<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _____ TO _____
Commission File No. 000-23735
PRECEPT BUSINESS SERVICES, INC.
---------------------------------------------------
(Exact name of registrant as specified in its charter)
Texas 75-2487353
------------------------------- ------------------
(State of incorporation or (I.R.S. Employer
organization) Identification No.)
1909 Woodall Rodgers Frwy.
Dallas, Texas 75201
---------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (214) 754-6600
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. YES NO X
--- ---
Indicate the number of shares outstanding of each of the registrant's classes
of common stock as of the latest practicable date.
<TABLE>
Class Outstanding as of March 25, 1998
- ---------------------------- --------------------------------
<S> <C>
Common Stock, Class "A" 35,509,503
Class "B" 10,102,997
</TABLE>
<PAGE>
PRECEPT BUSINESS SERVICES, INC.
INDEX
PART I - FINANCIAL INFORMATION Page No.
--------
ITEM 1 - FINANCIAL STATEMENTS
Consolidated Balance Sheet.......................................... 2
December 31, 1997 (unaudited) and June 30, 1997 (audited)
Consolidated Statement of Income.................................... 4
For the three months ended December 31, 1997 (unaudited) and
December 31, 1996 (unaudited) and for the six months ended
December 31, 1997 (unaudited) and December 31, 1996 (unaudited)
Consolidated Statement of Cash Flows................................ 6
For the six months ended December 31, 1997 (unaudited) and
December 31, 1996 (unaudited)
Notes to Consolidated Financial Statements.......................... 7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS................... 9
PART II - OTHER INFORMATION
Exhibits and Reports on Form 8-K......................................... 15
Signatures............................................................... 16
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
PRECEPT BUSINESS SERVICES, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
DECEMBER 31, June 30,
1997 1997
--------------------------
(Unaudited) (Audited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,475,075 $ 2,496,029
Trade receivables, net of $145,000 and
$288,000 allowance for doubtful accounts,
respectively 9,936,150 9,229,452
Accounts receivable from affiliates 740,497 503,571
Other receivables 651,616 456,942
Inventory 3,897,419 2,569,498
Other current assets 621,221 642,819
Income taxes refundable 290,043 277,766
Deferred income taxes 1,090,886 1,090,886
Net assets of discontinued operations 2,587,664 3,560,246
--------------------------
Total current assets 21,290,571 20,827,209
Property and equipment, net of accumulated
depreciation 2,651,948 1,857,793
Intangible assets, net of accumulated
amortization 6,899,459 4,790,608
Deferred income taxes 615,019 615,019
Other assets 1,647,102 1,200,379
--------------------------
Total assets $33,104,099 $29,291,008
--------------------------
--------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED
FINANCIAL STATEMENTS
2
<PAGE>
PRECEPT BUSINESS SERVICES, INC.
CONSOLIDATED BALANCE SHEETS, CONTINUED
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
DECEMBER 31, JUNE 30,
1997 1997
--------------------------
(Unaudited) (Audited)
<S> <C> <C>
Current liabilities:
Current portion of long-term debt $ 45,915 $ 58,160
Current portion of capital lease obligations 405,243 185,055
Trade accounts payable 6,540,768 4,735,411
Sales taxes payable 559,026 1,181,047
Accrued compensation 496,402 1,132,015
Other accounts payable and accrued expenses 1,254,786 1,192,475
--------------------------
Total current liabilities 9,302,140 8,484,163
Long-term debt 9,602,766 6,984,644
Capital lease obligations, less current portion 735,997 517,234
Shareholders' equity:
Class A common stock, $.01 par value:
Authorized shares - 100,000,000
Issued shares - 25,897,003 258,970 258,970
Class B common stock, $.01 par value:
Authorized shares - 10,500,000
Issued and outstanding shares - 10,102,997 101,023 101,023
Additional paid-in capital 17,432,448 17,432,448
Accumulated deficit (3,524,998) (3,475,167)
--------------------------
14,267,443 14,317,274
Class A treasury stock, at cost:
Shares - 478,844 (191,271) (191,271)
Shareholder notes for stock purchases (612,976) (821,036)
--------------------------
Total shareholders' equity 13,463,196 13,304,967
--------------------------
Total liabilities and shareholders' equity $33,104,099 $29,291,008
--------------------------
--------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED
FINANCIAL STATEMENTS
3
<PAGE>
PRECEPT BUSINESS SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
SIX MONTHS ENDED
DECEMBER 31,
1997 1996
-------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues:
Business products $34,452,759 $37,234,972
Transportation 3,426,633 3,253,092
--------------------------
37,879,392 40,488,064
Costs and expenses:
Cost of goods sold 23,270,274 25,239,361
Selling, general, and administrative 13,337,253 13,665,339
Depreciation and amortization 661,690 636,151
--------------------------
37,269,217 39,540,851
--------------------------
Operating income 610,175 947,213
Interest expense 286,573 265,305
--------------------------
Income from continuing operations before
income taxes 323,602 681,908
Income tax provision 129,125 272,763
--------------------------
Income from continuing operations 194,477 409,145
Discontinued operations:
Discontinuation of Precept Holdings, Inc.:
Loss from discontinued operations, net of
applicable income taxes (244,308) (280,299)
Discontinuation of Precept Builders, Inc.:
Income from discontinued operations,
net of applicable income taxes - 74,653
--------------------------
Loss from discontinued operations (244,308) (205,646)
--------------------------
Net income (loss) $ (49,831) $ 203,499
--------------------------
--------------------------
Basic income per share data:
Income from continuing operations $ 0.01 $ 0.01
Loss from discontinued operations (0.01) (0.01)
--------------------------
Basic income (loss) per common share $ (0.00) $ 0.00
--------------------------
--------------------------
Weighted average common shares outstanding -
Basic 36,000,000 36,000,000
--------------------------
--------------------------
Diluted income per share data:
Income from continuing operations $ 0.01 $ 0.01
Loss from discontinued operations (0.01) (0.01)
--------------------------
Diluted income (loss) per common share $ (0.00) $ 0.00
--------------------------
--------------------------
Weighted average common shares outstanding -
Diluted 36,324,852 36,324,852
--------------------------
--------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED
FINANCIAL STATEMENTS
4
<PAGE>
PRECEPT BUSINESS SERVICES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
THREE MONTHS ENDED
DECEMBER 31,
1997 1996
---------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
Revenues:
Forms $17,155,828 $19,036,863
Transportation 1,788,086 1,638,546
--------------------------
18,943,914 20,675,409
Costs and expenses:
Cost of goods sold 11,472,419 12,729,081
Selling, general, and administrative 6,798,476 7,071,779
Depreciation and amortization 416,413 281,767
--------------------------
18,687,308 20,082,627
--------------------------
Operating income 256,606 592,782
Interest expense 161,214 142,735
--------------------------
Income from continuing operations before
income taxes 95,392 450,047
Income tax provision 37,203 175,381
--------------------------
Income from continuing operations 58,189 274,666
Discontinued operations:
Discontinuation of Precept Holdings, Inc.:
Loss from discontinued operations, net of
applicable income taxes (79,331) (158,253)
Discontinuation of Precept Builders, Inc.:
Income from discontinued operations,
net of applicable income taxes - (133,079)
--------------------------
Loss from discontinued operations (79,331) (291,332)
--------------------------
Net income $ (21,142) $ (16,666)
--------------------------
--------------------------
Basic income per share data:
Income from continuing operations $ 0.00 $ 0.01
Loss from discontinued operations (0.00) (0.01)
--------------------------
Basic loss per common share $ (0.00) $ (0.00)
--------------------------
--------------------------
Weighted average common shares outstanding -
Basic 36,000,000 36,000,000
--------------------------
--------------------------
Diluted income per share data:
Income from continuing operations $ 0.00 $ 0.01
Loss from discontinued operations (0.00) (0.01)
--------------------------
Diluted loss per common share $ (0.00) $ (0.00)
--------------------------
--------------------------
Weighted average common shares outstanding -
Diluted 36,324,852 36,324,852
--------------------------
--------------------------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED
FINANCIAL STATEMENTS
5
<PAGE>
PRECEPT BUSINESS SERVICES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
SIX MONTHS ENDED
DECEMBER 31
1997 1996
---------------------------
(Unaudited) (Unaudited)
<S> <C> <C>
NET CASH USED IN OPERATING ACTIVITIES $(1,619,398) $(1,613,031)
INVESTING ACTIVITIES
Acquisitions, including earnout payments (513,356) (415,795)
Proceeds from sale of property and equipment 1,200,000 -
Acquisition of property and equipment, net (563,738) (175,303)
----------- -----------
Net cash used in investing activities (122,906) (591,098)
FINANCING ACTIVITIES
Payments on long-term debt - (476,200)
Principal payments on capitalized lease obligations (49,462) (41,322)
Borrowings on revolving line of credit 3,731,747 1,493,104
Payments on revolving line of credit (3,206,747) (1,263,822)
----------- -----------
Net cash provided by (used) in financing activities 475,538 (288,240)
----------- -----------
Net decrease in cash and cash equivalents (1,020,954) (2,492,369)
Cash and cash equivalents at beginning of period 2,496,029 3,879,458
----------- -----------
Cash and cash equivalents at end of period $ 1,475,075 $ 1,387,089
----------- -----------
----------- -----------
</TABLE>
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
During the six months ended December 31, 1996, the Company entered into
capitalized leases at a recorded value of $392,466.
During the six months ended December 31, 1997 the Company entered into
capitalized leases at a recorded value of $488,413.
During the six months ended December 31, 1997, the Company issued $2,114,435 in
notes payable for consideration in five acquisitions, which included $406,172
in property and equipment.
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE CONSOLIDATED
FINANCIAL STATEMENTS
6
<PAGE>
PRECEPT BUSINESS SERVICES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. MANAGEMENT'S REPRESENTATION
In the opinion of management, the accompanying unaudited financial statements
present fairly, in all material respects, the financial position of Precept
Business Services, Inc. ("Precept") and the results of its operations and its
cash flows for the six months ended December 31, 1997 and 1996, and,
accordingly, all adjustments (which include only normal recurring adjustments)
necessary to permit fair presentation have been made. Certain information
and footnote disclosures normally required by financial accounting principles
have been condensed or omitted. It is recommended that these statements be
read in conjunction with the consolidated financial statements and notes
thereto as of June 30, 1997 and for the three years then ended included in the
Company's Form S-4 filing, which became effective February 9, 1998. The
results of operations for the period ended December 31, 1997 are not
necessarily indicative of the operating results for the full year.
2. SELECTED SIGNIFICANT ACCOUNTING POLICIES
EARNINGS PER SHARE
In 1997, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, Earnings per Share Statement 128 replaced the
previously reported primary and fully diluted earnings per share with basic and
diluted earnings per share. Unlike primary earnings per share, basic earnings
per share excludes any dilutive effects of options, warrants and convertible
securities. Diluted earnings per share is very similar to the previously
reported fully diluted earnings per share. All earnings per share amounts for
all periods have been presented, and where necessary, restated to conform to
the Statement 128 requirements.
3. ACQUISITIONS
During the six months ended December 31, 1997, the Company completed
acquisitions of certain assets of four business products distributors and one
chauffeured vehicle service company, for a total of $2,695,435, comprised of
$435,000 in cash, $2,114,435 in convertible notes payable and $146,000 in
assumed debt, plus up to $670,000 of contingent consideration based on the
subsequent operating results of the business over a five year period. The
acquisitions were accounted for using the purchase method of accounting with
the majority of the purchase price attributable to customer contracts.
7
<PAGE>
4. DISCONTINUED OPERATIONS
In February, 1997, the Company decided to reduce its investment in Precept
Builders, Inc. ("Builders"), an indirect subsidiary of Precept that performed
construction activities. The Company owned 810 shares of Builders common stock,
making it an 81% shareholder of Builders. Effective March 31, 1997, the Company
obtained an additional 1,000 shares, increasing its ownership to 90.5%, in
exchange for a contribution of capital of approximately $2.3 million. As of
June 30, 1997, Builders expected to offer 100,000 shares of its common stock in
a private offering to the shareholders of the Company, diluting the Company's
ownership percentage to 1.8%. Consequently, in accordance with Accounting
Principles Board Opinion No. 30, Reporting the Results of Operations--
Discontinued Events and Extraordinary Items, the Company recorded the net
assets of Builders at the estimated expected value remaining at the disposal
date, which was zero. On December 2, 1997, the private offering was
consummated.
