texas corporation
(the "Company" or "Precept"), through a wholly owned subsidiary, acquired all
of the issued and outstanding stock of MBF Corporation, a Louisiana
corporation ("MBF"), pursuant to that certain Stock Purchase Agreement dated
as of June 13, 1998 by and among the Company, Precept Business Products,
Inc., a Delaware corporation and a wholly owned subsidiary of the Company,
MBF and J.D. Greco, the President and sole stockholder of MBF.
Louisiana-based MBF is a single source distributor of printed products,
distribution services and information solutions.
On June 30, 1998, Precept, through a wholly owned subsidiary, acquired
all of the issued and outstanding stock of Mail/Source, Inc., a Louisiana
corporation ("Mail Source"), pursuant to that certain Stock Purchase
Agreement dated as of June 30, 1998 by and among Precept, Precept Business
Products, Inc., Mail Source and three trusts, each representing a son or
daughter of J.D. Greco. Louisiana-based Mail Source is a full service mail
fulfillment company serving customers primarily in the southeastern part of
the United States.
To the best knowledge of Precept, at the time of the acquisition of MBF
and Mail Source, there was no material relationship between (i) MBF and Mail
Source on the one hand and (ii) Precept, or any of its affiliates, its
shareholders, any director or officer of Precept, or any associate of such
director or officer on the other, except that J.D. Greco was a shareholder of
both MBF and Mail Source.
The aggregate consideration paid by Precept as a result of the
acquisition of MBF was $10,570,111 paid by the issuance of 3,796,735 shares
of Precept's Class A Common Stock, par value $.01. The aggregate
consideration paid by Precept as a result of the acquisition of Mail Source
was $959,711 paid by the issuance of 289,724 shares of Precept's Class A
Common Stock. The consideration for the acquisitions was determined by
arms-length negotiations between the parties to the stock purchase agreements.
The combined financial statements of MBF and Mail Source for the year
ended June 30, 1998 are presented in this report, along with the report of
the independent auditors. Since the acquisition of Mail Source was not
completed until June 30, 1998 and since it was not feasible to provide the
audited financial statements of the combined operations until present, this
report is considered by Precept to be a timely filing of the required
financial statements of the businesses acquired.
2
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ITEM 7. FINANCIAL STATEMENTS
Item 7 (a) - Financial Statements of Businesses Acquired
MBF CORPORATION
MAIL/SOURCE, INC.
INDEX TO COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Description Page
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<S> <C>
Report of Independent Auditors. . . . . . . . . . . . . . . . . . . . 4
Combined Balance Sheet at June 30, 1998 . . . . . . . . . . . . . . . 5
Combined Statement of Income and Changes in Retained Earnings for
the year ended June 30, 1998 . . . . . . . . . . . . . . . . . . . 6
Combined Statement of Cash Flows for the year ended June 30, 1998 . . 7
Notes to Combined Financial Statements. . . . . . . . . . . . . . . . 8
</TABLE>
3
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Report of Independent Auditors
Board of Directors
Precept Business Services, Inc.
We have audited the accompanying combined balance sheet as of June 30, 1998,
of the corporations listed in Note 1, and the related combined statements of
income and changes in retained earnings, and cash flows for the year then
ended. These financial statements are the responsibility of the companies'
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform our audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the combined financial position at June 30, 1998, of
the corporations listed in Note 1, and the combined results of their
operations and changes in retained earnings, and cash flows for the year then
ended in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Dallas, Texas
August 31, 1998
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MBF CORPORATION
MAIL/SOURCE, INC.
COMBINED BALANCE SHEET
JUNE 30, 1998
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash $ 56,128
Trade accounts receivable, less allowance for doubtful accounts of
$9,700 1,832,036
Inventories 945,912
Other current assets 151,272
----------
Total current assets 2,985,348
Property and equipment, net 1,058,523
Other assets, primarily cash surrender value of life insurance 228,613
----------
Total assets $4,272,484
----------
----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 642,828
Accrued compensation and commissions 454,803
Sales and use taxes payable 315,854
Income taxes payable 113,827
Other accrued expenses 115,762
Long-term debt due within one year 52,908
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Total current liabilities 1,695,982
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Long-term debt:
Advance from Precept Business Services, Inc. 1,150,000
Notes payable 249,608
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Total long-term debt 1,399,608
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Commitments and contingencies
Shareholders' equity:
Common stock of MBF Corporation, $1.00 par value, 9,000 shares
issued and authorized 9,000
Common stock of Mail/Source, Inc., $1.00 par value, 900 shares
issues and authorized 900
Retained earnings 1,166,994
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Total shareholders' equity 1,176,894
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Total liabilities and shareholders' equity $4,272,484
----------
----------
</TABLE>
See accompanying notes to combined financial statements.
5
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MBF CORPORATION
MAIL/SOURCE, INC.
COMBINED STATEMENT OF INCOME
AND CHANGES IN RETAINED EARNINGS
YEAR ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
<S> <C>
Revenues from business products $19,213,227
Operating expenses:
Cost of goods sold 12,647,755
Sales commissions 2,698,117
Selling, general and administrative expenses 3,313,730
Depreciation and amortization 97,083
-----------
Total operating expenses 18,756,685
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Operating income 456,542
Interest and other expense:
Interest expense 129,394
Other expense 1,985
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Total interest and other expense 131,379
-----------
Income before provision for income taxes 325,163
Provision for income taxes 130,065
-----------
Net income 195,098
Retained earnings, beginning of year 971,896
-----------
Retained earnings, end of year $ 1,166,994
-----------
-----------
See accompanying notes to combined financial statements.
</TABLE>
6
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MBF CORPORATION
MAIL SOURCE, INC.
COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net income $ 195,098
Non-cash adjustments to net income:
Depreciation and amortization 97,083
Provision for doubtful accounts 9,716
Changes in operating assets and liabilities:
Trade accounts receivable (13,254)
Inventories (428,975)
Other current assets 25,405
Accounts payable 8,439
Accrued compensation and commissions payable 83,838
Sales and use taxes payable (4,597)
Income taxes payable 69,846
Other accrued expenses (132,316)
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Net cash flow provided by operating activities (89,717)
-----------
Cash flows from investing activities:
Purchases of property and equipment (6,393)
Change in cash value of life insurance 43,642
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Net cash flow provided by investing activities 37,249
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Cash flows from financing activities:
Net repayments on long-term debt to banks (1,225,620)
Advance from Precept Business Services, Inc. 1,150,000
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Net cash flow used in financing activities (75,620)
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Decrease in cash (128,088)
Cash, beginning of year 184,216
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Cash, end of year $ 56,128
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Cash payments for:
Interest $ 129,394
Income taxes $ 88,216
</TABLE>
See accompanying notes to combined financial statements.
7
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MBF CORPORATION
MAIL/SOURCE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 1998
NOTE 1 - BUSINESS AND BASIS OF PRESENTATION
During June 1998, Precept Business Services, Inc. ("Precept") acquired
MBF Corporation ("MBF") and Mail Source, Inc. ("Mail Source"). Precept
issued 4,086,459 shares of its class A common stock in exchange for all the
outstanding shares of common stock of MBF and Mail Source. Mail Source's
assets included certain land and office buildings previously owned by certain
trusts owned by the children of MBF's former majority shareholder. MBF's
corporate office and certain of its branch offices were located in the land
and office buildings contributed by the trusts ("Trust Assets").
The accompanying financial statements represent the combined financial
position, results of operations and cash flows of MBF and Mail Source,
collectively referred to as the "Company" or "MBF Combined," and are
presented at their historical basis. Although the acquisitions of MBF and
Mail Source occurred as separate transactions, the business operations of the
Company are treated as one combined entity because these operations were
under common control.
MBF is engaged in the forms management business. The forms management
business comprises arranging for the manufacture, storage and distribution of
business forms, computer supplies, advertising information, and other
business products for small to large corporate customers. MBF provides such
services in 9 states and 31 locations, primarily in the southeast and
southwest areas of the United States.
Mail Source is a full service mail fulfillment company that provides
printing, insertion and mailing services to small to large customers in the
same states and locations as MBF.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
REVENUE RECOGNITION AND CREDIT RISK - Revenue is recognized when the
Company ships goods to its customer. For items shipped directly to the
customer from the vendor, the Company recognizes revenue when the Company
receives notification that the vendor has shipped goods to the customer. For
certain customers, the Company enters into a business products management
agreement under which the customer requests the Company to hold and manage
customized products that the customer has ordered. Under this arrangement,
the Company generally recognizes the revenue at the time the goods are
received in its warehouse, which also represents the time title passes to the
customer.
Concentration of credit risk with respect to trade receivables is
limited due to the large number of customers and their geographic dispersion
in the southeast and southwest parts of the United States. The effects of
returns, discounts and other incentives are
8
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MBF CORPORATION
MAIL/SOURCE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 1998
estimated and recorded at the time of shipment. Damaged or defective
products may be returned to the Company for replacement or credit. The
Company performs periodic credit evaluations of its customers and does not
require collateral. Historically, the Company has not experienced
significant losses related to individual customers or groups of customers in
any particular industry or geographic area. An allowance is maintained at a
level that management believes is sufficient to cover potential credit losses
on accounts receivable. No customer accounted for more than 10% of the
Company's revenue in the year ended June 30, 1998.
INVENTORIES - Inventories consist of products held for resale and are
valued at the lower of cost or market; cost is determined on first-in
first-out and specific identification methods. Market value is determined
based on replacement cost or net realizable value.
PROPERTY AND EQUIPMENT - Property and equipment is recorded at cost.
Significant betterments or repairs that extend the useful lives of the assets
are capitalized. Depreciation and amortization are recorded primarily on a
double-declining basis over the estimated useful lives of the assets as
follows: buildings - 20 to 30 years; equipment - 5 to 7 years; and furniture
and fixtures - 7 years.
INCOME TAXES - The Company accounts for income taxes following the
liability method, which prescribes an asset and liability approach that
requires the recognition of deferred tax assets and liabilities for the
future tax consequences of events that have been recognized in the Company's
financial statements or tax returns. Deferred tax assets are recognized, net
of any valuation allowance, for deductible temporary differences and tax
operating loss and credit carryforwards.