During February 1997, the Company also decided to sell nearly all of the assets
of Precept Holdings, Inc. ("Holdings"), which owns and operates certain other
real estate-related investments. The assets to be sold include two
condominiums, a ranch, a restaurant, and a luxury suite at a local racing
facility. The assets will be sold to entities controlled by certain officers
and directors of the Company. During October 1997, the ranch was sold for $1.2
million in cash.
5. SUBSEQUENT EVENTS
During February 1998, the two condominiums of Holdings were sold for
approximately $1.6 million in cash.
On March 20, 1998 the Company increased its line of credit ("Senior Credit
Facility") to $15.0 million. The increase in the Senior Credit Facility is
under substantially the same terms and conditions as the existing credit
facility.
Effective March 19, 1997, the Company completed its acquisition of U.S.
Transportation Systems, Inc. ("USTS"). On March 20,1998 the Company began
trading on the Nasdaq under the symbol PBSIA. USTS is engaged in business
areas which relate to transportation, including providing bus, chauffeured
vehicle, package and delivery transportation-related services. The Company
purchased nearly all of the operating assets and assumed certain liabilities
of USTS for 9,612,500 shares of the Company's Class A Common Stock (the
"Exchange Shares"). The transaction was structured as a tax-free
reorganization under the Internal Revenue Service ("IRS") code Section
368(a)(1)(C) ("Type C Reorganization"). In conjunction with the acquisition,
the Company authorized a total of 100 million shares and split its existing
shares into an aggregate 36 million shares, which represents an approximate
split ratio of 3.15438 to 1. Accordingly, all per share information presented
reflects the stock split. USTS is required to liquidate or dissolve as a
corporation and distribute the Exchange Shares to USTS shareholders for the
transaction to qualify with the IRS as a Type C Reorganization. Subsequent
to the acquisition of USTS by Precept, 45,612,500 shares of the Company will
be outstanding. The Company has registered the Exchange Shares and
approximately 20 million shares for acquisitions in a Form S-4 registration
statement with the Securities and Exchange Commission.
8
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion of Management's Discussion and Analysis of
Financial Condition and Results of Operations of the Company should be read in
conjunction with the information contained in the Company's consolidated
financial statements, including the notes thereto, and the other financial
information appearing elsewhere in this report. Statements regarding future
economic performance, management's plans and objectives, and any statements
concerning its assumptions related to the foregoing contained in Management's
Discussion and Analysis of Financial Condition and Results of Operations
constitute forward-looking statements. The Company's actual results,
performance or achievements could differ materially from the results expressed
in, or implied by, these forward-looking statements. The Company does not
undertake any obligation to revise these forward-looking statements to reflect
any future events or circumstances. Unless otherwise indicated or the context
otherwise requires, each reference to a year is to the Company's fiscal year
which ends on June 30 of such year.
GENERAL
The Company is a leading independent distributor of custom and stock
business products and provider of document management services ("Business
Products") to businesses in a variety of industries throughout the United
States. The Company also operates various corporate transportation services
within the Dallas/Fort Worth metropolitan area ("Transportation Services").
The Company was founded in 1988 as a subsidiary of Affiliated Computer
Services, Inc. ("ACS") (NYSE: AFA) and has grown significantly since then, both
internally and through acquisitions. In June 1994, the Company was spun-off
from ACS in a tax-free stock exchange to ACS shareholders in connection with
the initial public offering of ACS.
The Company was one of the first organizations to begin nationwide
consolidation of operating companies in the Business Products industry. Since
1991, the Company has acquired 15 companies operating in this industry plus
five Transportation Services entities. During the six months ended December
31, 1997, the Company completed five of the acquisitions discussed above. Four
of the acquisitions were in the Business Products industry and one in the
Transportation Services sector. Four of the five acquisitions were completed
with a combination of cash and convertible notes, one for all cash, with all
five accounted for using the purchase method of accounting. Accordingly, the
results of the acquired operations are included in the Company's consolidated
results of operations from the date of acquisition. As a result of the effect
of these various acquisitions, the historical operating results of the Company
for a given period may not be comparable to prior or subsequent periods.
A component of the Company's business strategy is to increase the size of
its operations through strategic acquisitions and internally generated growth.
The Company places substantial emphasis on improving operational and
information system capabilities, while implementing subsequent integration of
the Company's business
9
<PAGE>
strategy in acquired operations. The Company's operational focus also
includes continuous upgrading of management systems allowing improved
customer access to financial, inventory and order status information; new
product and service offerings; preferred vendor programs incorporating volume
purchasing; regional and district management oversight; and recruiting
experienced sales individuals. The Company believes these strategies will
lead to lower costs of goods and increased sales of various products and
services to existing and new customers.
As part of the implementation of its business strategy, the Company decided to
focus on its core business by discontinuing certain operations in real estate
construction and real estate related investments. Except where specifically
noted, the Discussion and Analysis of Financial Condition and Results of
Operations that appears below covers only the Company's continuing operations.
For additional information about the results of discontinued operations, see
Note 4 of the Company's "Notes" to consolidated financial statements and
discussion of "Discontinued Operations" below.
RESULTS OF OPERATIONS
Three Months Ended December 31, 1997 Compared to Three Months Ended
December 31, 1996
Revenues for continuing operations decreased $1.7 million or 8.4% for the
three months ended December 31, 1997, to $18.9 million from $20.7 million for
the three months ended December 31, 1996. The majority of the decrease was in
the Business Products segment and resulted from lower sales to Business
Products customers due, in part, to the loss of three customers. The Company
has taken steps to replace the lost revenue through the addition of new
customers and the growth of existing customer relationships. Revenue in the
1997 three-month period included $2.1 million from the six acquisitions
completed in calendar year 1997.
Cost of goods sold includes product, freight and delivery costs. Cost of
goods sold were $11.5 million for the three months ended December 31, 1997, a
decrease of $1.2 million from $12.7 million in the same three-month period of
1996. Cost of goods sold as a percentage of Business Products revenues showed
no change for the three months ended December 31, 1997 at 66.9% compared to the
three months ended December 31, 1996.
Selling, general and administrative expenses include sales commissions,
drivers' wages, lease expense and corporate overhead. Selling, general and
administrative expenses decreased by $273 thousand to $6.8 million for the
three months ended December 31, 1997 from $7.1 million for the three months
ended December 31, 1996. As a percentage of revenues from continuing
operations, selling, general and administrative expenses increased to 35.9%
from 34.2%, for the same period in 1996. The increase as a percentage of
revenues for the three months ended December 31, 1997 is primarily due to an
increase in corporate resources to implement the Company's consolidation
strategy and in preparation for public status.
10
<PAGE>
Depreciation and amortization expense for the three months ended December
31, 1997 increased by $134 thousand to $416 thousand from $282 thousand for the
three months ended December 31, 1996. The increase is due to additional
depreciation and amortization recorded for the five acquisitions completed
during the previous six months.
Operating income decreased $336 thousand to $257 thousand for the three
months ended December 31, 1997, compared to $593 thousand for the three months
ended December 31, 1996. Operating income decreased due to lower revenue,
higher selling, general and administrative expenses as a percentage of revenues
and higher depreciation and amortization.
Interest expense increased $18 thousand to $161 thousand for the three
months ended December 31, 1997 due primarily to debt incurred for acquisitions.
The Company's effective tax rate was 39.0% for the three months ended
December 31, 1997, unchanged from 39.0% for the three months ended December 31,
1996.
As a result of the foregoing, net income from continuing operations
decreased to $58 thousand for the three months ended December 31, 1997, from
$275 thousand for the three months ended December 31, 1996.
Six Months Ended December 31, 1997 Compared to Six Months Ended December
31, 1996
Consolidated revenues for continuing operations decreased $2.6 million or
6.4% for the six months ended December 31, 1997, to $37.9 million from $40.5
million for the six months ended December 31, 1996. The majority of the
decrease was in the Business Products segment and resulted from lower sales to
Business Products customers due, in part, to the loss of three customers. The
Company has taken steps to replace the lost revenue through the addition of new
customers and the growth of existing customer relationships. Revenue in the
1997 six-month period included $3.1 million from the six acquisitions completed
in March, July, September, October and November of 1997.
Cost of goods sold were $23.3 million for the six months ended December
31, 1997, a decrease of $1.9 million from $25.2 million in the same six month
period of 1996. Cost of goods sold as a percentage of Business Products
revenues was essentially unchanged for the six months ended December 31, 1997
at 67.8% compared to the six months ended December 31, 1996.
11
<PAGE>
Selling, general and administrative expenses decreased by $328 thousand to
$13.3 million for the six months ended December 31, 1997 from $13.7 million for
the six months ended December 31, 1996. As a percentage of revenues from
continuing operations, selling, general and administrative expenses increased
to 35.2% from 33.8%, for the same period in 1996. The increase as a percentage
of revenues for the six months ended December 31, 1997 is primarily due to an
increase in corporate resources to implement the Company's consolidation
strategy and in preparation for public status.
Depreciation and amortization expense for the six months ended December
31, 1997 increased by $26 thousand to $662 thousand from $636 thousand for the
six months ended December 31, 1996.
Operating income decreased $337 thousand to $610 thousand for the six
months ended December 31, 1997, compared to $947 thousand for the six months
ended December 31, 1996. Operating income decreased due to lower revenue,
higher selling, general and administrative expenses as a percentage of revenues
and higher depreciation and amortization.
Interest expense increased $22 thousand to $287 thousand for the six
months ended December 31, 1997 due primarily to debt incurred for acquisitions.
The Company's effective tax rate was 39.9% for the six months ended
December 31, 1997, virtually unchanged from 40.0% for the six months ended
December 31, 1996.
As a result of the foregoing, net income from continuing operations
decreased to $194 thousand for the six months ended December 31, 1997, from
$409 thousand for the six months ended December 31, 1996.
CAPITAL RESOURCES AND LIQUIDITY
The Company's primary sources of funding have been cash flow from
operations, commercial bank credit facilities and convertible notes issued by
the Company to sellers of acquired companies. The Company anticipates that
cash flow from operations and borrowings under credit facilities will be its
principal sources of funding. The Company's principal uses of cash have been,
and will continue to be, the funding of acquisitions, repayment of debt, and
capital expenditures for its information and accounting systems.
In the six months ended December 31, 1997, five acquisitions were
completed for total consideration of approximately $2.5 million. Of the
total consideration paid for the acquisitions, approximately $435 thousand
was in cash and approximately $2.1 million was in the form of convertible
debt. The cash portion of the consideration paid for the acquisitions was
provided by proceeds from the Company's Senior Credit Facility.
12
<PAGE>
A definitive loan agreement was signed on July 1, 1997, with Wells Fargo
Bank, Texas consisting of a $10.0 million secured revolving credit facility
("Senior Credit Facility"), which expires June 30, 2000. Borrowings under the
Senior Credit Facility bear interest at Prime or LIBOR plus 1.75%, 2.25% or
2.50% dependent upon a financial ratio of the Company calculated at the
beginning of each month. The Senior Credit Facility is fully secured by
substantially all of the assets of the Company. Availability under the Senior
Credit Facility is calculated based upon a borrowing base composed of
receivables and inventory. An amendment to the Senior Credit Facility was
signed March 20, 1998, which expanded the facility to $15.0 million and
extended the maturity date to March 31, 2001.
The Company incurs capital expenditures primarily for its information and
accounting systems needs. Capital expenditures, from continuing operations,
for the six months ended December 31, 1997, were $360 thousand. The majority
of capital expenditures related to the purchase of capitalized software and
computer equipment.
The Company had cash and cash equivalents totaling $1.5 million at
December 31, 1997 compared to $2.5 million at June 30, 1997. The reason for the
decrease was cash utilized in acquisitions, expenses associated with the USTS
transaction, capital expenditures and reduction of accrued sales tax liability.
Working capital at December 31, 1997 was $12.0 million, comparable to
working capital at June 30, 1997 of $12.3 million. The Company's
capitalization, defined as the sum of long-term debt and shareholders' equity
at December 31, 1997 was approximately $23.1 million.
The Company's EBITDA, defined as income excluding interest, taxes,
depreciation and amortization of goodwill and other intangible assets, was
$1.3 million for the six months ended December 31, 1997 compared to $1.6
million for the six month period ended December 31, 1996. Management has
included EBITDA in its discussion herein as a measure of liquidity because it
believes that it is a widely accepted financial indicator of a company's
ability to service and/or incur indebtedness, maintain current operating
levels of fixed assets and acquire additional operations and businesses.
EBITDA should not be considered as a substitute for statement of operations
or cash flow data for the Company's consolidated financial statements, which
have been prepared in accordance with generally accepted accounting
principles.