USE OF ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from these
estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS - Carrying values of cash, accounts
receivable, cash surrender value of life insurance, accounts payable, accrued
expenses and long-term debt to banks approximate fair value due to the
short-term maturities of these assets and liabilities.
9
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MBF CORPORATION
MAIL/SOURCE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 1998
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Land $ 61,000
Building 881,576
Furniture, fixtures and equipment 763,394
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1,705,970
Accumulated depreciation and amortization (647,447)
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$1,058,523
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</TABLE>
NOTE 4 - LONG-TERM DEBT
When Precept acquired the Company, Precept repaid MBF's outstanding line
of credit balance and advanced the Company $1,150,000. Such advance bears
interest at prime, 8.5% at June 30, 1998, and is payable on demand. As of
June 30, 1998, Precept has represented that it does not intend to demand
repayment for at least fifteen months and, as a result, the advance from
Precept has been classified as a long-term liability in the Company's balance
sheet. All assets of the Company have been pledged by Precept as security
for Precept's revolving line of credit.
Notes payable includes a mortgage note payable to a bank of $238,338
that carries interest at 8.75% and is secured by assets with a net book value
of approximately $685,000 at June 30, 1998. The mortgage note payable is
classified as a long-term liability because Precept has the ability to
refinance the mortgage note as a long-term liability under Precept's revolver
credit agreement with its bank. Notes payable also includes equipment notes
payable to a bank of $64,178 that carry interest at an average of 8.65% and
are secured by equipment with a net book value of approximately $26,000 at
June 30, 1998. Principal payments on these equipment notes of $52,908 and
$11,270 are due in each of the next two years, respectively. As part of the
acquisition of the Company, Precept has guaranteed the equipment and mortgage
notes payable of the Company.
NOTE 5 - INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
<S> <C>
Current:
Federal $111,000
State 19,065
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Provision for income taxes $130,065
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</TABLE>
10
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MBF CORPORATION
MAIL/SOURCE, INC.
NOTES TO COMBINED FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 1998
A reconciliation between the statutory U.S. federal income tax rate and
the Company's effective income tax rate follows:
<TABLE>
<CAPTION>
<S> <C>
Statutory federal income tax rate 34.0%
Expenses that are not deductible for income tax reporting 1.8%
State income taxes, net of federal income tax benefit 4.2%
-----
Effective income tax rate 40.0%
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-----
</TABLE>
There were no significant temporary differences between income and
expense items reported for financial and tax purposes.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
LEASES - The Company is obligated under noncancelable operating leases
for office space, warehouse space and equipment that expire at various times
through 2003. Annual minimum lease commitments under these leases amount to
$101,100, $100,800, $96,900, $71,700 and $54,600, respectively, in the
five-year period ended June 30, 2003.
Total rent expense amounted to $205,526 in the year ended June 30, 1998.
LITIGATION - There are various outstanding claims against the Company
arising in the normal course of business. The Company believes that these
claims are without merit and that any losses which might ultimately be
sustained by the Company would not be material to the financial position,
results of operations, or cash flows of the Company.
NOTE 8 - RELATED PARTY TRANSACTIONS
As of June 30, 1998, other current assets include $56,450 due from the
Company's former shareholder. This amount is due within the next year.
11
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Item 7(c) - Exhibits
<TABLE>
<S> <C>
2.1 Stock Purchase Agreement by and among Precept Business Products,
Inc., Precept Business Services, Inc., MBF Corporation and J.D.
Greco dated June 13, 1998 (1)
2.2 Stock Purchase Agreement by and among Precept Business Products,
Inc., Precept Business Services, Inc., Mail/Source, Inc., Joseph D.
Greco, II Trust, Laurie Jan Greco Trust and Natalie Ann Greco Trust
dated June 30, 1998 (2)
23.1 Consent of Ernst & Young L.L.P.
(1) Filed as exhibit to Current Report on Form 8-K dated June 19, 1998.
(2) Filed herewith.
</TABLE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly issued this report to be signed on its behalf by the
undersigned hereunto duly authorized.
PRECEPT BUSINESS SERVICES, INC.
September 11, 1998 By:
-------------------------------------
William W. Solomon, Jr.
Senior Vice President, Chief Financial Officer
(Principal Financial and Accounting Officer)
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EXHIBIT 2.2
STOCK PURCHASE AGREEMENT
BY AND AMONG
PRECEPT BUSINESS PRODUCTS, INC.
PRECEPT BUSINESS SERVICES, INC.
AND
MAIL/SOURCE, INC.
JOSEPH D. GRECO, II TRUST
LAURIE JAN GRECO TRUST
NATALIE ANN GRECO TRUST
JUNE 30, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page (A)
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<S> <C>
ARTICLE 1
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE II
SALE AND PURCHASE OF THE SHARES . . . . . . . . . . . . . . . . . . . . 20
2.1 Sale of Shares . . . . . . . . . . . . . . . . . . . . . . 20
2.2 Purchase Price . . . . . . . . . . . . . . . . . . . . . . 21
2.3 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.4 Closing Deliveries . . . . . . . . . . . . . . . . . . . . 21
2.5 Further Assurances . . . . . . . . . . . . . . . . . . . . 22
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY AND THE STOCKHOLDERS . . . . . . . . . . . . . . . . . . 22
3.1 Organization . . . . . . . . . . . . . . . . . . . . . . . 22
3.2 Authority. . . . . . . . . . . . . . . . . . . . . . . . . 22
3.3 Minute Books . . . . . . . . . . . . . . . . . . . . . . . 22
3.4 Capitalization . . . . . . . . . . . . . . . . . . . . . . 23
3.5 Title to the Shares. . . . . . . . . . . . . . . . . . . . 23
3.6 No Violation . . . . . . . . . . . . . . . . . . . . . . . 23
3.7 Government Consents. . . . . . . . . . . . . . . . . . . . 23
3.8 Financial Statements . . . . . . . . . . . . . . . . . . . 24
3.9 Accounts Receivable. . . . . . . . . . . . . . . . . . . . 24
3.10 Absence of Undisclosed Liabilities . . . . . . . . . . . . 24
3.11 Absence of Material Adverse Change . . . . . . . . . . . . 24
3.12 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
3.13 Litigation . . . . . . . . . . . . . . . . . . . . . . . . 26
3.14 Compliance with Laws and Regulations . . . . . . . . . . . 27
3.15 Permits. . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.16 Employee Matters . . . . . . . . . . . . . . . . . . . . . 27
3.17 Employee Benefit Plans . . . . . . . . . . . . . . . . . . 28
3.18 Title to Assets; Real Property . . . . . . . . . . . . . . 29
3.19 Condition of Properties. . . . . . . . . . . . . . . . . . 31
3.20 Material Agreements. . . . . . . . . . . . . . . . . . . . 31
3.21 Customers. . . . . . . . . . . . . . . . . . . . . . . . . 32
3.22 Intellectual Property Rights . . . . . . . . . . . . . . . 32
3.23 Subsidiaries and Investments . . . . . . . . . . . . . . . 33
3.24 Competing Interests. . . . . . . . . . . . . . . . . . . . 33
3.25 Illegal or Unauthorized Payments; Political
Contributions. . . . . . . . . . . . . . . . . . . . . . . 33
13
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3.26 Environmental Matters . . . . . . . . . . . . . . . . . . 33
3.27 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . 34
3.28 Insurance . . . . . . . . . . . . . . . . . . . . . . . . 34
3.29 Bank Accounts and Powers of Attorney. . . . . . . . . . . 34
3.30 Warranties. . . . . . . . . . . . . . . . . . . . . . . . 34
3.31 Inventory . . . . . . . . . . . . . . . . . . . . . . . . 34
3.32 Affiliate Transactions. . . . . . . . . . . . . . . . . . 35
3.33 Tax Matters; Pooling. . . . . . . . . . . . . . . . . . . 35
3.34 Projections; Material Facts . . . . . . . . . . . . . . . 35
3.35 No Misrepresentations . . . . . . . . . . . . . . . . . . 35
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER AND PRECEPT. . . . . . . . . . 36
4.1 Organization. . . . . . . . . . . . . . . . . . . . . . . 36
4.2 Authority . . . . . . . . . . . . . . . . . . . . . . . . 36
4.3 Capitalization. . . . . . . . . . . . . . . . . . . . . . 36
4.4 Parent Class A Common Stock . . . . . . . . . . . . . . . 36
4.5 No Violation. . . . . . . . . . . . . . . . . . . . . . . 36
4.6 Govenmental Consents. . . . . . . . . . . . . . . . . . . 37
4.7 SEC Documents . . . . . . . . . . . . . . . . . . . . . . 37
4.8 Finders' Fees . . . . . . . . . . . . . . . . . . . . . . 37
4.9 Litigation . . . . . . . . . . . . . . . . . . . . . . . 37
4.10 Absence of Material Adverse Change. . . . . . . . . . . . 38
4.11 Tax-Free Reorganization; Pooling. . . . . . . . . . . . . 38
4.12 No Misrepresentations . . . . . . . . . . . . . . . . . . 38
ARTICLE V
ADDITIONAL COVENANTS AND AGREEMENTS. . . . . . . . . . . . . . . . . . 39
5.1 Conduct of Business . . . . . . . . . . . . . . . . . . . 39
5.2 No-Shop Provisions. . . . . . . . . . . . . . . . . . . . 39
5.3 Access and Information. . . . . . . . . . . . . . . . . . 39
5.4 Supplemental Disclosure . . . . . . . . . . . . . . . . . 40
5.5 Information for Filings . . . . . . . . . . . . . . . . . 40
5.6 Fulfillment of Conditions by the Company and The
Stockholders . . . . . . . . . . . . . . . . . . . . . . 40
5.7 Fulfillment of Conditions by Buyer and Precept. . . . . . 40
5.8 Publicity . . . . . . . . . . . . . . . . . . . . . . . . 40
5.9 Release by The Stockholders . . . . . . . . . . . . . . . 41
5.10 Covenants Relating to Taxes . . . . . . . . . . . . . . . 41
5.11 Pooling; Tax Treatment. . . . . . . . . . . . . . . . . . 41
5.12 Confidentiality . . . . . . . . . . . . . . . . . . . . . 41
5.13 Customer Visits . . . . . . . . . . . . . . . . . . . . . 42
5.14 Reporting . . . . . . . . . . . . . . . . . . . . . . . . 42
5.15 Precept 8-K . . . . . . . . . . . . . . . . . . . . . . . 42
5.16 Termination of Leases . . . . . . . . . . . . . . . . . . 42
14
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ARTICLE VI
CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.1 Conditions to Obligations of Buyer and Precept . . . . . . 42
6.2 Conditions to Obligations of the Company and the
Stockholders. . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE VII
INDEMNIFICATION; HOLDBACK . . . . . . . . . . . . . . . . . . . . . . . 44
7.1 Indemnification of Buyer and Precept . . . . . . . . . . . 44
7.2 Notification of Claim; Set Off . . . . . . . . . . . . . . 45
7.3 Defense of Claims. . . . . . . . . . . . . . . . . . . . . 45
7.4 Holdback for Claims. . . . . . . . . . . . . . . . . . . . 46
7.5 Survival . . . . . . . . . . . . . . . . . . . . . . . . . 47
7.6 Exclusive Remedy . . . . . . . . . . . . . . . . . . . . . 48
ARTICLE VIII
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.1 Termination of Agreement . . . . . . . . . . . . . . . . . 48
8.2 Effect of Termination. . . . . . . . . . . . . . . . . . . 49
8.3 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . 49
8.4 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 50
8.5 Further Assurances . . . . . . . . . . . . . . . . . . . . 50
8.6 Assignment . . . . . . . . . . . . . . . . . . . . . . . . 50
8.7 Entire Agreement . . . . . . . . . . . . . . . . . . . . . 50
8.8 Severability . . . . . . . . . . . . . . . . . . . . . . . 50
8.9 Governing Law. . . . . . . . . . . . . . . . . . . . . . . 51
8.10 Arbitration Proceedings. . . . . . . . . . . . . . . . . . 51
8.11 Interpretation . . . . . . . . . . . . . . . . . . . . . . 52
8.12 Counterparts; Facsimile Signatures . . . . . . . . . . . . 52
8.13 Headings . . . . . . . . . . . . . . . . . . . . . . . . . 52
8.14 Construction . . . . . . . . . . . . . . . . . . . . . . . 52
(A) Page numbers in this agreement are for purposes of filing of this current
report on Form 8-K/A and are different from the actual legal agreement.