The Company's management believes that capital requirements, other than
funding of acquisitions, will be met from cash generated from continuing
operations and additional financing available under the Senior Credit
Facility. Favorable acquisition or expansion opportunities requiring large
commitments of capital may arise that the Company may be unable to finance
internally. In order to pursue such opportunities, the Company may be
required to incur additional debt or to issue Common Stock, which would have
a dilutive effect on existing shareholders. However, the portion of future
acquisition costs, which will be funded with such Common Stock, is dependent
upon the seller's willingness to accept the stock as consideration and the
Company's willingness to issue such stock based on the market price of the
stock. No assurance can be given as to the Company's future acquisition and
expansion opportunities.
13
<PAGE>
INCOME TAXES
At December 31, 1997, the Company had $2.3 million of gross deferred tax
assets. The Company had evaluated its deferred tax assets both individually
and in the aggregate as to the likelihood of realizability of these amounts,
and has concluded that there are no specific realizability issues related to
any one type of temporary difference that gave rise to the deferred tax assets.
However, the Company has concluded that it is more likely that some portion of
its deferred tax assets will not be realized. After considering the sources of
taxable income that may be available, the Company estimates that it will not
realize $637 thousand of its deferred tax assets, for which a valuation
allowance is recorded.
DISCONTINUED OPERATIONS
As part of its business strategy, the Company decided to focus on its
core businesses and discontinue certain business operations. To effect this
strategy, in February 1997, the Company decided to reduce its investment in
its real estate construction operation, Precept Builders, Inc. ("Builders"),
which performs free-standing construction and finish-out of existing
locations, primarily in the state of Texas, and to sell nearly all of the
assets of Precept Holdings, Inc. ("Holdings"), which owns and operates
certain other real estate-related investments. The assets to be sold of
Holdings include two condominiums, a ranch, a restaurant, and a luxury suite
at a local racing facility.
During December 1997, the private offering of Builders was completed.
During October 1997 and February 1998, the ranch and condominiums of Holdings
were sold for $1.2 million and $1.6 million in cash, respectively.
YEAR 2000 COMPLIANCE
All of the Company's software utilized in accounting and operations has
been licensed from third-party vendors and is certified as year 2000 compliant.
14
<PAGE>
INFLATION
Certain of the Company's product offerings, particularly paper products,
have been and are expected to continue to be subject to significant price
fluctuations due to inflationary and other market conditions. The Company
generally is able to pass such increased costs on to its customers through
price increases, although it may not be able to adjust its prices immediately.
Significant increases in paper, fuel and other costs in the future could
materially affect the Company's profitability if these costs cannot be passed
on to customers. In general, the Company does not believe that inflation has
had a material effect on its results of operations in recent years. However,
there can be no assurance that the Company's business will not be affected by
inflation in the future.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS - None
ITEM 2. CHANGES IN SECURITIES - None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES - None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION - None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS:
<TABLE>
<CAPTION>
<C> <S>
2.1 Agreement and Plan of Reorganization dated as of November 16, 1997 by and among U.S.
Transportation Systems, Inc., Precept Investors, Inc. and Precept Acquisition Company, L.L.C.
(1)
2.2 Plan of Liquidation and Dissolution (1)
3.1 Amended and Restated Articles of Incorporation (1)
3.2 Bylaws (1)
4.1 Warrant Agent Agreement (1)
4.2 Form of Precept Class A Warrant Certificate (1)
4.3 Form of Precept Class A Common Stock Certificate (1)
4.4 Form of Rights Agreement between Precept and Continental Stock Transfer & Trust Co. (1)
4.5 Form of Irrevocable Proxy granted to Darwin Deason by various Precept shareholders (1)
10.1 Form of Registration Rights Agreement by and among Precept Investors, Inc., Michael Margolies and
The Margolies Family Trust (1)
10.2 Form of Employment Agreement by and between Precept Investors, Inc. and Michael Margolies (1)
10.3 Form of Employment Agreement by and between Precept Investors, Inc. and Ron Sorci (1)
10.4 Reciprocal Services Agreement, dated June 30, 1994, between Precept and ACS (1)
10.5 Form of Directors Indemnification Agreement (1)
10.6 Precept 1996 Stock Option Plan (1)
10.7 Precept 1998 Stock Incentive Plan (1)
10.8 Credit Agreement and Line of Credit Note, dated as of July 1, 1997, between Precept Investors, Inc. and Wells
Fargo Bank (Texas), National Association (1)
10.9 First Amended and Restated Credit Agreement and Line of Credit Note, dated as of March 20, 1998, between Precept
Business Services, Inc. and Wells Fargo Bank (Texas), National Association (2)
11.1 Statement re Computation of U.S. Transportation Systems, Inc. Per Share Earnings (1)
</TABLE>
- ------------------------
(1) Previously filed as an exhibit to the Company's registration statement on
Form S-4 (file no. 333-42689) and incorporated herein by reference
(2) Filed herewith
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three months
ended December 31, 1997
15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
PRECEPT BUSINESS SERVICES, INC.
Date: March 26, 1998 By: /s/ David L. Neely
-----------------------------------------
David L. Neely
Chairman & Chief Executive Officer
/s/ Scott B. Walker
-----------------------------------------
Scott B. Walker
Senior Vice President &
Chief Financial Officer
16
<PAGE>
EXHIBIT 10.9
REVOLVING LINE OF CREDIT NOTE
$15, 000,000 Dallas, Texas
March 20, 1998
FOR VALUE RECEIVED, the undersigned PRECEPT BUSINESS SERVICES, INC.,
PRECEPT BUSINESS PRODUCTS, INC., PRECEPT TRANSPORTATION SERVICES OF TEXAS,
INC., WINGTIP COURIERS, INC., PRECEPT TRANSPORTATION SERVICES, L.L.C. AND
RELAY COURIERS, INC. (collectively, the "Borrowers") each promises to pay to
the order of WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION ("Bank") at its
office at 1445 Ross Avenue, Suite 300, Dallas, Texas, or at such other place
as the holder hereof may designate, in lawful money of the United States of
America and in immediately available funds, the principal sum of Fifteen
Million Dollars ($15,000,000.00), or so much thereof as may be advanced and
be outstanding, with interest thereon, to be computed on each advance from
the date of its disbursement as set forth herein.
DEFINITIONS:
As used here in, the following terms shall have the meanings set forth
after each, and any other term defined in this Note shall have the meaning
set forth at the place defined:
(a) "Business Day" means any day except a Saturday, Sunday or any other
day on which commercial banks in Texas are authorized or required by law to
close.
(b) "Fixed Rate Term" means a period commencing on a Business Day and
continuing for one (1), two (2) or three (3) months, as designated by
Borrower, during which all or a portion of the outstanding principal balance
of this Note bears interest determined in relation to LIBOR; provided
however, that no Fixed Rate Term may be selected for a principal amount less
than one hundred thousand Dollars ($100,000); and provided further, that no
Fixed Rate Term shall extend beyond the scheduled maturity date hereof. If
any Fixed Rate Term would end on a day which is not a Business Day, then such
Fixed Rate Term shall be extended to the next succeeding Business Day.
(c) "LIBOR" means the rate per annum (rounded upward, if necessary, to
the nearest whole 1/8 of 1%) and determined pursuant to the following formula:
LIBOR = Base LIBOR
-------------------------------
100% - LIBOR Reserve Percentage
(i) "Base LIBOR" means the rate per annum for United States dollar
deposits quoted by Bank as the Inter-Bank Market Offered Rate, with the
understanding that such rate is quoted by Bank for
<PAGE>
the purpose of calculating effective rates of interest for loans making
reference thereto, on the first day of a Fixed Rate Term for delivery of
funds on said date for a period of time approximately equal to the number of
days in such Fixed Rate Term and in an amount approximately equal to the
principal amount to which such Fixed Rate Term applies. Borrower understands
and agrees that Bank may base its quotation of the Inter-Bank Market Offered
Rate upon such offers or other market indicators of the Inter-Bank Market as
Bank in its discretion deems appropriate including, but not limited to, the
rate offered for U.S. dollar deposits on the London Inter-Bank Market.
(ii) "LIBOR Reserve Percentage" means the reserve percentage prescribed
by the Board of Governors of the Federal Reserve System (or any successor)
for "Eurocurrency Liabilities" (as defined in Regulation D of the Federal
Reserve Board, as amended), adjusted by Bank for expected changes in such
reserve percentage during the applicable Fixed Rate Term.
(d) "Prime Rate" means at any time the rate of interest most recently
announced within Bank at its principal office as its Prime Rate, with the
understanding that the Prime Rate is one of Bank's base rates and serves as
the basis upon which effective rates of interest are calculated for those
loans making reference thereto, and is evidenced by the recording thereof
after its announcement in such internal publication or publications as Bank
may designate.
INTEREST:
(a) INTEREST. The outstanding principal balance of this Note shall
bear interest (computed on the basis of a 360-day year, actual days elapsed,
unless such calculation would result in a usurious rate, in which case
interest shall be computed on the basis of a 365/366-day year, as the case
may be, actual days elapsed) at the lesser of (i) either (A) a fluctuating
rate per annum equal to the Prime Rate in effect from time to time, or (B) a
fixed rate per annum determined by Bank to be equal to the LIBOR Margin above
LIBOR in effect on the first day of the applicable Fixed Rate Term, or (ii)
the Maximum Rate. When interest is determined in relation to the Prime Rate,
each change in the rate of interest hereunder shall become effective on the
date each Prime Rate change is announced within Bank. With respect to each
LIBOR selection hereunder, Bank is hereby authorized to note the date,
principal amount, interest rate and Fixed Rate Term applicable thereto and
any payments made thereon on Bank's books and records (either manually or by
electronic entry) and/or on any schedule attached to this Note, which
notations shall be prima facie evidence of the accuracy of the information
noted.
-2-
<PAGE>
(b) SELECTION OF INTEREST RATE OPTIONS. At any time any portion of
this Note bears interest determined in relation to LIBOR, it may be continued
by Borrower at the end of the Fixed Rate Term applicable thereto so that all
or a portion thereof bears interest determined in relation to the Prime Rate
or to LIBOR for a new Fixed Rate Term designated by Borrower. At any time
any portion of this Note bears interest determined in relation to the Prime
Rate, Borrower may convert all or a portion thereof so that it bears interest
determined in relation to LIBOR for a Fixed Rate Term designated by Borrower.
At such time as Borrower requests an advance hereunder or wishes to select a
LIBOR option for all or a portion of the outstanding principal balance
hereof, and at the end of each Fixed Rate Term, Borrower shall give Bank
notice specifying: (i) the interest rate option selected by Borrower; (ii)
the principal amount subject thereto; and (iii) for each LIBOR selection, the
length of the applicable Fixed Rate Term. Any such notice may be given by
telephone so long as, with respect to each LIBOR selection, (A) Bank receives
written confirmation from Borrower not later than three (3) Business Days
after such telephone notice is given, and (B) such notice is given to Bank
prior to 10:00 a.m., California time, on the first day of the Fixed Rate
Term. For each LIBOR option requested hereunder, Bank will quote the
applicable fixed rate to Borrower at approximately 10:00 a.m.,California
time, on the first day of the Fixed Rate Term. If Borrower does not
immediately accept the rate quoted by Bank, any subsequent acceptance by
Borrower shall be subject to a redetermination by Bank of the applicable
fixed rate; provided however, that if Borrower fails to accept any such rate
by 11:00 a.m., California time, on the Business Day such quotation is given,
then the quoted rate shall expire and Bank shall have no obligation to permit
a LIBOR option to be selected on such day. If no specific designation of
interest is made at the time any advance is requested hereunder or at the end
of any Fixed Rate Term, Borrower shall be deemed to have made a Prime Rate
interest selection for such advance or the principal amount to which such
Fixed Rate Term applied.
(c) ADDITIONAL LIBOR PROVISIONS.
(i) If Bank at any time shall determine that for any reason adequate
and reasonable means do not exist for ascertaining LIBOR, then Bank shall
promptly give notice thereof to Borrower. If such notice is given and until
such notice has been withdrawn by Bank, then (A) no new LIBOR option may be
selected by Borrower, and (B) any portion of the outstanding principal
balance hereof which bears interest determined in relation to LIBOR,
subsequent to the end of the Fixed Rate Term applicable thereto, shall bear
interest determined in relation to the Prime Rate.