EXHIBITS
Exhibit A - Affiliate Agreement
Exhibit B - Closing Certificate for the Stockholders and the Company
Exhibit C - Closing Certificate for the Buyer and Precept
Exhibit D - Secretary's Certificate
</TABLE>
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered
into effective as of June 30, 1998 by and among Precept Business Products,
Inc., a Delaware corporation (the "Buyer"), Precept Business Services, Inc.,
a Texas corporation ("Precept"), Mail/Source, Inc. (f/k/a MBF Data/Graphics,
Inc.), a Louisiana corporation (the "Company"), Joseph D. Greco, II Trust, a
Louisiana trust, Laurie Jan Greco Trust, a Louisiana trust, and Natalie Ann
Greco Trust, a Louisiana trust (collectively, the "Stockholders").
RECITALS:
WHEREAS, all of the issued and outstanding capital stock of the Company
consists of an aggregate of 900 shares of Common Stock, no par value (the
"Shares"), all of which are owned by the Stockholders;
WHEREAS, Buyer desires to acquire from the Stockholders, and the
Stockholders desire to sell to Buyer, all of the Shares, on the terms and
subject to the conditions set forth in this Agreement in a transaction that
is intended to qualify as a tax-free reorganization under Section 368(a) of
the Internal Revenue Code of 1986, as amended; and
WHEREAS, the transaction contemplated hereby is intended to be treated
as a "pooling of interests" for financial accounting purposes.
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 I
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.
"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 Stock Purchase Agreement.
"Buyer" shall mean Precept Business Products, Inc., a Delaware corporation.
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"Buyer Party" is defined in Section 7.1.
"CERCLA" is defined in Section 3.26.
"Claim" is defined in Section 7.2.
"Closing" is defined in Section 2.3.
"Closing Date" is defined in Section 2.3.
"Code" is defined in Section 3.17(a).
"Common Stock" shall mean the Company's common stock, no par value.
"Company" shall mean Mail/Source, Inc. (f/k/a MBF Data/Graphics, Inc.), a
Louisiana corporation.
"Customer Due Diligence" is defined in Section 5.14.
"Disclosure Schedule" is defined in the introductory paragraph to Article
III.
"Effective Date" is defined in Section 4.7(b).
"Employee Benefit Plans" is defined in Section 3.17(c).
"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(a).
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"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.
"Holdback Period" is defined in Section 7.4(b).
"Holdback Shares" is defined in Section 7.4(a).
"Intellectual Property" is defined in Section 3.22.
"Latest Balance Sheet" is defined in Section 3.8.
"Liabilities" is defined in Section 3.10.
"Lien" is defined in Section 3.5.
"Losses" is defined in Section 7.1.
"Material Agreements" is defined in Section 3.20.
"New Shares" is defined in Section 7.4(d)(i).
"Parent Class A Common Stock" shall mean the Class A Common Stock, par
value $0.01, of Precept Business Services, Inc., a Texas corporation.
"Pension Plans" is defined in Section 3.17(a).
"Permits" is defined in Section 3.15.
"Person" is defined in Section 3.13.
"Plans" is defined in Section 3.17(e).
"Pooling Transaction" is defined in Section 3.33(a).
"Precept" shall mean Precept Business Services, Inc., a Texas corporation.
"Projections" is defined in Section 3.34.
"Purchase Price" is defined in Section 2.2.
"RCRA" is defined in Section 3.26.
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"Registered Intellectual Property" is defined in Section 3.22.
"S-4 Registration Statement" is defined in Section 4.7.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" is defined in Section 4.7(b).
"Shares" shall mean the shares of Common Stock owned by the Stockholders.
"Tax" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation,
premium, windfall profits, environmental (including taxes under Code '59A),
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.
"Transaction Documents" is defined in Section 3.2.
"Welfare Benefit Plans" is defined in Section 3.17(b).
ARTICLE II
SALE AND PURCHASE OF THE SHARES
2.1 SALE OF SHARES. At the Closing (as defined in SECTION 2.3 hereof),
subject to the terms and conditions of this Agreement, and on the basis of
the representations, warranties and agreements herein contained, each of the
Stockholders shall sell, convey, assign, transfer and deliver the Shares to
Buyer, and Buyer will purchase, acquire and accept the Shares from the
Stockholders, free and clear of all liens, encumbrances, mortgages, pledges,
security interests, restrictions or charges of any kind or character, but
together with all rights, privileges and advantages attached or accruing
thereto. Buyer, however, shall not be required to purchase any Shares under
this Agreement unless all of the Stockholders shall execute this Agreement
and complete the sale and delivery of all the Shares at the Closing.
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2.2 PURCHASE PRICE. The purchase price (the "Purchase Price") payable
to the Stockholders for the Shares shall be an aggregate amount of $806,591,
which shall be allocated among the Stockholders in proportion to their
respective share ownership percentages in the Company. On the Closing Date
and subject to the terms and conditions hereof, Buyer shall pay the Purchase
Price to the Stockholders, collectively, by the issuance of 289,724 shares of
Parent Class A Common Stock. Precept hereby agrees to issue the requisite
number of shares to each of the Stockholders pursuant to the terms and
conditions of this Agreement.
2.3 CLOSING. The closing of the purchase and sale of the Shares
contemplated by this Agreement (the "Closing") will take place at the offices
of Munsch Hardt Kopf Harr & Dinan, P.C., 4000 Fountain Place, 1445 Ross
Avenue, Dallas, Texas 75202 on June 30, 1998 (the "Closing Date"), or at such
other place and on such other date as the parties may agree.
2.4 CLOSING DELIVERIES. At the Closing, the certificate(s), documents
and other items listed below will be executed and delivered by the
appropriate parties:
(a) Each Stockholder will deliver stock certificate(s) to Buyer
representing all of the Shares, duly endorsed for transfer and accompanied
by duly executed stock power(s);
(b) Subject to SECTION 7.4 below, Buyer will deliver a stock
certificate to the Trustee of each Stockholder representing the shares of
Parent Class A Common Stock to be delivered to each respective Stockholder
as Purchase Price;
(c) Each Stockholder will execute and deliver an Affiliate Agreement
substantially in the form of EXHIBIT A hereto;
(d) The Stockholders and the Company will execute and deliver to
Buyer a Closing Certificate substantially in the form of EXHIBIT B hereto;
(e) Buyer will execute and deliver to the Company and each
Stockholder a Closing Certificate substantially in the form of EXHIBIT C
hereto;
(f) The Company will execute and deliver to Buyer, and Buyer will
execute and deliver to the Company and each Stockholder, a Secretary's
Certificate substantially in the form of EXHIBIT D hereto;
(g) If and to the extent requested by Buyer, each director and
officer of the Company will deliver to Buyer a written resignation;
(h) The Company and the Stockholders will deliver to Buyer a legal
opinion of their counsel in such form as Buyer's counsel shall reasonably
request; and
(i) Buyer will deliver to the Company and the Stockholders a legal
opinion of its counsel in such form as the Company's counsel shall
reasonably request.
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2.5 FURTHER ASSURANCES. At or after the Closing, and without further
consideration, the Stockholders will execute and deliver to Buyer and/or the
Company such further instruments of conveyance and transfer and such other
documents as Buyer may reasonably request in order to more effectively convey
and transfer to Buyer all of the Shares and to put Buyer in operational
control of the Company and its assets.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE STOCKHOLDERS
The Company (until the Closing) and each Stockholder, jointly and
severally, hereby represent and warrant to Buyer 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 Stockholders to
Buyer 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 Louisiana 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 each 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
each Stockholder, as the case may be, have been duly authorized by all
necessary action, corporate or otherwise, on the part of the Company and each
Stockholder. This Agreement has been, and the other Transaction Documents at
Closing will be, duly executed and delivered by the Company and each
Stockholder and, where applicable, each of the Transaction Documents will be
legal, valid and binding agreements of the Company and each 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 Buyer true, correct and
complete copies of the Company's charter, bylaws, minute books, stock
certificate books and stock record
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books. The minute books of the Company contain minutes or consents reflecting
all actions taken by the directors (including any committees) and
shareholders of the Company.
3.4 CAPITALIZATION. The authorized capital stock of the Company
consists of 1,000 shares of common stock, no par value, of which 900 shares
are issued and standing and all of which are held beneficially and of record
by the Stockholders. All of the Shares are validly issued, fully paid and
non-assessable and are held by the Stockholders free and 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 Stockholders 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 any of the Stockholders or applicable
in any way to the Shares. To the Company's and the Stockholders' best
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.
3.5 TITLE TO THE SHARES. Except as set forth in SECTION 3.5 OF THE
DISCLOSURE SCHEDULE, the Stockholders own 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"). On the Closing Date,
the Stockholders will own the Shares, of record and beneficially, free and
clear of any Lien. Upon delivery of the Shares to Buyer at the Closing
hereunder, Buyer will acquire the entire legal and beneficial interest in all
of the Shares, free and clear of any 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 Buyer, 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, 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 any of the Stockholders is a party or by which the
Company, any of the Stockholders or any of their assets is in any way bound
or obligated.
3.7 GOVERNMENTAL CONSENTS. Except as described in SECTION 3.7 OF THE
DISCLOSURE SCHEDULE, no material consent, approval, order or authorization
of, or material 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 any of the Stockholders in connection
with the transactions contemplated by this Agreement.
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3.8 FINANCIAL STATEMENTS. Attached as SECTION 3.8 OF THE DISCLOSURE
SCHEDULE are true and complete copies of: (i) the unaudited balance sheet of
the Company and the unaudited statements of income, retained earnings and
cash flows for the period ended October 31, 1997, and (ii) the unaudited
balance sheet (the "Latest Balance Sheet") and related statements of income,
retained earnings and cash flows of the Company for the period ended April
30, 1998, all of which have been prepared by the Company (the "Financial
Statements"). The Financial Statements present fairly the financial
condition of the Company at the dates 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 the method of the
depreciation of certain assets. 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 accurately and fairly reflect all the
material 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 (including, without limitation,
all unbilled accounts receivable and miscellaneous receivables) 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 any 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 fully collectible in the ordinary course
of business, without resort to litigation, at the face amount thereof, less
any reserve reflected in the Company's Latest Balance Sheet, and in all cases
are not subject to: (a) the knowledge of the Company and the Stockholders,
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 of any nature, whether
absolute, accrued, contingent, liquidated or otherwise, and whether due or to
become due, asserted or, to the knowledge of the Company and the
Stockholders, unasserted (collectively, "Liabilities"), except for (a)
Liabilities specifically identified in the Latest Balance Sheet, (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 Company's
Latest Balance Sheet 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,
prospects, assets or Liabilities of the Company (b) any payment (including
without limitation any dividend or other distribution or repayment of
indebtedness) to any Stockholder, other than payment of compensation to
employees of the Company 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 Company and the Stockholders, threatened termination
under any Material
23
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Agreement; (d) any material theft, damage, destruction, casualty loss,
condemnation or eminent domain proceeding affecting any of the Company's
assets, whether or not covered by insurance; (e) any sale, assignment or
transfer of any of the assets of the Company, except in the ordinary 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; (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.
(a) 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.
(b) 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.
(c) NO PENDING DEFICIENCIES, DELINQUENCIES, ASSESSMENTS OR AUDITS.
No Tax deficiency or delinquency has been asserted against the Company.
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 Stockholders
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.
(d) 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.
(e) ALL WITHHOLDING REQUIREMENTS SATISFIED. 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 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.
(f) 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 Louisiana of the wages paid by
the Company during such period that are subject to such tax. The Company
does not know of any increase or proposed increase, or facts that
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would lead to an increase, in the rate of such state unemployment tax for
any period in the future.
(g) TAX LIABILITY IN FINANCIAL STATEMENTS. 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 Stockholders, adequate accruals and have been and will be
accrued in a manner consistent with the practices utilized for accruing tax
liabilities in the tax year ended October 31, 1997 and take into account
net operating losses, investment credits and other carryovers for periods
ended prior to the Closing Date.
(h) 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.
(i) 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.
(j) 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).
(k) LIENS. There are no liens for Taxes (other than for current
Taxes not yet due and payable) upon the assets of the Company.
(l) 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.
(m) 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.
(n) 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.
(o) 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.
3.13 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 Stockholders, threatened claims, actions, lawsuits, administrative
proceedings or reviews, or formal or informal complaints
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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.
3.14 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 failure to so comply
will not have a material adverse effect on the Company.
3.15 PERMITS. To the best of the knowledge of the Company and the
Stockholders, 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 Stockholders, threatened or reasonably foreseeable, other than
expiration in accordance with the terms thereof of Permits that may be
renewed in the ordinary course of business without lapsing.
3.16 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 Stockholders 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 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
Stockholders' 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) to the Company's and
the Stockholders' knowledge, and except as set forth in SECTION 3.16 OF THE
DISCLOSURE SCHEDULE, no director, officer or other key employee of the
Company intends to terminate his or her employment
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with the Company. The Company does not have any noncompetition agreements
with its employees.
3.17 EMPLOYEE BENEFIT PLANS.
(a) SECTION 3.17 OF THE DISCLOSURE SCHEDULE lists all "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 (the "Pension Plans"). 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 Internal Revenue Code of 1986, as amended from time to
time (the "Code").
(b) SECTION 3.17 OF THE DISCLOSURE SCHEDULE lists each "employee
welfare benefit plan" (as defined in Section 3(1) of ERISA) that the
Company or any Affiliate maintains, contributes to or is required to
contribute to on behalf of any employee or former employee, including any
multi-employer welfare plan (the "Welfare Benefit Plans"), and sets forth
the amount of any Liability of the Company or any Affiliate for any payment
past due with respect to each Welfare Benefit Plan as of the date of the
Closing. No voluntary employees' beneficiary association or other funding
arrangement (other than insurance contracts) are being used to fund or
implement any Welfare Benefit Plan. The Company has not made any written or
oral representations to any employee or former employee promising or
guaranteeing any employer payment or funding for the continuation of
benefits or coverage under any Welfare Benefit Plan for any period of time
beyond the end of the current plan year (except to the extent required
under Code Section 4980B).
(c) SECTION 3.17 OF THE DISCLOSURE SCHEDULE lists each deferred
compensation plan, bonus plan, stock option plan, employee stock purchase
plan, and any other employee benefit plan, arrangement, or commitment
(whether written or oral) not required to be listed under paragraph (a) or
(b) above (other than normal policies concerning holidays, vacations and
salary continuation during short absences for illness or other reasons)
maintained by the Company for employees (the "Employee Benefit Plans").
(d) Neither the Company nor any Affiliate maintains, or, within the
last five years, has maintained, contributed to, been required to
contribute to or had any employees participating in, any "defined benefit
plan" (as defined in Section 3(35) of ERISA) or any multi-employer plan (as
defined in Section 3(37) of ERISA).
(e) The Pension Plans, the Welfare Benefit Plans and the Employee
Benefit Plans and related trusts and insurance contracts (collectively, the
"Plans") are legally valid and binding and in full force and effect. All of
the Plans comply currently, and have complied in the past, both as to form
and operation, with the provisions of all laws, rules and regulations
governing or applying to such Plans, including but not limited to ERISA,
the Code, the Americans with Disabilities Act, the Family and Medical Leave
Act of 1993 and the Age Discrimination in Employment Act; all necessary
governmental approvals for
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the Pension Plans and the Welfare Benefit Plans have been obtained; and a
favorable determination as to the qualification under the Code of each of
the Pension Plans and each amendment thereto has been made by the Internal
Revenue Service, and, to the knowledge of the Company and the Stockholders,
nothing has occurred since the date of such determination letters that
could adversely affect the qualification of such Plans or the tax exempt
status of the related trust. All reports and filings required by any
Governmental Body (including without limitation Form 5500 Annual Reports,
Summary Annual Reports and Summary Plan Descriptions) with respect to each
Plan have been timely and completely filed, and have been distributed to
participants as required by applicable law. To the knowledge of the
Company and the Stockholders, neither the Company, any Affiliate or any
plan fiduciary of any Plan has engaged in any transaction in violation of
Section 406(a) or (b) of ERISA or any "prohibited transaction" (as defined
in Code Section 4975(c)(1)) that would subject the Company to any taxes,
penalties or other Liabilities resulting from such transaction. Neither
the Company nor the Stockholders has received notice that any of the
Plans is being audited or investigated by any Governmental Body. With
respect to such Plans, there are no actions, suits or claims (other than
routine claims for benefits in the ordinary course) pending or, to the
knowledge of the Company and the Stockholders, threatened, and there are
no facts that could reasonably be expected to give rise to any such
actions, suits or claims.
(f) The Company does not have any Liabilities to any Person with
respect to any Plan, except for (i) Liabilities that are fully funded by
assets set aside in trust or irrevocably dedicated for that purpose, the
fair market value of which assets exceed the Liabilities to which they are
set aside or dedicated, and (ii) Liabilities that have been fully accrued
on the Financial Statements. The Company may terminate any Welfare Benefit
Plan or any Employee Benefit Plan immediately following the Closing without
any Liability to employees, former employees, beneficiaries or any other
Person except to the extent such Liabilities have been accrued or funded as
described in the preceding sentence.
(g) True and complete copies of the following documents have been
delivered by the Company to Buyer: (i) each Welfare Benefit Plan and each
Pension Plan and each related trust agreement or annuity contract (or other
funding instrument); (ii) the most recent determination letter issued by
the Internal Revenue Service with respect to each Pension Plan; (iii)
Annual Reports on Form 5500 Series required to be filed with any
Governmental Body for each Welfare Benefit Plan and each Pension Plan for
the two most recent plan years; and (iv) the most recent actuarial report
for each Pension Plan.