-3-
<PAGE>
(ii) If any law, treaty, rule, regulation or determination of a court
or governmental authority or any change therein or in the interpretation or
application thereof (each, a "Change in Law") shall make it unlawful for Bank
(A) to make LIBOR options available hereunder, or (B) to maintain interest
rates based on LIBOR, then in the former event, any obligation of Bank to
make available such unlawful LIBOR options shall immediately be cancelled,
and in the latter event, any such unlawful LIBOR-based interest rates then
outstanding shall be converted, at Bank's option, so that interest on the
portion of the outstanding principal balance subject thereto is determined in
relation to the Prime Rate; provided however, that if any such Change in Law
shall permit any LIBOR-based interest rates to remain in effect until the
expiration of the Fixed Rate Term applicable thereto, then such permitted
LIBOR-based interest rates shall continue in effect until the expiration of
such Fixed Rate Term. Upon the occurrence of any of the foregoing events,
Borrower shall pay to Bank immediately upon demand such amounts as may be
necessary to compensate Bank for any fines, fees, charges, penalties or other
costs incurred or payable by Bank as a result thereof and which are
attributable to any LIBOR options made available to Borrower hereunder, and
any reasonable allocation made by Bank among its operations shall be
conclusive and binding upon Borrower.
(iii) If any Change in Law or compliance by Bank with any request or
directive (whether or not having the force of law) from any central bank or
other governmental authority shall:
(A) subject Bank to any tax,-duty or other charge with respect to, any
LIBOR options, or change the basis of taxation of payments to Bank
of principal, interest, fees or any other amount payable hereunder
(except for changes in the rate of tax on the overall net income of
Bank); or
(B) impose, modify or hold applicable any reserve, special deposit,
compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances or
loans by, or any other acquisition of funds by any office of Bank; or
(C) impose on Bank any other condition;
and the result of any of the foregoing is to increase the cost to Bank of
making, renewing or maintaining any LIBOR options hereunder and/or to reduce
any amount receivable by Bank in connection therewith, then in any such case,
Borrower shall pay to Bank immediately upon demand such amounts as may be
necessary to compensate Bank for any additional costs incurred by Bank and/or
reductions in amounts received by Bank which are attributable to such LIBOR
options. In determining which costs incurred by Bank and/or reductions in
amounts received by Bank
-4-
<PAGE>
are attributable to any LIBOR options made available to Borrower hereunder,
any reasonable allocation made by Bank among its operations shall be
conclusive and binding upon Borrower.
(d) PAYMENT OF INTEREST. Interest accrued on this Note shall be
payable on the first day of each month, commencing April 1, 1998.
(e) DETERMINATION OF LIBOR MARGIN. The "LIBOR Margin" shall be
determined as of the first day of each month according to the following grid:
<TABLE>
SENIOR FUNDED DEBT TO LIBOR
EBITDA RATIO MARGIN
<S> <C>
LESS THAN 2.00 to 1.00 1.75%
GREATER THAN OR EQUAL TO 2.00 to 1.00 and LESS THAN 3.00 to 1.00 2.25%
GREATER THAN OR EQUAL TO 3.00 to 1.00 and LESS THAN 4.00 to 1.00 2.50%
GREATER THAN OR EQUAL TO 4.00 to 1.00 2.75%
</TABLE>
The Bank shall make such determination based on the financial
information submitted by the Borrower to the Bank for the calendar month
preceding each month. Each change in the rate of interest under this Note
based on a change in the Applicable Prime Rate Margin or LIBOR Margin shall
be effective on the first day of the next calendar month.
From the date hereof until April 1, 1998, the LIBOR Margin shall be two
and one-half percent (2.50%)
As used herein, "Senior Funded Debt to EBITDA Ratio" shall mean the
ratio of "Senior Funded Debt" to "EBITDA", with "Senior Funded Debt" defined
as total funded unsubordinated indebtedness, according to GAAP and including
capital leases, but excluding any indebtedness and capital leases of U.S.
Trucking, Inc., of Borrowers, and "EBITDA" defined as (a) net income, after
income taxes, determined in conformity with GAAP; plus (b) income taxes
deducted in determining net income; plus (c) interest expense deducted in
determining net income; plus (d) amortization and depreciation expenses
deducted in determining net income; plus (e) other non-cash charges
(excluding accruals in the normal course of business), deducted in
determining net income.
BORROWING AND REPAYMENT:
(a) BORROWING AND REPAYMENT. Borrower may from time to time during the
term of this Note borrow, partially or wholly repay its outstanding
borrowings, and reborrow, subject to all of
-5-
<PAGE>
the limitations, terms and conditions of this Note and of any document
executed in connection with or governing this Note; provided however, that
the total outstanding borrowings under this Note shall not at any time exceed
the principal amount stated above. The unpaid principal balance of this
obligation at any time shall be the total amounts advanced hereunder by the
holder hereof less the amount of principal payments made hereon by or for any
Borrower, which balance may be endorsed hereon from time to time by the
holder. The outstanding principal balance of this Note shall be due and
payable in full on June 30, 2000.
(b) ADVANCES. Advances hereunder, to the total amount of the principal
sum stated above, may be made by the holder at the oral or written request of
(i) Scott Walker or Stuart Walker, any one acting alone, who are authorized
to request advances and direct the disposition of any advances until written
notice of the revocation of such authority is received by the holder at the
office designated above, or (ii) any person, with respect; to advances
deposited to the credit of any account of any Borrower with the holder, which
advances, when so deposited, shall be conclusively presumed to have been made
to or for the benefit of each Borrower regardless of the fact that persons
other than those authorized to request advances may have authority to draw
against such account. The holder shall have no obligation to determine
whether any person requesting an advance is or has been authorized by any
Borrower.
(c) APPLICATION OF PAYMENTS. Each payment made on this Note shall be
credited first, to any interest then due and second, to the outstanding
principal balance hereof. All payments credited to principal shall be
applied first, to the outstanding principal balance of this Note which bears
interest determined in relation to the Prime Rate, if any, and second, to the
outstanding principal balance of this Note which bears interest determined in
relation to LIBOR, with such payments applied to the oldest Fixed Rate Term
first.
PREPAYMENT:
(a) PRIME RATE. Borrower may prepay principal on any portion of this
Note which bears interest determined in relation to the Prime Rate at any
time, in any amount and without penalty.
(b) LIBOR. Borrower may prepay principal on any portion of this Note
which bears interest determined in relation to LIBOR at any time and in the
minimum amount of one hundred thousand Dollars ($100,000); provided however,
that if the outstanding principal balance of such portion of this Note is
less than said amount, the minimum prepayment amount shall be the entire
outstanding principal balance thereof. In consideration of Bank providing
this prepayment option to Borrower, or if any such portion of this Note shall
become due and payable at any time
-6-
<PAGE>
prior to the last day of the Fixed Rate Term applicable thereto, Borrower
shall pay to Bank immediately upon demand a fee which is the sum of the
discounted monthly differences for each month from the month of prepayment
through the month in which such Fixed Rate Term matures; calculated as
follows for each such month:
(i) DETERMINE the amount of interest which would have accrued each month
on the amount prepaid at the interest rate applicable to such amount
had it remained outstanding until the last day of the Fixed Rate
Term applicable thereto.
(ii) SUBTRACT from the amount determined in (i) above the amount of
interest which would have accrued for the same month on the amount
prepaid for the remaining term of such Fixed Rate Term at LIBOR
in effect on the date of prepayment for new loans made for such
term and in a principal amount equal to the amount prepaid.
(iii) If the result obtained in (ii) for any month is greater than zero,
discount that difference by LIBOR used in (ii) above.
Each Borrower acknowledges that prepayment of such amount may result in Bank
incurring additional costs, expenses and/or liabilities, and that it is
difficult to ascertain the full extent of such costs, expenses and/or
liabilities. Each Borrower, therefore, agrees to pay the above-described
prepayment fee and agrees that said amount represents a reasonable estimate
of the prepayment costs, expenses and/or liabilities of Bank.
EVENTS OF DEFAULT:
This Note is made pursuant to and is subject to the terms and conditions
of that certain First Amended and Restated Credit Agreement between Borrower
and Bank dated as of March 20, 1998, as amended from time to time (the
"Credit Agreement") . Any default in the payment or performance of any
obligation under this Note, or any defined event of default under the Credit
Agreement, shall constitute an "Event of Default" under this Note.
MISCELLANEOUS:
(a) REMEDIES. Upon the sale, transfer, hypothecation, assignment or
other encumbrance, whether voluntary, involuntary or by operation of law, of
all or any interest in any real property securing this Note, or upon the
occurrence of any Event of Default, the holder of this Note, at the holder's
option, may declare all sums of principal and accrued and unpaid interest
outstanding hereunder to be immediately due and payable without presentment,
demand, or any notices of any kind, including
-7-
<PAGE>
without limitation notice of nonperformance, notice of protest, protest,
notice of dishonor, notice of intention to accelerate or notice of
acceleration, all of which are expressly waived by each Borrower, and the
obligation, if any, of the holder to extend any further credit hereunder
shall immediately cease and terminate. Each Borrower shall pay to the holder
immediately upon demand the full amount of all reasonable payments, advances,
charges, costs and expenses, including reasonable attorneys' fees (to include
outside counsel fees and all allocated costs of the holder's in-house counsel
to the extent permissible), expended or incurred by the holder in connection
with the enforcement of the holder's rights and/or the collection of any
amounts which become due to the holder under this Note, and the prosecution
or defense of any action in any way related to this Note, including without
limitation, any action for declaratory relief, whether incurred at the trial
or appellate level, in an arbitration proceeding or otherwise, and including
any of the foregoing incurred in connection with any bankruptcy proceeding
(including without limitation, any adversary proceeding, contested matter or
motion brought by Bank or any other person) relating to any Borrower or any
other person or entity.
(b) OBLIGATIONS JOINT AND SEVERAL. Should more than one person or
entity sign this Note as a Borrower, the obligations of each such Borrower
shall be joint and several.
(c) GOVERNING LAW. This Note shall be governed by and construed in
accordance with the laws of the State of Texas.
(d) SAVINGS CLAUSE. It is the intention of the parties to comply
strictly with-applicable usury laws. Accordingly, notwithstanding any
provision to the contrary in this Note, or in any contract, instrument or
document evidencing or securing the payment hereof or otherwise relating
hereto (each, a "Related Document"), in no event shall this Note or any
Related Document require the payment or permit the payment, taking,
reserving, receiving, collection or charging of any sums constituting
interest under applicable laws that exceed the maximum amount permitted by
such laws, as the same may be amended or modified from time to time (the
"Maximum Rate") . If any such excess interest is called for, contracted for,
charged, taken, reserved or perceived in connection with this Note or any
Related Document, or in any communication by Bank or any other person to
Borrower or any other person, or in the event that all or part of the
principal or interest hereof or thereof shall be prepaid or accelerated, so
that under any of such circumstances or under any other circumstance
whatsoever the amount of interest contracted for, charged, taken, reserved or
received on the amount of principal actually outstanding from time to time
under this Note shall exceed the Maximum Rate, then in such event it is
agreed that: (i) the provisions of this paragraph shall govern and control;
(ii) neither Borrower nor any other person or entity now
-8-
<PAGE>
or hereafter liable for the payment of this Note or any Related Document
shall be obligated to pay the amount of such interest to the extent it is in
excess of the Maximum Rate; (iii) any such excess interest which is or has
been received by Bank, notwithstanding this paragraph, shall be credited
against the then unpaid principal balance hereof or thereof, or if this Note
or any Related Document has been or would be paid in full by such credit,
refunded to Borrower; and (iv) the provisions of this Note and each Related
Document, and any other communication to Borrower, shall immediately be
deemed reformed and such excess interest reduced, without the necessity of
executing any other document, to the Maximum Rate. The right to accelerate
the maturity of this Note or any Related Document does not include the right
to accelerate, collect or charge unearned interest, but only such interest
that has otherwise accrued as of the date of acceleration. Without limiting
the foregoing, all calculations of the rate of interest contracted for,
charged, taken, reserved or received in connection with this Note and any
Related Document which are made for the purpose of determining whether such
rate exceeds the Maximum Rate shall be made to the extent permitted by
applicable laws by amortizing, prorating, allocating and spreading during the
period of the full term of this Note or such Related Document, including all
prior and subsequent renewals and extensions hereof or thereof, all interest
at any time contracted for, charged, taken, reserved or received by Bank.
The terms of this paragraph shall be deemed to be incorporated into each
Related Document.
To the extent that Chapter 1D of Article 5069 of the Texas Revised Civil
Statutes is relevant to Bank for the purpose of determining the Maximum Rate,
Bank hereby elects to determine the applicable rate ceiling under such
Article by the weekly rate ceiling from time to time in effect, subject to
Bank's right subsequently to change such method in accordance with applicable
law, as the same may be amended or modified from time to time.