3.18 TITLE TO ASSETS; REAL PROPERTY.
(a) 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(a) OF THE DISCLOSURE SCHEDULE, the assets reflected on the Latest
Balance Sheet and all assets used by the Company in the conduct of its
business (except for assets disposed of in the ordinary
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course of business and consistent with past practices since the Latest
Balance Sheet Date 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; (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(a) OF THE DISCLOSURE SCHEDULE.
(b) SECTION 3.18(b) OF THE DISCLOSURE SCHEDULE lists and describes
briefly all real property owned by the Company. With respect to each such
parcel of real property:
(i) the Company has good and marketable title to the parcel
of real property, free and clear of any Lien, easement, covenant or other
restriction, (A) except for installments of special assessments not yet
delinquent, recorded easements, covenants and other restrictions, and
utility easements, building restrictions, zoning restrictions, (B) except
for easements and restrictions existing generally with respect to
properties of a similar character that do not affect materially and
adversely the current use, occupancy or value, or the marketability of
title, of the property subject thereto, and (C) except as set forth in
SECTION 3.18(b) OF THE DISCLOSURE SCHEDULE;
(ii) there are no pending or, to the knowledge of the Company
and the Stockholders, threatened condemnation proceedings, lawsuits or
administrative actions relating to the property or other matters materially
and adversely affecting the current use, occupancy or value thereof;
(iii) (A) the legal description for the parcel contained in
the deed thereof describes such parcel fully and adequately, and (B) to the
knowledge of the Company and the Stockholders, the buildings and
improvements are located within the boundary lines of the described parcels
of land, are not in material violation of applicable setback requirements,
zoning laws and ordinances (and the properties or buildings or improvements
thereon are not subject to "permitted non-conforming use" or "permitted
non-conforming structure" classifications) and do not encroach on any
easement that may burden the land;
(iv) all facilities have received all approvals of all
Governmental Bodies (including material licenses and permits) required in
connection with the ownership or operation thereof, except where the
failure to receive such approvals would not be expected to have a material
adverse effect on the Company, and all facilities have been operated and
maintained in accordance with applicable laws, rules and regulations in all
material respects;
(v) there are no leases, subleases, licenses, concessions or
other agreements, written or oral, granting to any party (or parties) the
right of use or occupancy of any portion of the parcel of real property,
except as described in SECTION 3.18(b) OF THE DISCLOSURE SCHEDULE;
(vi) there are no outstanding options or rights of first
refusal to purchase the parcel of real property, or any portion thereof or
interest therein;
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(vii) there are no parties (other than the Company) in
possession of the parcel of real property other than tenants under any
leases disclosed in SECTION 3.18(a) OF THE DISCLOSURE SCHEDULE who are in
possession of space to which they are entitled.
3.19 CONDITION OF PROPERTIES. 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 Stockholders, will not
likely require major overhaul or repair in the foreseeable future, are
adequate and sufficient for the Company's business and, to the knowledge of
the Company and the Stockholders, 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.
3.20 MATERIAL AGREEMENTS.
(a) SECTION 3.20 OF THE DISCLOSURE SCHEDULE lists each agreement and
arrangement (whether written or oral and including all amendments thereto)
to which the Company is a party or a beneficiary or by which the Company or
any of its assets is bound and that 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) any agreement 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) any insurance policies; (vii)
any employment, consulting, noncompetition, separation, collective
bargaining, union or labor agreements or arrangements; (viii) any agreement
with any stockholder, 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.
(b) The Company has performed all material obligations required to be
performed by it in connection with the agreements and arrangements required
to be disclosed in SECTION 3.20 OF THE DISCLOSURE SCHEDULE and is not in
receipt of any claim of default under any agreement or arrangement required
to be disclosed in such Schedule by this SECTION 3.20; the Company has no
present expectation or intention of not fully performing any material
obligation pursuant to any agreement or arrangement required to be
disclosed in SECTION 3.20 OF THE DISCLOSURE SCHEDULE; and neither the
Company nor the Stockholders has any knowledge of any breach or anticipated
breach by any other party to any agreement or arrangement required to be
disclosed in SECTION 3.20 OF THE DISCLOSURE SCHEDULE.
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(c) The Company has delivered to Buyer a copy of the agreements and
arrangements (including all amendments and modifications thereto) required
to be disclosed in SECTION 3.20 OF THE DISCLOSURE SCHEDULE and its standard
form of customer agreement, all training manuals and a description (with
any written or other instructional materials) of how the Company operates
its business, undertakes projects for customers or trains its employees.
3.21 CUSTOMERS. Set forth in SECTION 3.21 OF THE DISCLOSURE SCHEDULE is
a complete list of customers as of June 24, 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 either oral or written notice of
such customer's intention to terminate its account with the Company.
3.22 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 or with respect to
which the Company has any rights. To the knowledge of the Company and the
Stockholders, the Company has the sole and exclusive right to use all
Registered Intellectual Property and other computer software (both
proprietary and third party) 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 Stockholders 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. SECTION 3.22 OF
THE DISCLOSURE SCHEDULE also includes a description of the nature of the
Company's rights in and to the Intellectual Property. To the knowledge of the
Company and the Stockholders , no other Person is infringing the rights of
the Company with respect to any of its Intellectual Property. No consent of
any third parties will be required for the transfer of Intellectual Property
rights to Buyer or the use thereof by Buyer upon consummation of the
transactions contemplated hereby, and the Intellectual Property rights (other
than with respect to required consents of third party licensors and licensees
of software under applicable licenses) are freely transferable. 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. The Company has licensed the software only to
the third parties listed in SECTION 3.22 OF THE DISCLOSURE SCHEDULE. 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 Stockholders' knowledge, the other parties thereto, with respect to the
Company's licenses of the
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software to licensees or the Company's licenses with third parties with
respect to third party software included in the Company's software.
3.23 SUBSIDIARIES AND INVESTMENTS. 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.
3.24 COMPETING INTERESTS. Except as disclosed in SECTION 3.24 OF
DISCLOSURE SCHEDULE, neither the Company, the Stockholders 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.
3.25 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 Stockholders, 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,
whether or not 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. To the knowledge of the Company and the Stockholders, the
Company has not violated any federal or state antitrust statutes, rules or
regulations, including without limitation those relating to unfair
competition, price fixing or collusion.
3.26 ENVIRONMENTAL MATTERS. Except for matters disclosed in SECTION 3.26
OF THE DISCLOSURE SCHEDULE, (a) to the best of the knowledge of the Company
and the Stockholders, 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 Stockholders, threatened action, suit, claim, investigation,
inquiry or proceeding by or before any governmental entity under any
Environmental Laws; (c) to the best of the knowledge of the Company and the
Stockholders, 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 compliance with the terms and conditions of all such
notices, permits, licenses, and similar authorizations; (d) to the best of
the knowledge of the Company and the Stockholders, 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
best of the knowledge of the Company and the Stockholders, there has been no
material release of hazardous substances into the environment by the Company;
and (f) the Company has made available to the Buyer 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.
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3.27 BROKERS. Except to the extent disclosed in SECTION 3.27 OF THE
DISCLOSURE SCHEDULE, 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 Stockholders.
3.28 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 Stockholders 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.
3.29 BANK ACCOUNTS AND POWERS OF ATTORNEY. 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,
and (b) the names of all persons, if any, holding powers of attorney from the
Company and a summary statement of the terms thereof.
3.30 WARRANTIES. SECTION 3.30 OF THE DISCLOSURE SCHEDULE summarizes all
claims outstanding, pending or, to the knowledge of the Company and the
Stockholders, 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.
3.31 INVENTORY. SECTION 3.31 OF THE DISCLOSURE SCHEDULE sets forth, as
of June 24, 1998, all inventory of the Company that is (a) owned by the
Company, and (b) owned by customers of the Company, if any. All inventory
owned by the Company is merchantable and fit for the purpose for which it was
procured or manufactured, and none of which is obsolete, damaged or defective
in any material amount. Such inventory owned by the Company is not subject
to any liens, charges, pledges, security interests or other encumbrances.
3.32 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 Stockholders nor any Affiliate 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 Stockholders nor
any Affiliate 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
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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.
3.33 TAX MATTERS; POOLING.
(a) Neither the Company nor any of its Affiliates has taken or agreed
to take any action that would prevent the transaction contemplated hereby
from (i) constituting a reorganization qualifying under the provisions of
Section 368(a) of the Code or (ii) being treated for financial accounting
purposes as a "pooling of interests" in accordance with GAAP and the rules,
regulations and interpretations of the SEC (a "Pooling Transaction").
(b) There is no current plan or intention by the Stockholders to
sell, exchange or otherwise dispose of any of the Shares delivered to the
Stockholders at Closing to either Precept or the Company.
(c) The Company and each Stockholder will each pay their respective
expenses, if any, incurred in connection with the transaction contemplated
hereby.
(d) The Company is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
(e) 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.
3.34 PROJECTIONS; MATERIAL FACTS. In connection with the transactions
contemplated by this Agreement, the Stockholders have furnished to Buyer
certain projections and estimates relating to the Company attached hereto as
SCHEDULE 3.34 (the "Projections"). The Company and the Stockholders
represent and warrant that the assumptions and projections in the Projections
were prepared by the Company and the Stockholders in good faith based on
their best knowledge, information and belief. The Company and the
Stockholders know of no information or fact that has or would have a material
adverse effect on the financial condition, business or business prospects of
the Company that has not been disclosed to Buyer. Since the date of the
Projections, the Company and the Stockholders know of no material adverse
change in the business, business prospects, property, condition or results of
operations of the Company.
3.35 NO MISREPRESENTATIONS. Since June 24, 1998, neither the Company nor
the Stockholders 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 Stockholders 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.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER AND PRECEPT
Buyer and Precept, respectively, represent and warrant to the Company
(until the Closing) and each Stockholder as follows:
4.1 ORGANIZATION. Buyer is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, and
Precept is a corporation duly organized, validly existing and in good
standing under the laws of the State of Texas. Each of Buyer and Precept 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 Buyer or Precept. The jurisdictions wherein Buyer and Precept are
so qualified are listed in SECTION 4.1 OF THE DISCLOSURE SCHEDULE.