(e) RIGHT OF SETOFF; DEPOSIT ACCOUNTS. Upon and after the occurrence
of an Event of Default except under Section 6.1 (d), (i) Borrower hereby
authorizes Bank, at any time and from time to time, without prior notice,
which is hereby expressly waived by Borrower, and whether or not Bank shall
have declared this Note to be due and payable in accordance with the terms
hereof, to set off against, and to appropriate and apply to the payment of,
Borrower's obligations and liabilities under this Note (whether matured or
unmatured, fixed or contingent, liquidated or unliquidated), any and all
amounts owing by Bank to Borrower (whether payable in U.S. dollars or any
other currency, whether matured or unmatured, and in the case of deposits,
whether general or special (except trust and escrow accounts), time or demand
and however evidenced), and (ii) pending any such action, to the extent
necessary, to hold such amounts as collateral to secure such obligations and
liabilities and to return as unpaid
-9-
<PAGE>
for insufficient funds any and all checks and other items drawn against any
deposits so held as Bank, in its sole discretion, may elect. Bank agrees to
provide notice to Borrower of any action taken by- Bank under this paragraph
(e) within 3 business days. Borrower' hereby grants to Bank a security
interest in all deposits and accounts maintained with Bank and with any other
financial institution to secure the payment of all obligations and
liabilities of Borrower to Bank under this Note.
(f) BUSINESS PURPOSE. Borrower represents and warrants that all
loans evidenced by this Note are for a business, commercial, investment,
agricultural or other similar purpose and not primarily for a personal,
family or household use.
(g) CERTAIN TRI-PARTY ACCOUNTS. Borrower and Bank agree that Chapter
346 of the Texas Finance Code (which regulates certain revolving credit loan
accounts and revolving triparty accounts) shall not apply to any revolving
loan accounts treated under this Note or maintained in connection herewith.
NOTICE: THIS NOTE AND ALL OTHER DOCUMENTS RELATING TO THE INDEBTEDNESS
EVIDENCED HEREBY CONSTITUTE A WRITTEN LOAN AGREEMENT WHICH REPRESENTS THE
FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE
OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES RELATING TO THIS
NOTE AND THE INDEBTEDNESS EVIDENCED HEREBY.
IN WITNESS WHEREOF, the undersigned has executed this Note as of the
date first written above.
PRECEPT BUSINESS SERVICES, INC. WINGTIP COURIERS, INC
By: /s/ SCOTT B. WALKER By: /s/ SCOTT B. WALKER
--------------------------- -------------------------
Title: SVP & CFO Title: SVP & CFO
------------------------ ----------------------
PRECEPT TRANSPORTATION PRECEPT TRANSPORTATION
SERVICES OF TEXAS, INC. SERVICES, L.L.C.
By: /s/ SCOTT B. WALKER By: Precept Business Services,
--------------------------- Inc., Member
Title: SVP & CFO
----------------------- By: /s/ SCOTT B. WALKER
---------------------
Title: SVP & CFO
------------------
PRECEPT BUSINESS PRODUCTS, INC. RELAY COURIERS, INC.
By: /s/ SCOTT B. WALKER By: /s/ SCOTT B. WALKER
--------------------------- --------------------------
Title: SVP & CFO TITLE: SVP & CFO
------------------------ -----------------------
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<PAGE>
EXHIBIT 10.9
FIRST AMENDED AND RESTATED CREDIT AGREEMENT
THIS FIRST AMENDED AND RESTATED CREDIT AGREEMENT is entered into as of
March 20, 1998, by and between Precept Business Services, Inc. (formerly
known as Precept Investors, Inc.), a Texas corporation ("PBS"), Precept
Business Products, Inc., a Delaware corporation ("PBI") , Wingtip Couriers,
Inc., a Texas corporation ("Wingtip"), Precept Transportation Services of
Texas, Inc. (formerly known as LSL Acquisition Corporation), a Texas
corporation ("PTST"), Precept Transportation Services, L.L.C. ("PLLC"), a
Nevada limited liability company, and Relay Couriers, Inc., a Texas
corporation ("Relay"), (PBS, PBI, Wingtip, PTST, PLLC and Relay are
individually hereinafter referred to as a "Borrower" and collectively as the
"Borrowers"), and WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION ("Bank").
RECITALS
Bank and Precept Investors, Inc., PBI, Wingtip and LSL Acquisition
Corporation have previously entered into a Credit Agreement, dated as of July
1, 1997 (the "Original Agreement") pursuant to which Bank extended certain
credit accommodations described therein.
Precept Investors, Inc. has changed its name to Precept Business
Services, Inc. and LSL Acquisition Corporation has changed its name to
Precept Transportation Services of Texas, Inc.
PBS, PBI, Wingtip and PTST have requested Bank to make certain
amendments to the Original Agreement. Borrowers have requested from Bank the
credit accommodations described below (each, a "Credit" and collectively, the
"Credits"), and Bank has agreed to provide the Credits to Borrowers on the
terms and conditions contained herein.
NOW, THEREFORE, for valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Bank and each Borrower hereby agree that
the Original Agreement is hereby amended and restated in its entirety as
follows:
ARTICLE I
THE CREDITS
SECTION 1.1. LINE OF CREDIT.
(a) LINE OF CREDIT. Subject to the terms and conditions of this
Agreement, Bank hereby agrees to make advances to Borrowers from time to time
up to and including March 31, 2001, not to exceed at any time the aggregate
principal amount of Fifteen Million Dollars ($15,000,000.00) LESS the
original principal
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amount of the Term Loan ("Line of Credit"), the proceeds of which shall be
used for working capital and acquisitions. Borrower's obligation to repay
advances under the Line of Credit shall be evidenced by a promissory note
substantially in the form of Exhibit A attached hereto ("Line of Credit
Note"), all terms of which are incorporated herein by this reference;
provided, that in the event the Term Loan is made by Bank to Borrowers
pursuant to the terms of this Agreement, the maximum aggregate principal
amount of the Line of Credit shall automatically be reduced to $15,000,000
less the original principal amount of the Term Loan.
(b) LIMITATION ON BORROWINGS. Outstanding borrowings under the Line of
Credit**to a maximum of the principal amount set forth above, shall not at
any time exceed an aggregate of eighty percent (80%) of the aggregate amount
of eligible accounts receivable of PBI, Wingtip, Relay, PTST, PLLC, Shortway
River Rouge, Inc., Jetport Express, Inc. and Transportation Systems
Corporation, Inc., PLUS thirty percent (30%) of the value of eligible
inventory of the Borrowers, (exclusive of work in process and inventory which
is obsolete, unsaleable or damaged), with value defined as fair market value;
provided however, that outstanding borrowings against Borrowers' inventory
shall not at any time exceed an aggregate of Five Million Dollars
($5,000,000.00); plus twenty-five percent (25%) of the net fixed assets (as
defined by generally accepted accounting principles) of Borrowers; provided
however that outstanding borrowings against net fixed assets shall not at any
time exceed an aggregate of One Million Dollars ($1,000,000.00) . All of the
foregoing shall be determined by Bank upon receipt and review of all
collateral reports required hereunder and such other documents and collateral
information as Bank may from time to time require. Borrowers acknowledge that
said borrowing base was established by Bank with the assumption that, among
other items, the aggregate of all returns, rebates, discounts, credits and
allowances for the three (3) months immediately preceding any date of
determination shall at all times be less than five percent (5%) of Borrower's
gross sales for said period. If such dilution of Borrower's accounts for the
immediately preceding three (3) months at any time exceeds five percent (5%)
of Borrower's gross sales for said period, Bank, in its sole discretion, may
reduce the foregoing advance rate against eligible accounts receivable to a
percentage appropriate to reflect such additional dilution and/or establish
additional reserves against Borrower's eligible accounts receivable;
provided, however, that the Bank shall make no such reduction in excess of
twenty-five percent (25%) of the then existing advance rate during any 90-day
period.
As used herein, "eligible accounts receivable" shall consist solely of
trade accounts created in the ordinary course of Borrower's business, upon
which Borrower's right to receive payment is absolute and not contingent upon
the fulfillment of
** except for the amount of any undrawn Letter or Letters of Credit issued
pursuant to paragraph (c) hereof
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any condition whatsoever, and in which Bank has a perfected security interest
of first priority, and shall not include:
(i) any account which is more than sixty (60) days pasT due
(ii) that portion of any account for which there exists any right
of setoff, defense or discount (except regular discounts allowed in the
ordinary course of business to promote prompt payment) or for which any
defense or counterclaim has been asserted;
(iii) any account which represents an obligation of any state or
municipal government or of the United States government or any political
subdivision thereof (except accounts which represent obligations of the
United States government and for which Bank's forms N-138 and N-139 have
been duly executed and acknowledged);
(iv) any account which represents an obligation of an account debtor
located in a foreign country;
(v) any account which arises from the sale or lease to or
performance of services for, or represents an obligation of, an employee,
affiliate, partner, member, parent or subsidiary of any Borrower;
(vi) that portion of any account which represents interim or
progress billings or retention rights on the part of the account debtor;
(vii) any account which represents an obligation of any account
debtor when twenty percent (20%) or more of Borrowers' accounts from such
account debtor are not eligible pursuant to (i) above;
(viii) that portion of any account from an account debtor which
represents the amount by which Borrower's total accounts from said account
debtor exceeds twenty-five percent (25%) of Borrowers' total accounts;
(ix) any account deemed ineligible by Bank when Bank, in its sole
discretion, deems the creditworthiness or financial condition of the
account debtor, or the industry in which the account debtor is engaged,
to be unsatisfactory.
Notwithstanding anything in this Section 1.1(b) to the contrary, from
the date hereof, to and including May 31, 1998, the limitation on borrowings
pursuant to this Section 1.1(b) shall be increased by $2,000,000.00.
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(c) LETTER OF CREDIT SUBFEATURE. As a subfeature under the Line of
Credit, Bank agrees from time to time during the term thereof to issue
standby letters of credit for the account of Borrower (each, a "Letter of
Credit" and collectively, "Letters of Credit"); provided however, that the
form and substance of each Letter of Credit shall be subject to approval by
Bank, in its sole discretion; and provided further, that the aggregate
undrawn amount of all outstanding Letters of Credit shall not at any time
exceed One Million Dollars ($1,000,000.00). Each Letter of Credit shall be
issued for a term not to exceed seven hundred-twenty (720) days, as
designated by Borrower; provided however, that no Letter of Credit shall have
an expiration date subsequent to the maturity date of the Line of Credit.
The undrawn amount of all Letters of Credit shall be reserved under the Line
of Credit and shall not be available for borrowings thereunder. Each Letter
of Credit shall be subject to the additional terms and conditions of the
Letter of Credit Agreement and related documents, if any, required by Bank in
connection with the issuance thereof (each, a "Letter of Credit Agreement"
and collectively, "Letter of Credit Agreements") . Each draft paid by Bank
under a Letter of Credit shall be deemed an advance under the Line of Credit
and shall be repaid by Borrower in accordance with the terms and conditions
of this Agreement applicable to such advances; provided however, that if
advances under the Line of Credit are not available, for any reason, at the
time any draft is paid by Bank, then Borrower shall immediately pay to Bank
the full amount of such draft, together with interest thereon from the date
such amount is paid by Bank to the date such amount is fully repaid by
Borrower, at the rate of interest applicable to advances under the Line of
Credit. In such event Borrower agrees that' Bank, in its sole discretion,
may debit any demand deposit account maintained by Borrower with Bank for the
amount of any such draft.
(d) BORROWING AND REPAYMENT. Borrowers may from time to time during
the term of the Line of Credit borrow, partially or wholly repay its
outstanding borrowings, and reborrow, subject to all of the limitations,
terms and conditions contained herein or in the Line of Credit Note; provided
however, that the total outstanding borrowings under the Line of Credit shall
not at any time exceed the maximum principal amount available thereunder, as
set forth above.
SECTION 1.2. TERM LOAN.
(a) TERM LOAN. Subject to the terms and conditions of this Agreement,
Bank hereby agrees to make a loan to Borrowers in the aggregate principal
amount not to exceed Four Million Dollars ($4,000,000.00) ("Term Loan"), the
proceeds of which shall be used to refinance a portion of the Line Of Credit.
Borrower's obligation to repay the Term Loan shall be evidenced by a
promissory note substantially in the form of Exhibit B attached
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hereto ("Term Note" and together with the Line of Credit Note, the "Notes"),
all terms of which are incorporated herein by this reference. Bank's
commitment to grant the Term Loan shall terminate on March 15, 2001.
The right of the Borrowers to convert a portion of the Line of Credit to
the Term Loan may be exercised only once and is subject to the conditions of
Section 3.3 of this Agreement.
Upon the conversion of a portion of the Line of Credit to a Term Loan,
Bank shall surrender to Borrowers the Line of Credit Note in exchange for a
replacement Line of Credit Note substantially in the form of the promissory
note attached hereto as Exhibit A, except that the stated principal amount
shall be $15,000,000 less the original principal amount of the Term Loan.
(b) REPAYMENT. The principal amount of the Term Loan shall be repaid
in accordance with the provisions of the Term Note. In completing the blanks
in the Term Note on its issuance, the principal amount of the Term Note shall
be amortized over five (5) years, and principal shall be payable in equal
successive installments over said amortization term.
(c) PREPAYMENT. Borrowers may prepay principal on the Term Loan solely
in accordance with the provisions of the Term Note.
SECTION 1.3. INTEREST/FEES.
(a) INTEREST. The outstanding principal balance of the Line of Credit
shall bear interest at the rate of interest set forth in the Line of Credit
Note.
(b) COMMITMENT FEE. Borrowers shall pay to Bank a non-refundable
commitment fee for the Line of Credit equal to $25,000 which fee shall be due
and payable in full on the original execution of the Loan Documents.
(c) UNUSED COMMITMENT FEE. Borrowers shall pay to Bank a fee equal to
one fourth percent (0.25%) per annum (computed on the basis of a 360-day
year, actual days elapsed) on the average daily unused amount of the Line of
Credit, which fee shall be calculated on a quarterly basis by Bank and shall
be due and payable by Borrowers in arrears within ten (10) days after each
quarterly billing is sent by Bank. From and after the date that the Term Loan
is made pursuant to the terms of this Agreement, the unused commitment fee
shall be calculated on the basis that the maximum amount of the Line of
Credit is $15,000,000 less the original principal amount of the Term Loan.
(d) LETTER OF CREDIT FEES. Borrower shall pay to Bank (i) fees upon
the issuance of each Letter of Credit equal to one and one quarter percent
(1.25%) per annum (computed on the basis
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of a 360-day year, actual days elapsed) of the face amount thereof, and (ii)
fees upon the payment or negotiation by Bank of each draft under any Letter
of Credit and fees upon the occurrence of any other activity with respect to
any Letter of Credit including without limitation, the transfer, amendment or
cancellation of any Letter of Credit) determined in accordance with Bank's
standard fees and charges then in effect for such activity.
SECTION 1.4. COLLECTION OF PAYMENTS. Borrowers authorize Bank to
collect all interest and fees due under each Credit by charging Borrower's
demand deposit account number 4439-824194 with Bank for the full amount
thereof. Should there be insufficient funds in any such demand deposit
account to pay all such sums when due, the full amount of such deficiency
shall be immediately due and payable by Borrowers.
SECTION 1.5. COLLATERAL.
As security for all indebtedness of Borrowers to Bank subject hereto,
PBS, PBI, PTST, PLLC and Relay each hereby grants to Bank security interests
of first priority in all of their respective accounts receivable, general
intangibles and other rights to payment. In addition, PBI hereby grants to
Bank a security interest of first priority in all of its inventory and
equipment. In addition, Borrowers shall cause Jetport Express, Inc.,
Shortway River Rouge, Inc. and Transportation Systems Corporation to grant
security interests of first priority in all of their respective accounts
receivables, general intangibles and other rights to payment and equipment as
security for all indebtedness of Borrowers to Bank.
All of the foregoing shall be evidenced by and subject to the terms of
such security agreements, financing statements, deeds of trust and other
documents as Bank shall reasonably require, all in form and substance
satisfactory to Bank. Borrowers shall reimburse Bank immediately upon demand
for all costs and expenses incurred by Bank in connection with any of the
foregoing security, including without limitation, filing and recording fees
and costs of appraisals, audits and title insurance.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Each Borrower makes the following representations and warranties to
Bank, which representations and warranties shall survive the execution of
this Agreement and shall continue in full force and effect until the full and
final payment, and satisfaction and discharge, of all obligations of all
Borrowers to Bank subject to this Agreement.
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SECTION 2.1. LEGAL STATUS. Each Borrower, except PLLC, is a
corporation duly organized, validly existing, and in good standing under the
laws of its jurisdiction of incorporation. PLLC is a limited liability
company duly organized, validly existing, and in good standing under the laws
of its jurisdiction of incorporation. Each Borrower is qualified or licensed
to do business (and is in good standing as a foreign corporation, if
applicable) in all jurisdictions in which such qualification or licensing is
required or in which the failure to so qualify or to be so licensed could
have a material adverse effect on such Borrower.
SECTION 2.2. AUTHORIZATION AND VALIDITY. This Agreement, the Notes,
and each other document, contract and instrument required hereby or at any
time hereafter delivered to Bank in connection herewith (collectively, the
"Loan Documents") have been duly authorized, and upon their execution and
delivery in accordance with the provisions hereof will constitute legal,
valid and binding agreements and obligations of each Borrower or the party
which executes the same, enforceable in accordance with their respective
terms.
SECTION 2.3. NO VIOLATION. The execution, delivery and performance by
Borrowers of each of the Loan Documents do not violate any provision of any
law or regulation, or contravene any provision of the Articles of
Incorporation or By-Laws and Articles of Organization or Operating Agreement
of any Borrower, as applicable, or result in any breach of or default under
any material contract, obligation, indenture or other instrument to which any
Borrower is a party or by which any Borrower may be bound.
SECTION 2.4. LITIGATION. There are no pending, or to the best of any
Borrower's knowledge threatened, actions, claims, investigations, suits or
proceedings by or before any governmental authority, arbitrator, court or
administrative agency which could have a material adverse effect on the
financial condition or operation of any Borrower other than those disclosed
by Borrowers to Bank in writing prior to the date hereof.
SECTION 2.5. CORRECTNESS OF FINANCIAL STATEMENT. Each of (a) the
audited financial statement of PBS dated June 30, 1997, and (b) the interim
unaudited consolidated financial statement of PBS dated January 31, 1998 (i)
presents fairly the financial condition of Borrowers, (ii) discloses all
liabilities of Borrowers that are required to be reflected or reserved
against under generally accepted accounting principles, whether liquidated or
unliquidated, fixed or contingent, and (iii) has been prepared in accordance
with generally accepted accounting principles ("GAAP") consistently applied
(it being understood that all interim statements are subject to year end
audit
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adjustments and are not required to have footnote disclosures) A true copy of
each such statement has been delivered to Bank prior to the date hereof.
Since the date of such financial statement there has been no material adverse
change in the financial condition of any Borrower, except as has been
previously disclosed to Bank in writing, nor has any Borrower mortgaged,
pledged, granted a security interest in or otherwise encumbered any of its
assets or properties except in favor of Bank or as otherwise permitted by
Bank in writing.
SECTION 2.6. INCOME TAX RETURNS. No Borrower has any knowledge of any
pending assessments or adjustments of its respective income tax payable with
respect to any year.
SECTION 2.7. NO SUBORDINATION. There is no agreement, indenture,
contract or instrument to which any Borrower is a party or by which any
Borrower may be bound that requires the subordination in right of payment of
any of Borrower's obligations subject to this Agreement to any other
obligation of such Borrower.
SECTION 2.8. PERMITS, FRANCHISES. Each Borrower possesses, and will
hereafter possess, all permits, consents, approvals, franchises and licenses
required and rights to all trademarks, trade names, patents, and fictitious
names, if any, the absence of which could have a material adverse effect on
the ability of such Borrower to conduct the business in which it is now
engaged in compliance with applicable law.
SECTION 2.9. ERISA. Each Borrower is in compliance in all material
respects with all applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended or recodified from time to time ("ERISA");
no Borrower has violated any provision of any defined employee pension
benefit plan (as defined in ERISA) maintained or contributed to by any such
Borrower (each, a "Plan"); no Reportable Event as defined in ERISA has
occurred and is continuing with respect to any Plan initiated by any
Borrower; each Borrower has met its minimum funding requirements under ERISA
with respect to each Plan; and each Plan will be able to fulfill its benefit
obligations as they come due in accordance with the Plan documents and under
generally accepted accounting principles.
SECTION 2.10. OTHER OBLIGATIONS. No Borrower is in default on any
obligation for borrowed money, any purchase money obligation or any other
material lease, commitment, contract, instrument or obligation.
SECTION 2.11. ENVIRONMENTAL MATTERS. Except as disclosed by Borrowers
to Bank in writing prior to the date hereof, each Borrower is in compliance
in all material respects with all applicable federal or state environmental,
hazardous waste,
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health and safety statutes, and any rules or regulations adopted pursuant
thereto, which govern or affect any of such Borrower's operations and/or
properties, including without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, the Superfund Amendments
and Reauthorization Act of 1986, the Federal Resource Conservation and
Recovery Act of 1976, and the Federal Toxic Substances Control Act, as any of
the same may be amended, modified or supplemented from time to time. None of
the operations of any Borrower is the subject of any federal or state
investigation evaluating whether any remedial action involving a material
expenditure is needed to respond to a release of any toxic or hazardous waste
or substance into the environment. No Borrower has a material contingent
liability in connection with any release of any toxic or hazardous waste or
substance into the environment.
ARTICLE III
CONDITIONS
SECTION 3.1. CONDITIONS OF INITIAL EXTENSION OF CREDIT. The obligation
of Bank to grant any of the Credits is subject to the fulfillment to Bank's
satisfaction of all of the following conditions:
(a) APPROVAL OF BANK COUNSEL. All legal matters incidental to the
granting of each of the Credits shall be satisfactory to Bank's counsel.
(b) DOCUMENTATION. Bank shall have received, in form and substance
satisfactory to Bank, each of the following, duly executed:
(i) This Agreement and the Notes;
(ii) Corporate Borrowing Resolution and Certificate of Incumbency for
Precept Business Services, Inc.;
(iii) Corporate Borrowing Resolution and Certificate of Incumbency for
Precept Business Products, Inc.;
(iv) Corporate Borrowing Resolution and Certificate of Incumbency for
Wingtip Couriers, Inc.;
(v) Corporate Borrowing Resolution and Certificate of Incumbency for
Precept Transportation Services of Texas, Inc.;
(vi) Limited Liability Company Borrowing Certificate and Certificate of
Incumbency for Precept Transportation Services of Texas, L.L.C.;
(vii) Corporate Borrowing Resolution and Certificate of Incumbency for Relay
Couriers, Inc.;
(viii) Corporate Resolution: Pledge of Assets and Certificate of Incumbency
for Jetport Express, Inc.;
(ix) Corporate Resolution: Pledge of Assets and Certificate of Incumbency
for Shortway River Rouge, Inc.;
(x) Corporate Resolution: Pledge of Assets and Certificate of Incumbency
for Transportation Systems Corporation;
(xi) Third Party Security Agreement: Rights to Payment for Jetport Express,
Inc.;
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(xii) Third Party Security Agreement: Equipment for Jetport Express, Inc.;
(xiii) Third Party Security Agreement: Rights to Payment for Shortway River
Rouge, Inc.;
(xiv) Third Party Security Agreement: Equipment for Shortway River Rouge,
Inc.;
(xv) Third Party Security Agreement: Rights to Payment for Transportation
Systems Corporation.;
(xvi) Third Party Security Agreement: Equipment for Transportation Systems
Corporation.;
(xvii) Security Agreement: Rights to Payment for Precept Transportation
Services of Texas, Inc.;
(xviii) Security Agreement: Rights to Payment for Precept Transportation
Services, L.L.C.;
(xix) Security Agreement: Rights to Payment & Inventory for Precept Business
Products, Inc.;
(xx) Security Agreement: Equipment for Precept Business Products, Inc.,
(xxi) Security Agreement: Rights to Payment for Wingtip Couriers, Inc.,
(xxii) Security Agreement: Rights to Payment for Precept Business Services,
Inc.;
(xxiii) Security Agreement: Rights to Payment for Relay Couriers, Inc.;
(xxiv) UCC Financing Statements; and
(xxv) Such other documents as Bank may require under any other Section of
this Agreement.
(c) FINANCIAL CONDITION. Except as has been previously disclosed to
Bank in writing relating to the losses incurred by Precept Builders, Inc.,
there shall have been no material adverse change, as determined by Bank, in
the financial condition or business of any Borrower, nor any material
decline, as determined by Bank, in the market value of any collateral
required hereunder or a substantial or material portion of the assets of any
Borrower.