4.2 AUTHORITY. Buyer 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 Buyer and Precept have been duly authorized by all necessary
action, corporate or otherwise, on the part of Buyer and Precept. This
Agreement has been, and the Transaction Documents at Closing will be, duly
executed and delivered by Buyer and Precept and are legal, valid and binding
agreements of Buyer 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
35,509,503 shares are issued and outstanding as of March 31, 1998 and
10,500,000 shares of which have been designated Class B Common Stock, of
which 10,102,997 shares are issued and outstanding as of March 31, 1998, and
(b) 3,000,000 shares of Preferred Stock, of which no shares are issued and
outstanding as of March 31, 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 Buyer 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
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material agreement, instrument, order, law or regulation to which Buyer or
Precept is a party or by which Buyer or Precept is in any way bound or
obligated.
4.6 GOVERNMENTAL CONSENTS. To the knowledge of Buyer 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 Buyer or Precept in connection with the transactions contemplated
by this Agreement.
4.7 SEC DOCUMENTS.
(a) Precept has furnished or made available to the Company or the
Stockholders 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 Stockholders at the
Closing will be registered under the Securities Act pursuant to the S-4
Registration Statement.
(b) 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
"Effective 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 Buyer who might be entitled to any fee or commission from the
Stockholders or the Company upon consummation of the transactions
contemplated by this Agreement.
4.9 LITIGATION. Except as set forth in the S-4 Registration Statement,
there are currently no pending or, to the knowledge of Precept or Buyer,
threatened material claims, actions, lawsuits, administrative proceeding or
reviews of formal or informal complaints or investigations by any Person
against or relating to Precept or Buyer or any of its directors, employees,
or agents (in their capacities as such) or to which any assets of Precept or
Buyer are subject. Except as otherwise set
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forth in the S-4 Registration Statement, neither Precept nor Buyer is bound
by, or subject to, any currently existing judgment, order, writ, injunction
or decree that would have a material adverse effect on Buyer or Precept.
4.10 ABSENCE OF MATERIAL ADVERSE CHANGE. Since the Effective Date and
except as otherwise set forth in SECTION 4.10 OF THE DISCLOSURE SCHEDULE,
there has not been: (a) any material adverse change in the condition
(financial or otherwise), results of operations, business, prospects, assets
or Liabilities of Precept or Buyer; (b) any payment (including, without
limitation, any dividend or other distribution or repayment of indebtedness)
to any shareholder of Precept, other than payment of compensation to
employees of Precept or Buyer 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 and
Buyer threatened termination, under any material agreement of Precept or
Buyer; (d) any material theft, damage, destruction, casualty loss,
condemnation or eminent domain proceeding affecting any of assets of Precept
or Buyer, whether or not covered by insurance; (e) any sale, assignment or
transfer of any of the assets of Precept or Buyer, except in the ordinary
course of business and consistent with past practices; (f) any waiver by
Precept or Buyer of any material rights related to Precept's or Buyer's
respective business, operations or assets; (g) any other material
transaction, agreement or commitment entered into by the Precept, Buyer or
their significant shareholders affecting Precept's or Buyer'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.
4.11 TAX-FREE REORGANIZATION; POOLING.
(a) Neither Buyer nor Precept nor any of their Affiliates has taken or
agreed to take any action that would prevent the transaction contemplated
hereby from (i) constituting a reorganization qualifying under the provisions
of Section 368(a) of the Code or (ii) being treated for financial accounting
purposes as a Pooling Transaction.
(b) Buyer and Precept have no current plan or intention to liquidate
the Company, to merge the Company into any other corporation, to cause the
Company to sell or otherwise dispose of any of its assets, except for
dispositions made in the ordinary course of business, or to sell or otherwise
dispose of any of the Company stock acquired in the transaction contemplated
hereby, except for transfers described in Section 368(a)(2)(C) of the Code.
(c) Buyer and Precept have no current plan or intention to reacquire
any of the Parent Class A Common Stock issued in the transaction contemplated
hereby.
(d) It is the present intention of Buyer to continue at least one
significant historic business line of the Company, or to use at least a
significant portion of the Company's historic business assets in a business,
in each case within the meaning of Treasury Regulations Section 1.368-1(d).
4.12 NO MISREPRESENTATIONS. The representations, warranties and
statements made by Buyer and Precept in or pursuant to this Agreement
(including the Disclosure Schedule) are true,
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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 V
ADDITIONAL COVENANTS AND AGREEMENTS
5.1 CONDUCT OF BUSINESS. Prior to the Closing, the Company will, and
the Stockholders will cause the Company to (a) operate in the ordinary course
of business and consistent with past practices and use their reasonable best
efforts, consistent with past practice to preserve the goodwill of the
Company and of their employees, customers, suppliers, Governmental Bodies and
others having business dealings with the Company; (b) except as contemplated
by this Agreement, not engage in any transaction outside the ordinary course
of business, including without limitation by making any material expenditure,
investment or commitment or entering into any material agreement or
arrangement of any kind; (c) maintain all insurance policies and all Permits
that are required for the Company to carry on its business; (d) maintain
books of account and records in the usual, regular and ordinary manner and
consistent with past practices; and (e) not take any action that would result
in a breach (as of the Closing) of the representations and warranties set
forth in SECTION 3.11.
5.2 NO-SHOP PROVISIONS. Neither the Company nor the Stockholders has
entered into any agreement, commitment or understanding with any other Person
with respect to the sale of the Shares or a substantial portion of the
business or assets of the Company (whether through an asset sale, stock sale,
merger or otherwise). Until the Closing, the Company and the Stockholders
agree to negotiate exclusively and in good faith with Buyer with respect to
the sale of the Shares or the Company's assets, and neither the Company nor
the Stockholders will, directly or indirectly (through agents or otherwise),
encourage or solicit any inquiries or accept any proposals by, or engage in
any discussions or negotiations with or furnish any information to, any other
Person concerning a sale of the Shares or a substantial portion of the assets
or business of the Company (whether through an asset sale, stock sale, merger
or otherwise), and the Company and each Stockholder will promptly communicate
to Buyer the material substance of any inquiry or proposal concerning any
such transaction that may be received.
5.3 ACCESS AND INFORMATION. The Company will permit Buyer and its
representatives to have reasonable access to the Company's directors,
officers, employees, agents, assets and properties and all relevant books,
records and documents of or relating to the business and assets of the
Company during normal business hours and will furnish to Buyer such
information, financial records and other documents relating to the Company
and their respective operations and business as Buyer may reasonably request.
The Company and each Stockholder will permit Buyer and its representatives
reasonable access to the Company's accountants, auditors, suppliers and
Governmental Bodies having dealings with the Company for consultation or
verification of any information obtained by Buyer, on and after the date of
execution and delivery of this Agreement, and will use their respective best
efforts to cause such Persons to cooperate with Buyer and its representatives
in such consultation and in verifying such information.
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5.4 SUPPLEMENTAL DISCLOSURE. Each party hereto will promptly supplement
or amend each of the Schedules hereto with respect to any matter that arises
or is discovered after the date hereof that, if existing or known at the date
hereof, would have been required to be set forth or listed in the Schedules
hereto; provided that, for purposes of determining the rights and obligations
of the parties hereunder (other than the obligations of the parties under
this SECTION 5.4), any such supplemental or amended disclosure will be deemed
to have been disclosed to the other party for purposes of SECTION 7.1 hereof
and each party reserves the right, in the event of any such supplemental
disclosure, to terminate this Agreement pursuant to SECTION 8.1(b) or SECTION
8.1(e), as the case may be, of this Agreement if such supplemental
disclosure, in such party's reasonable opinion, could have a material adverse
effect on the assets, liabilities, financial condition or prospects of either
the Company, Precept or Buyer (as the case may be).
5.5 INFORMATION FOR FILINGS. The Stockholders and the Company will
furnish Buyer with all information concerning the Company as is required for
inclusion in any application or filing made by Buyer to any Governmental Body
in connection with the transactions contemplated by this Agreement.
5.6 FULFILLMENT OF CONDITIONS BY THE COMPANY AND THE STOCKHOLDERS. The
Company and the Stockholders 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 Stockholders herein not to be true
and correct as of the Closing. The Company and the Stockholders will take all
reasonable steps to cause to be fulfilled the conditions precedent to Buyer's
and Precept's obligations to consummate the transactions contemplated hereby
that are dependent on the actions of the Company or the Stockholders,
respectively.
5.7 FULFILLMENT OF CONDITIONS BY BUYER AND PRECEPT. Subject to SECTION
5.12 below, Buyer 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
Buyer or Precept herein not to be true and correct as of the Closing. Buyer
and Precept will take all reasonable steps to cause to be fulfilled the
conditions precedent to the Company's and the Stockholders' obligations to
consummate the transactions contemplated hereby that are dependent on the
actions of Buyer or Precept, respectively.
5.8 PUBLICITY. Buyer, Precept, the Company and the Stockholders 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 Buyer or Precept, on the one hand,
nor the Company or the Stockholders, 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, such approval shall not be unreasonably withheld.
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5.9 RELEASE BY THE STOCKHOLDERS. Effective upon the Closing, the
Stockholders and their trustees, 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 Stockholders may now have or may hereafter claim to have
against the Company or any of such employees, officers, directors, successors
or assigns.
5.10 COVENANTS RELATING TO TAXES.
(a) Buyer shall 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.
(b) Notwithstanding anything to the contrary contained herein, Buyer
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; PROVIDED, HOWEVER, any federal, state or local tax
audits relating to the Company that pertain to either the calendar year
1997 (if any) or the Company's fiscal year ended October 31, 1997 shall be
the sole responsibility of the Stockholders, and the Stockholders hereby
agree to pay any and all cost and expense of attorneys, accountants and
other professionals employed by the Stockholders to assist with such
audits, provided that the Stockholders shall determine and control their
tax representative and any other cost sources.