(d) INSURANCE. Each Borrower shall have delivered to Bank evidence of
insurance coverage on all such Borrower's property, in form, substance,
amounts, covering risks and issued by companies satisfactory to Bank, and
where required by Bank, with loss payable endorsements in favor of Bank.
SECTION 3.2. CONDITIONS OF EACH EXTENSION OF CREDIT. The
obligation of Bank to make each extension of credit requested by any Borrower
hereunder shall be subject to the fulfillment to Bank's satisfaction of each
of the following conditions:
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(a) COMPLIANCE. The representations and warranties contained herein
and in each of the other Loan Documents shall be true on and as of the date
of the signing of this Agreement and on the date of each extension of credit
by Bank pursuant hereto, with the same effect as though such representations
and warranties had been made on and as of each such date, and on each such
date, no Event of Default as defined herein, and no condition, event or act
which with the giving of notice or the passage of time or both would
constitute such an Event of Default, shall have occurred and be continuing or
shall exist.
(b) DOCUMENTATION. Bank shall have received all additional documents
which may be required in connection with such extension of credit.
Section 3.3. ADDITIONAL CONDITIONS TO MAKING OF THE TERM LOAN. The
obligation of Bank to make the Term Loan shall be subject to the fulfillment
to Bank's satisfaction of each of the following conditions:
(a) The consolidated EBITDA of PBS must be equal to or greater than
$4,000,000 for the twelve (12) month period ending on the last day of the
calendar month immediately preceding the date Borrower's request the Bank to
make the Term Loan."EBITDA" is defined as (a) net income, after income taxes,
determined in conformity with GAAP; plus (b) income taxes deducted in
determining net income; plus (c) interest expense deducted in determining net
income; plus (d) amortization and depreciation expenses deducted in
determining net income; plus (e) other non-cash charges (excluding accruals
in the normal course of business), deducted in determining net income.
(b) Borrowers must request Bank in writing to make the Term Loans no
later than March 15, 2001.
(c) Borrowers must execute and deliver the Term Note in the form of
Exhibit "B" attached hereto, with all blanks appropriately completed.
ARTICLE IV
AFFIRMATIVE COVENANTS
Each Borrower covenants that so long as Bank remains committed to extend
credit to any Borrower pursuant hereto, or any liabilities (whether direct or
contingent, liquidated or unliquidated) of any Borrower to Bank under any of
the Loan Documents remain outstanding, and until payment in full of all
obligations of all Borrowers subject hereto, each Borrower shall, unless Bank
otherwise consents in writing:
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SECTION 4.1. PUNCTUAL PAYMENTS. Punctually pay all principal,
interest, fees or other liabilities due under any of the Loan Documents at
the times and place and in the manner specified therein, and immediately upon
demand by Bank, the amount by which the outstanding principal balance of any
of the Credits at any time exceeds any limitation on borrowings applicable
thereto.
SECTION 4.2. ACCOUNTING RECORDS. Maintain adequate books and records
in accordance with generally accepted accounting principles consistently
applied, and permit any representative of Bank, at any reasonable time, to
inspect, audit and examine such books and records, to make copies of the
same, and to inspect the properties of any Borrower.
SECTION 4.3. FINANCIAL STATEMENTS. Provide to Bank all of the
following, in form and detail satisfactory to Bank:
(a) and not later than 120 days after and as of the end of each fiscal
year, an audited, consolidated financial statement of PBS and all
subsidiaries, prepared by a certified public accountant acceptable to Bank,
to include balance sheet, income statement and statement of cash flow;
(b) not later than 30 days after and as of the end of each month, a
consolidating financial statement of PBS, all subsidiaries, prepared by PBS,
to include balance sheet, income statement and consolidated statement of cash
flow;
(c) contemporaneously with each monthly financial statement of
Borrowers required hereby, a borrowing base certificate, a summary inventory
collateral report, and a reconciliation of accounts;
(d) contemporaneously with each monthly financial statement of
Borrowers required hereby, a certificate of the chief executive officer or
chief financial officer of Borrowers that said financial statements are
accurate and that there exists no Event of Default nor any condition, act or
event which with the giving of notice or the passage of time or both would
constitute an Event of Default;
(e) from time to time such other information as Bank may reasonably
request.
SECTION 4.4. COMPLIANCE. Preserve and maintain all licenses, permits,
governmental approvals, rights, privileges and franchises necessary for the
conduct of its business; and comply with the provisions of all documents
pursuant to which such Borrower is organized and/or which govern such
Borrower's continued existence and with the requirements of all laws, rules,
regulations and orders of any governmental authority applicable
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to such Borrower and/or its business other than those laws, rules or
regulations the noncompliance with which would not have a material adverse
effect on Borrowers, taken as a whole.
SECTION 4.5. INSURANCE. Maintain and keep in force insurance of the
types and in amounts customarily carried in lines of business similar to that
of such Borrower, including but not limited to fire, extended coverage,
public liability, flood, property damage and workers' compensation, with all
such insurance carried with companies and in amounts satisfactory to Bank,
and deliver to Bank from time to time at Bank's request schedules setting
forth all insurance then in effect.
SECTION 4.6. FACILITIES. Keep all properties useful or necessary to
such Borrower's business in good repair and condition, and from time to time
make necessary repairs, renewals and replacements thereto so that such
properties shall be fully and efficiently preserved and maintained.
SECTION 4.7. TAXES AND OTHER LIABILITIES. Pay and discharge when due
any and all indebtedness, obligations, assessments and taxes, both real or
personal, including without limitation federal and state income taxes and
state and local property taxes and assessments, except such (a) as such
Borrower may in good faith contest or as to which a bona fide dispute may
arise, and (b) for which such Borrower has made provision, to Bank's
satisfaction, for eventual payment thereof in the event such Borrower is
obligated to make such payment.
SECTION 4.8. LITIGATION. Promptly give notice in writing to Bank of
any material litigation to Borrower's knowledge pending or threatened against
any Borrower.
SECTION 4.9. FINANCIAL CONDITION. Maintain PBS's financial condition
as follows using generally accepted accounting principles consistently
applied and used consistently with prior practices (except to the extent
modified by the definitions herein), with compliance determined commencing
with PBS' financial statements for the period ending March 31, 1998:
(a) Current Ratio not at any time less than 1.20 to 1.0 as of the end
of each fiscal quarter, with "Current Ratio" defined as total current assets
divided by total current liabilities.
(b) Debt Service Coverage Ratio not less than 1.5 to 1.0 as of the end
of each fiscal quarter with "Debt Service Coverage Ratio" defined as EBITDA
for the twelve (12) month period ending on the last day of the immediately
preceding fiscal quarter divided by the sum of the following (without
duplication) (a) total interest expense deducted in determining net income
for the twelve (12) month period ending on the last day of the immediately
preceding fiscal quarter; plus (b) all current
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maturities of principal with respect to all unsubordinated long-term
indebtedness, excluding any amount outstanding under the Line of Credit, of
Borrowers as of the last day of the immediately preceding fiscal quarter.
(c) Prior-to the making of the Term Loan, Senior Funded Debt to EBITDA
Ratio as of the end of each fiscal quarter:
<TABLE>
<S> <C>
From the date hereof to and
including June 30, 1998 LESS THAN OR EQUAL TO 6.5 to 1.0
From July 1, 1998 to and
including September 30, 1998 LESS THAN OR EQUAL TO 6.0 to 1.0
From October 1, 1998 to and
including December 31, 1998 LESS THAN OR EQUAL TO 5.5 to 1.0
From and after January 1, 1999 LESS THAN OR EQUAL TO 5.0 to 1.0
</TABLE>
As used herein "Senior Funded Debt" shall mean total funded unsubordinated
indebtedness, according to GAAP and including capital leases but excluding
any indebtedness and capital leases of U.S. Trucking, Inc., of Borrowers and
"Senior Funded Debt to EBITDA Ratio" shall mean Senior Funded Debt divided by
EBITDA for the twelve (12) month period ending on the last day of the
immediately preceding fiscal quarter.
(d) From and after the making of the Term Loan, Senior Funded Debt to
EBITDA Ratio not greater than 3.5 to 1.0 as of the end of each fiscal quarter.
SECTION 4.10. NOTICE TO BANK. Promptly (but in no event more than ten
(10) business days after the occurrence of each such event or matter) give
written notice to Bank in reasonable detail of: (a) the occurrence of any
Event of Default, or any condition, event or act which with the giving of
notice or the passage of time or both would constitute an Event of Default;
(b) any change in the name or the organizational structure of any Borrower,
or any action, claim, investigation, suit or proceeding pending or asserted
by or before any governmental authority, arbitrator, court or administrative
agency challenging or denying PLLC's qualification for tax treatment as if it
were a partnership for income tax purposes; (c) the occurrence and nature of
any Reportable Event or Prohibited Transaction, each as defined in ERISA, or
any funding deficiency with respect to any Plan; or (d) any termination or
cancellation of any insurance policy which any Borrower is required to
maintain, or any uninsured or partially uninsured loss through liability or
property damage, or through fire, theft or any other cause affecting any
Borrower' s property.
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ARTICLE V
NEGATIVE COVENANTS
Each Borrower further covenants that so long as Bank remains committed
to extend credit to any Borrower pursuant hereto, or any liabilities (whether
direct or contingent, liquidated or unliquidated) of any Borrower to Bank
under any of the Loan Documents remain outstanding, and until payment in full
of all obligations of all Borrowers subject hereto, no Borrower will, without
Bank's prior written consent:
SECTION 5.1. USE OF FUNDS. Use any of the proceeds of any of the
Credits except for the purposes stated in Article I hereof.
SECTION 5.2. CAPITAL EXPENDITURES. Make additional fixed asset
acquisitions, other than in connection with a merger or acquisition, in any
fiscal year in excess of an aggregate of $1,000,000.
SECTION 5.3. OTHER INDEBTEDNESS. Create, incur, assume or permit to
exist any indebtedness or liabilities resulting from borrowings, loans or
advances, whether secured or unsecured, matured or unmatured, liquidated or
unliquidated, joint or several, except (a) the liabilities of Borrowers to
Bank, (b) any other liabilities of Borrowers existing as of, and disclosed
to Bank prior to, the date hereof, (c) inter-company indebtedness among
Borrowers, and (d)indebtedness in addition to the indebtedness permitted by
clauses (a) through (c) of this subsection 5.3, not to exceed $2,000,000.00
in the aggregate at any one time outstanding.
SECTION 5.4. MERGER, CONSOLIDATION, TRANSFER OF ASSETS. Merge into or
consolidate with any other entity; make any substantial change in the nature
of such Borrower's business as conducted as of the date hereof; acquire all
or substantially all of the assets of any other entity with a purchase price
or prices in excess of One Million Dollars ($1,000,000) in cash or cash
equivalent in any fiscal year; nor sell, lease, transfer or otherwise dispose
of all 'or a substantial or material portion of Borrower's assets except in
the ordinary course of its business.
SECTION 5.5. GUARANTIES. Guarantee or become liable in any way as
surety, endorser (other than as endorser of negotiable instruments for
deposit or collection in the ordinary course of business), accommodation
endorser or otherwise for, nor pledge or hypothecate any assets of any
Borrower as security for, any liabilities or obligations of any other person
or entity, except (a) any of the foregoing in favor of Bank; (b) guaranties
existing on the date hereof and set forth on Schedule 5.5 and all such
replacements, renewal, extensions, or amendments thereof so long as the
amount of such guaranties after such replacement, renewal,
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extension or amendment shall not exceed the amount of such guaranties which
were outstanding immediately prior to such replacement, renewal, extension,
or amendment and with respect to the replacement of any guaranties, the terms
and conditions of any replacement guaranty are not materially different from
the guarantee being replaced; (c) guaranties with respect to customary
indemnification and purchase price adjustment obligations incurred in
connection with asset acquisitions, leases, and asset dispositions and
guaranties of any Borrower or any Borrowers' subsidiaries as a guarantor of a
lessee under any lease in which any Borrower or any such subsidiary is the
lessee so long as such lease is permitted hereunder; (d) guaranties incurred
in the ordinary course of business (i) with respect to surety and appeal
bonds and return-of-money bonds and other similar obligations, not exceeding
at any time outstanding $250,000 in an aggregate liability; and (ii) with
respect to performance bonds; (e) guaranties with respect to indebtedness
permitted by Section 5.3; (f) In addition to the guaranties permitted by
clauses (a) through (e) above, Borrowers may become and remain liable with
respect to guaranties not to exceed in the aggregate at any one time
outstanding $500,000. Any amounts that are included in the calculation of
this clause (f) shall not be included in calculating the guaranties permitted
under any other clauses of this Section 5.5 and any amounts that are included
shall not be included in calculating guaranties permitted under this clause
(f) of this Section 5.5.