(c) Except as otherwise provided in the Agreement, the Stockholders,
the Company and Buyer 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.
5.11 POOLING; TAX TREATMENT. Each party hereto shall use all
reasonable efforts to cause the transaction contemplated hereby to be treated
for financial accounting purposes as a Pooling Transaction, and shall not
take, and shall use all reasonable efforts to prevent any Affiliate of such
party from taking, any actions that would prevent such transaction from being
treated for financial accounting purposes as a Pooling Transaction.
Additionally, each party hereto shall use all reasonable efforts to cause the
transaction contemplated hereby to qualify, and shall not take, and use all
reasonable efforts to prevent any Affiliate of such party from taking, any
actions that would prevent such transaction as qualifying as a reorganization
under the provisions of Section 368(a) of the Code.
5.12 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
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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.
5.13 CUSTOMER VISITS. Upon execution of this Agreement, Precept and/or
Buyer shall conduct due diligence on the customers, suppliers and
Governmental Bodies having dealings with the Company in such manner and with
such customers, suppliers and Governmental Bodies as is mutually agreed upon
by the parties hereto (the "Customer Due Diligence").
5.14 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.
5.15 PRECEPT 8-K. Precept agrees to use commercially reasonable efforts
to file its 8-K with respect to the transaction contemplated by this
Agreement on or prior to August 31, 1998, but in no event later than
September 15, 1998, that includes at least 30 days of combined operations,
combined sales and net income figures for the Company and Buyer and any other
financial information necessary as contemplated by and in accordance with the
terms of SEC Accounting Series Release No. 135 and related accounting rules.
5.16 TERMINATION OF LEASES. The Stockholders acknowledge that five (5)
tracts of real property located in Baton Rouge, Louisiana, Pineville,
Louisiana, Lafayette, Louisiana, Monroe, Louisiana and Wichita Falls, Texas
(each as described in SECTION 3.18(b) OF THE DISCLOSURE SCHEDULE) have been
transferred to the Company in connection with the consummation of the
transaction contemplated hereby, and the Stockholders and the Company hereby
acknowledge that each of the Lease Agreements between the Stockholders and
the Company, dated December 1, 1996, relating to such tracts of real property
are hereby terminated and of no further force and effect, effective as of
June 30, 1998, subject to payment by the Company of amounts due and payable
to the Stockholders under such Lease Agreements through June 30, 1998.
ARTICLE VI
CONDITIONS TO CLOSING
6.1 CONDITIONS TO OBLIGATIONS OF BUYER AND PRECEPT. The obligations of
Buyer 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 Buyer or Precept in writing:
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(a) All representations and warranties of the Company and the
Stockholders 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.
(b) The Company and the Stockholders 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 pursuant to SECTION
2.4.
(c) There shall be no pending or threatened litigation in any court
or any proceeding before or by any Governmental Body against the
Stockholders, the Company, Precept or Buyer to restrain or prohibit or
obtain damages or other relief with respect to this Agreement or the
consummation of the transactions contemplated hereby.
(d) 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.
(e) No supplemental disclosure to the Disclosure Schedules pursuant
to SECTION 5.4 of this Agreement shall have been made by the Stockholders
or the Company that discloses any fact or event that, in Buyer's reasonable
opinion, could have a material adverse effect on the assets, liabilities,
financial condition or prospects of the Company.
(f) The Company and Buyer shall have completed the Customer Due
Diligence and Buyer shall be satisfied (in Buyer's sole discretion), based
on such visits, that the Company's customer and other business
relationships are satisfactory.
(g) 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.
(h) Precept and Buyer shall have been advised in writing by Ernst &
Young LLP prior to the Closing Date that the transaction contemplated
hereby shall be treated for financial accounting purposes as a Pooling
Transaction.
6.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE STOCKHOLDERS. The
obligations of the Company and the Stockholders 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 Stockholders in writing:
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(a) All representations and warranties of Buyer 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.
(b) Buyer 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 Buyer pursuant to SECTION 2.4.
(c) There shall be no pending or threatened litigation in any court
or any proceeding before or by any Governmental Body against the
Stockholders, the Company, Precept or Buyer to restrain or prohibit or
obtain damages or other relief with respect to this Agreement or the
consummation of the transactions contemplated hereby.
(d) All necessary contractual, governmental, or other consents,
approvals, orders or authorizations shall have been obtained and all
necessary governmental notices shall have been given.
(e) No supplemental disclosure to the Disclosure Schedules pursuant
to SECTION 5.4 of this Agreement shall have been made by Precept or Buyer
that discloses any fact or event that, in the Stockholders' reasonable
opinion, could have material adverse effect on the assets, liabilities,
financial condition or prospects of Precept or Buyer.
(f) There shall have been no material adverse change in the assets,
liabilities or financial condition of Buyer or Precept prior to the
Closing.
ARTICLE VII
INDEMNIFICATION; HOLDBACK
7.1 INDEMNIFICATION OF BUYER AND PRECEPT. The Company (until the
Closing) and the Stockholders (after the Closing), hereby agree to indemnify,
defend and hold Precept, Buyer and their subsidiaries (including the Company
after the Closing) and their respective directors, officers, employees and
agents (each a "Buyer Party" and collectively, the "Buyer Parties") harmless
from any and all liabilities, obligations, claims, contingencies, damages,
costs and expenses, including all court costs and reasonable attorneys' fees
(collectively, "Losses"), that any Buyer Party may suffer or incur as a
result of or relating to a breach of any agreement, representation, warranty
or covenant made by the Company or the Stockholders 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, but only to the extent such Losses exceed
$50,000 individually or in the aggregate, provided that the Buyer Parties
shall be indemnified against the full amount of such Losses once the Losses
equal or exceed $50,000. The maximum amount of Losses for which the Buyer
Parties shall be entitled to indemnification hereunder shall be an amount
equal to $500,000, except with respect to intentional misrepresentations or
fraud by the Stockholders or the Company (if applicable), in
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which case the limitation on indemnification set forth in the preceding
sentence shall not apply. The indemnification obligations under this Article
VII shall expire one (1) year from the Closing Date except with respect to
any Claims (as defined below) of the Buyer Parties pending as of such date
(which Claims shall continue until the final resolution thereof but, in no
event, shall such Claims remain unresolved past the first anniversary of the
Closing Date). Accordingly, each party hereto agrees to fully and finally
resolve any pending Claims for indemnification on or before the first
anniversary of the Closing Date.
7.2 NOTIFICATION OF CLAIM; SET OFF. Any of the Buyer Parties seeking
indemnification under this Article VII will promptly give notice to the
Stockholders (or the Company, if applicable) 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 Stockholders (or the Company, if
applicable) of the details of such Claim and the amount thereof; PROVIDED,
HOWEVER, that the failure to give such notification shall not relieve the
Stockholders (or the Company, if applicable) 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 Stockholders or
the Company. Notice to one of the Buyer Parties for the purpose of this
SECTION 7.2 shall mean the filing of the service upon such of the Buyer
Parties of any legal action, receipt of any claim in writing or similar form
of actual notice.
7.3 DEFENSE OF CLAIMS. If any Claim by one of the Buyer Parties arises
out of a claim by a person other than one of the Buyer Parties, Buyer will
promptly give notice to the Stockholders (or the Company, if applicable) of
any such Claim, and thereafter the Stockholders (or the Company, if
applicable) may, by written notice, undertake to conduct any proceedings or
negotiations in connection therewith or necessary to defend the Buyer 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 Stockholders (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 Buyer, and (b)
the Stockholders (or the Company, if applicable) shall reasonably consider
the advice of the Buyer Parties as to the defense and settlement of such
claim and the Buyer 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 Stockholders (or the
Company, if applicable). The Buyer Parties shall provide all reasonable
cooperation in connection with any such defense by the Stockholders (or the
Company, if applicable). 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 Stockholders (or the Company, if applicable). If any such
Claim is made hereunder and the Stockholders (or the Company, if applicable)
elects not to undertake the defense thereof by written notice to the Buyer
Parties, the Buyer Parties shall be entitled to indemnification with respect
thereto pursuant to the terms of this Article VII. If any Claim for
indemnification by Buyer arises out of a Claim by Buyer and not a third
party, then Buyer shall be entitled to immediate indemnification hereunder.
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7.4 HOLDBACK FOR CLAIMS.
(a) RECOURSE TO HOLDBACK ACCOUNT. At the Closing, 28,971 shares of
Parent Class A Common Stock to be issued to the Stockholders 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
"Holdback Shares"), will be issued in the name of the Stockholders (in
proportion to each Stockholder's respective share ownership in the Company)
and held by Buyer to partially secure the indemnification obligations of
the Stockholders under SECTION 7.1.
(b) HOLDBACK PERIOD; DISTRIBUTION UPON TERMINATION OF HOLDBACK
PERIOD. Subject to the following requirements, the Holdback Shares shall
be retained by Buyer for the duration of the indemnification obligations of
the Stockholders and the Company, if applicable (the "Holdback Period").
Upon the expiration of the Holdback Period, Buyer will deliver to the
Stockholders the remaining Holdback Shares, if any; PROVIDED, HOWEVER, that
the number of Holdback Shares with a value (assuming a per share value of
$2.784) equal to the amount of the Losses or other indemnification
obligations as to which the Buyer has properly made a Claim under SECTION
7.2 shall be retained by Buyer until such Claims have been resolved,
subject, however, to SECTION 7.4(h) below. Within five (5) business days
following resolution of such Claims, Buyer shall deliver to each respective
Stockholders all Holdback Shares retained by Buyer and not required to
satisfy such Claims.
(c) PROTECTION OF HOLDBACK SHARES. Buyer shall hold and safeguard
the Holdback Shares during the term of the Holdback Period, shall treat
such Holdback Shares as a trust fund in accordance with the terms of this
Agreement and not as the property of Buyer and shall hold and dispose of
the Holdback Shares only in accordance with the terms hereof.
(d) DISTRIBUTIONS; VOTING.
(i) 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 Holdback Shares that have not
been released to the Stockholders shall be added to the Holdback Shares and
become a part thereof. New Shares issued in respect of Holdback Shares
that have been released shall not be added to the Holdback Shares, but
shall be distributed to the holders thereof. When and if cash dividends on
Holdback Shares shall be declared and paid, they shall not be added to the
Holdback Shares but shall be paid to the holders thereof.
(ii) The Stockholders shall be the record owner of the
Holdback Shares and shall have voting rights with respect to the Holdback
Shares (including any New Shares that are voting securities) so long as
such Holdback Shares are retained by Buyer.
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(e) CLAIM UPON HOLDBACK SHARES.
(i) Upon written notification by Buyer to the Stockholders at
any time on or before the last day of any Holdback Period:
(A) that Buyer has paid or properly accrued Losses in
an aggregate stated amount to which Buyer is entitled to indemnity pursuant
to this Agreement, and
(B) in the case of such Losses, specifying in
reasonable detail the individual items of Losses included in the amount so
stated, the date each such item was paid or properly accrued and the nature
of the misrepresentation or breach of warranty, if any, or claim to which
such item is related; then Buyer shall, unless the Stockholders object in
accordance with the provisions of SECTION 7.4(f) hereof, cancel the number
of shares of Parent Class A Common Stock having a value equal to such
Losses.
(ii) For the purposes of determining the number of shares of
Parent Class A Common Stock to be cancelled from the Holdback Shares
pursuant to SECTION 7.4(E)(i), the shares of Parent Class A Common Stock
shall be valued at $2.784 per share.
(f) OBJECTIONS TO CLAIMS. At the time of receipt of any notification
as set forth in SECTION 7.4(e)(i), the Stockholders shall have a period of
thirty (30) days after such delivery to object in a written statement to
the claim made in the notification, and such statement shall have been
delivered to Buyer prior to the expiration of such thirty (30) day period.
If Buyer does not receive any such objection from the Stockholders within
such thirty (30) day period, Buyer may cancel the shares of Parent Class A
Common Stock from the Holdback Shares equal to the amount of Losses paid or
properly accrued.
(g) NO LIMITATION. The existence of this SECTION 7.4 and the rights
set forth herein are not intended to limit any other claims by Buyer for
indemnification against the Stockholders (or the Company, if applicable).
(h) ONE YEAR LIMITATION. Notwithstanding anything to the contrary
herein, each party hereto agrees to fully and finally resolve any pending
Claims on or before the first anniversary of the Closing Date and,
therefore, the Holdback Shares, if any, shall be either cancelled or
returned to the Stockholders on or before the first anniversary of the
Closing Date.
7.5 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 pending on such
date, in which case the indemnification obligations, hereunder shall continue
until the final resolution of such Claim but, in no event, shall such
indemnification obligations
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extend beyond the first anniversary of the Closing Date). All statements
contained in any Schedule to this Agreement will constitute representations
and warranties under this Agreement.
7.6. EXCLUSIVE REMEDY. Subject to the terms and conditions of SECTION
7.1, the indemnification provisions of this Article VII shall be the sole and
exclusive remedy of Precept or Buyer for a breach of any representation,
warranty, covenant or agreement of the Company or the Stockholders under this
Agreement, except with respect to intentional misrepresentations or fraud by
the Stockholders or the Company.
ARTICLE VIII
MISCELLANEOUS
8.1 TERMINATION OF AGREEMENT. Certain of the parties to this Agreement
may terminate this Agreement as follows:
(a) Buyer, Precept, the Company and the Stockholders may terminate
this Agreement by mutual written consent at any time prior to the Closing.
(b) Buyer and Precept may terminate this Agreement by giving written
notice to the Company and the Stockholders at any time prior to the Closing
Date in the event the Company or the Stockholders have materially breached
any representation or warranty pursuant to Article III of this Agreement or
otherwise materially breached any covenant or agreement herein.
(c) Buyer and Precept may terminate this Agreement by giving written
notice to the Company and the Stockholders at any time prior to the Closing
Date if the Closing shall not have occurred on or before June 30, 1998, by
reason of the failure of any condition precedent set forth in Article VI
hereof (unless the failure results primarily from Buyer or Precept
breaching any representation, warranty or covenant contained in this
Agreement as contemplated in Subsection (b) of this SECTION 8.1).
(d) The Company and the Stockholders may terminate this Agreement by
giving written notice to Buyer and Precept at any time prior to the Closing
Date if the Closing shall not have occurred on or before June 30, 1998, by
reason of the failure of any condition precedent set forth in Article VI
hereof (unless the failure results primarily from the Stockholders
breaching any representation, warranty or covenant contained in this
Agreement as contemplated in Subsection (e) of this SECTION 8.1).
(e) The Company and the Stockholders may terminate this Agreement by
giving written notice to Buyer and Precept at any time prior to the Closing
Date in the event Buyer or Precept have materially breached any
representation or warranty pursuant to Article IV of this Agreement or
otherwise materially breached any covenant or agreement herein.
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(f) The Company and the Stockholders may terminate this Agreement if
the per share closing price of the Parent Class A Common Stock is below
$2.50 at any time prior to the Closing Date, and Precept and Buyer may
terminate this Agreement if the per share closing price of the Parent Class
A Common Stock exceeds $3.50 at any time prior to the Closing Date.
8.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement as provided in SECTION 8.1, this Agreement shall forthwith become
void, there shall be no liability on the part of Buyer and Precept, on the
one hand, and the Company and the Stockholders, on the other, and all rights
and obligations of any party hereto shall cease, except that nothing herein
shall relieve any party of any liability for (i) any breach of such party's
covenants or agreements contained in this Agreement, or (ii) any willful
breach of such party's representations or warranties contained in this
Agreement.
8.3 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 8.3):
IF TO BUYER: Precept Business Services, Inc.
1909 Woodall Rodgers Freeway, Suite 500
Dallas, Texas 75201
Attention: General Counsel
Facsimile No.: 214/220-1082
WITH A COPY TO: Munsch Hardt Kopf Harr & Dinan, P.C.
5000 Plaza on the Lake, Suite 270
Austin, Texas 78746
Attention: William L. Deckelman, Jr., Esq.
Facsimile No.: 512/306-6201
IF TO THE STOCKHOLDERS: Mail/Source, Inc.
4951 Central Avenue
Monroe, Louisiana 71203
Attention: James L. Sanderlin
WITH A COPY TO: Kutak Rock
1101 Connecticut Avenue, NW
Washington, DC 20036-4374
Attention: Paul D. Borja, Esq.
Facsimile No.: 202/828-2488
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.
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8.4 EXPENSES. Buyer and each Stockholder will each bear their own
respective costs and expenses in connection with the transactions
contemplated by this Agreement. The Stockholders shall bear any costs,
expenses or fees payable to any financial advisors, attorneys, accountants or
other representatives retained by the Company or the Stockholders on their
behalf and on behalf of the Company, with regard to the transactions
contemplated by this Agreement. Buyer and its Affiliates shall bear any
costs, expenses or fees payable to any financial advisors, attorneys,
accountants or other representatives retained by Buyer or its Affiliates with
regard to the transaction contemplated by this Agreement. If attorneys',
accountants' or financial advisors' fees or other 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 party will be entitled to recover reasonable
attorneys' fees and costs incurred in connection therewith.
8.5 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.
8.6 ASSIGNMENT. Neither this Agreement nor any of the rights, interests
or obligations hereunder will be assigned or delegated by the Company, the
Stockholders, Precept or Buyer, without the prior written consent of the
other parties hereto; except that Buyer may assign its rights and obligations
under this Agreement to any direct or indirect subsidiary of Precept
(provided that Buyer shall remain obligated to perform Buyer's obligations
hereunder) and except that the rights of the Stockholders shall inure to the
benefit of their 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.
8.7 ENTIRE AGREEMENT. This Agreement, the other Transaction Documents,
and the documents contained as Exhibits 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 and Disclosure
Schedules to this Agreement are hereby incorporated by reference into and
made a part of this Agreement for all purposes.
8.8 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.
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8.9 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.
8.10 ARBITRATION PROCEEDINGS.
(a) 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 8.10. 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.
(b) 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.
(c) DISCOVERY. Each party to an arbitration shall be entitled to
such discovery as the Panel shall determine is appropriate.
(d) 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).
(e) LOCATION OF ARBITRATION. The arbitration shall take place in
Ouachita Parish, Louisiana.
(f) AAA RULES. Except as expressly provided in this SECTION 8.10,
the arbitration shall be conducted in accordance with the Commercial Rules
of the American Arbitration Association as then in effect.
(g) 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.
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8.11 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.
8.12 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.
8.13 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.
8.14 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
BUYER: COMPANY:
PRECEPT BUSINESS PRODUCTS, INC., MAIL/SOURCE, INC.
a Delaware corporation (F/K/A MBF DATA/GRAPHICS, INC.),
a Louisiana corporation
By: By:
------------------------------ ------------------------------
David L. Neely, James L. Sanderlin,
Chief Executive Officer President
PRECEPT: STOCKHOLDERS:
PRECEPT BUSINESS SERVICES, INC., JOSEPH D. GRECO, II TRUST
a Texas corporation U/A DTD. 8/3/92
By: By:
------------------------------ ------------------------------
David L. Neely, James L. Sanderlin, Trustee
Chief Executive Officer
LAURIE JAN GRECO TRUST
U/A DTD. 8/3/92
By:
------------------------------
James L. Sanderlin, Trustee
NATALIE ANN GRECO TRUST
U/A DTD. 8/3/92
By:
------------------------------
James L. Sanderlin, Trustee
<PAGE>
EXHIBIT 23.1
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 333-59815) pertaining to the Precept Business Services, Inc.
1998 Stock Incentive Plan and Precept Business Services, Inc. 1996 Stock
Option Plan of our report dated August 31, 1998, with respect to the combined
financial statements of MBF Corporation and Mail/Source, Inc. included in
Precept Business Services, Inc.'s Current Report (Form 8-K/A) dated September
11, 1998 for the year ended June 30, 1998.
/s/ Ernst & Young LLP
Dallas, Texas
September 10, 1998