SECTION 5.6. LOANS, ADVANCES, INVESTMENTS. Make any loans or advances
to or investments in any person or entity, except (a) any of the foregoing
existing as of, and disclosed to Bank prior to, the date hereof; (b)
additional investments in any person or entity, in amounts not to exceed an
aggregate of $1,000,000 in cash or cash equivalent in any fiscal year, and
(c) investments in readily marketable securities.
SECTION 5.7. PLEDGE OF ASSETS. Mortgage, pledge, grant or permit to
exist a security interest in, or lien upon, all or any portion of Borrower's
assets now owned or hereafter acquired, except any of the foregoing in favor
of Bank or which is existing as of, and disclosed to Bank in writing prior
to, the date hereof.
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.1. The occurrence of any of the following shall constitute
an "Event of Default" under this Agreement:
(a) Any Borrower shall fail to pay within five (5) business days of
when due any principal, interest, fees or other amounts payable under any of
the Loan Documents.
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(b) Any financial statement or certificate furnished to Bank in
connection with, or any representation or warranty made by any Borrower or
any other party under this Agreement or any other Loan Document shall prove
to be incorrect, false or misleading in any material respect when furnished
or made.
(c) Any default in the performance of or compliance with any
obligation, agreement or other provision contained herein or in any other
Loan Document (other than those referred to in subsections (a) and (b)
above), and with respect to any such default which by its nature can be
cured, such default shall continue for a period of thirty (30) days from its
occurrence.
(d) Any default in the payment or performance of any material
obligation, or any defined event of default, under the terms of any contract
or instrument (other than any of the Loan Documents) pursuant to which any
Borrower has incurred any debt or other liability to any person or entity,
including Bank.
(e) The filing of a notice of any material judgment lien against any
Borrower; or the recording of any material abstract of judgment against any
Borrower in any county in which such Borrower has an interest in real
property; or the service of any material notice of levy and/or of any
material writ of attachment or execution, or other like process, against the
assets of any Borrower; or the entry of any material judgment against any
Borrower; provided any such judgement, notice of levy and/or writ of
attachment or execution or other like process remains undischarged,
unvacated, unbonded, or unstayed for a period of thirty (30) days or in any
event later than five (5) days prior to the date of any execution of such
judgement, levy, writ of attachment or similar action.
(f) Any Borrower shall become insolvent, or shall suffer or consent to
or apply for the appointment of a receiver, trustee, custodian or liquidator
of itself or any of its property, or shall generally fail to pay its debts as
they become due, or shall make a general assignment for the benefit of
creditors; any Borrower shall file a voluntary petition in bankruptcy, or
seeking reorganization, in order to effect a plan or other arrangement with
creditors or any other relief under the Bankruptcy Reform Act, Title 11 of
the United States Code, as amended or recodified from time to time
("Bankruptcy Code"), or under any state or federal law granting relief to
debtors, whether now or hereafter in effect; or any involuntary petition or
proceeding pursuant to the Bankruptcy Code or any other applicable state or
federal law relating to bankruptcy, reorganization or other relief for
debtors is filed or commenced against any Borrower, or any Borrower shall
file an answer admitting the jurisdiction of the court and the material
allegations of any involuntary petition; or any Borrower shall be adjudicated
a bankrupt, or an order for relief shall be entered
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against any Borrower by any court of competent jurisdiction under the
Bankruptcy Code or any other applicable state or federal law relating to
bankruptcy, reorganization or other relief for debtors.
(g) There shall exist or occur any event or condition which Bank in
good faith believes materially impairs, or is substantially likely to
materially impair, the prospect of payment or performance by any Borrower of
its obligations under any of the Loan Documents.
(h) The dissolution or liquidation of any Borrower; or any Borrower, or
any of its directors, stockholders or members, shall take action seeking to
effect the dissolution or liquidation of any Borrower.
SECTION 6.2. REMEDIES. Upon the occurrence of any Event of
Default: (a) all principal and accrued and unpaid interest outstanding under
each of the Loan Documents, any term thereof to the contrary notwithstanding,
shall at Bank's option and without notice become immediately due and payable
without presentment, demand, or any notices of any kind, including without
limitation notice of nonperformance, notice of protest, protest, notice of
dishonor, notice of intention to accelerate or notice of acceleration, all of
which are hereby expressly waived by each Borrower; (b) the obligation, if
any, of Bank to extend any further credit under any of the Loan Documents
shall immediately cease and terminate; and (c) Bank shall have all rights,
powers and remedies available under each of the Loan Documents, or accorded
by law, including without limitation the right to resort to any or all
security for any of the Credits and to exercise any or all of the rights of a
beneficiary or secured party pursuant to applicable law. All rights, powers
and remedies of Bank may be exercised at any time by Bank and from time to
time after the occurrence of an Event of Default, are cumulative and not
exclusive, and shall be in addition to any other rights, powers or remedies
provided by law or equity.
ARTICLE VII
MISCELLANEOUS
SECTION 7.1. NO WAIVER. No delay, failure or discontinuance of Bank in
exercising any right, power or remedy under any of the Loan Documents shall
affect or operate as a waiver of such right, power or remedy; nor shall any
single or partial exercise of any such right, power or remedy preclude, waive
or otherwise affect any other or further exercise thereof or the exercise of
any other right, power or remedy. Any waiver, permit, consent or approval of
any kind by Bank of any breach of or default under any of the Loan Documents
must be in writing and shall be effective only to the extent set forth in
such writing.
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<PAGE>
SECTION 7.2. NOTICES. All notices, requests and demands which any
party is required or may desire to give to any other party under any
provision of this Agreement must be in writing delivered to each party at the
following address:
BORROWERS c/o Precept Business Services, Inc.
1909 Woodall Rodgers Freeway, Ste. 500
Dallas, Texas 75201
Attn: CFO & General Counsel
BANK: WELLS FARGO BANK (TEXAS),
NATIONAL ASSOCIATION
Dallas Regional Commercial Banking Office
1445 Ross Avenue, 3rd Floor
Dallas, Texas 75202
Attn: Mr. Brent Bertino or Mr. Drew Keith
or to such other address as any party may designate by written notice to all
other parties. Each such notice, request and demand shall be deemed given or
made as follows: (a) if sent by hand delivery, upon delivery; (b) if sent by
mail, upon the earlier of the date of receipt or three (3) days after deposit
in the U.S. mail, first class and postage prepaid; and (c) if sent by
telecopy, upon receipt.
SECTION 7.3. COSTS, EXPENSES AND ATTORNEYS' FEES. Borrowers shall pay
to Bank immediately upon demand the full amount of all payments, advances,
charges, costs and expenses, including reasonable attorneys' fees (to include
outside counsel fees and all reasonable allocated costs of Bank's in-house
counsel to the extent permissible), expended or incurred by Bank in
connection with (a) Bank's continued administration hereof and thereof, and
the preparation of any amendments and waivers hereto and thereto, (b) the
enforcement of Bank's rights and/or the collection of any amounts which
become due to Bank under any of the Loan Documents, and (c) the prosecution
or defense of any action in any way related to any of the Loan Documents,
including without limitation, any action for declaratory relief, whether'
incurred at the trial or appellate level, in an arbitration proceeding or
otherwise, and including any of the foregoing incurred in connection with any
bankruptcy proceeding (including without limitation, any adversary
proceeding, contested matter or motion brought by Bank or any other person)
relating to any Borrower or any other person or entity. With regard to any
expenses or fees expended or incurred by Bank resulting from any actions
under Section 4.2, Borrowers shall be liable for no more than $3,000 annually.
SECTION 7.4. SUCCESSORS, ASSIGNMENT. This Agreement shall be binding
upon and inure to the benefit of the heirs, executors,
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administrators, legal representatives, successors and assigns of the parties;
provided however, that no Borrower may assign or transfer its interest
hereunder without Bank's prior written consent. Bank reserves the right to
sell, assign, transfer, negotiate or grant participations in all or any part
of, or any interest in, Bank's rights and benefits under each of the Loan
Documents; provided that the amount of commitments and loans of the Bank
being assigned shall in no event be less than the lesser of (i) $3,000,000 or
(ii) the entire amount of the commitment and loans of Bank. In case of an
assignment authorized under this subsection 7.4, the assignee shall have, to
the extent of such assignment, the same rights, benefits, and obligations as
it would have if it were the Bank. Bank may sell participations in all or any
part of any loans made by it to Borrowers; provided, however, that, Borrowers
shall continue to deal solely and directly with Bank in connection with
Bank's rights and obligations under this Agreement; provided, further, that
all amounts payable by Borrower's hereunder shall be calculated as if Bank
had not sold such participation and the holder of any such participation
shall not be entitled to require Bank to take or omit to take any action
hereunder; provided, further, that the amount of loans of Bank being
participated shall in no event be less than the lesser of (a) $3,000,000 or
(b) the entire amount of loans of Bank. Bank shall not, as between Borrowers
and Bank, be relieved of any of its obligations hereunder as a result of any
sale, assignment, transfer, or negotiation of, or granting of participation
in, all or any part of the Loan, the Notes, or other obligations owed to
Bank. In connection therewith, Bank may disclose all documents and
information which Bank now has or may hereafter acquire relating to any of
the Credits, any Borrower or its business, or any collateral required
hereunder, with prior written notice to Borrowers.
SECTION 7.5. AMENDMENT. This Agreement may be amended or modified
only in writing signed by each party hereto.
SECTION 7.6. NO THIRD PARTY BENEFICIARIES. This Agreement is made and
entered into for the sole protection and benefit of the parties hereto and
their respective permitted successors and assigns, and no other person or
entity shall be a third party beneficiary of, or have any direct or indirect
cause of action or claim in connection with, this Agreement or any other of
the Loan Documents to which it is not a party.
SECTION 7.7. TIME. Time is of the essence of each and every provision
of this Agreement and each other of the Loan Documents.
SECTION 7.8. SEVERABILITY OF PROVISIONS. If any provision of this
Agreement shall be prohibited by or invalid under applicable law, such
provision shall be ineffective only to the extent of such prohibition or
invalidity without invalidating the
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remainder of such provision or any remaining provisions of this Agreement.
SECTION 7.9. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which when executed and delivered shall be
deemed to be an original, and all of which when taken together shall
constitute one and the same Agreement.
SECTION 7.10. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Texas.
SECTION 7.11. SAVINGS CLAUSE. It is the intention of the parties to
comply strictly with applicable usury laws. Accordingly, notwithstanding any
provision to the contrary in the Loan Documents, in no event shall any Loan
Documents require the payment or permit the payment, taking, reserving,
receiving, collection or charging of any sums constituting interest under
applicable laws that exceed the maximum amount permitted by such laws, as the
same may be amended or modified from time to time (the "Maximum Rate") . If
any such excess interest is called for, contracted for, charged, taken,
reserved or received in connection with any Loan Documents, or in any
communication by Bank or any other person to any Borrower or any other
person, or in the event that all or part of the principal or interest hereof
or thereof shall be prepaid or accelerated, so that under any of such
circumstances or under any other circumstance whatsoever the amount of
interest contracted for, charged, taken, reserved or received on the amount
of principal actually outstanding from time to time under the Loan Documents
shall exceed the Maximum Rate, then in such event it is agreed that: (i) the
provisions of this paragraph shall govern and control; (ii) neither Borrowers
nor any other person or entity now or hereafter liable for the payment of any
Loan Documents shall be obligated to pay the amount of such interest to the
extent it is in excess of the Maximum Rate; (iii) any such excess interest
which is or has been received by Bank, notwithstanding this paragraph, shall
be credited against the then unpaid principal balance hereof or thereof, or
if any of the Loan Documents has been or would be paid in full by such
credit, refunded to Borrowers; and (iv) the provisions of each of the Loan
Documents, and any other communication to any Borrower, shall immediately be
deemed reformed and such excess interest reduced, without the necessity of
executing any other document, to the Maximum Rate. The right to accelerate
the maturity of the Loan Documents does not include the right to accelerate,
collect or charge unearned interest, but only such interest that has
otherwise accrued as of the date of acceleration. Without limiting the
foregoing, all calculations of the rate of interest contracted for, charged,
taken, reserved or received in connection with any of the Loan Documents
which are made for the purpose of determining whether such rate exceeds the
Maximum Rate shall be made to the extent permitted by
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applicable laws by amortizing, prorating, allocating and spreading during the
period of the full term of such Loan Documents, including all prior and
subsequent renewals and extensions hereof or thereof, all interest at any
time contracted for, charged, taken, reserved or received by Bank. The terms
of this paragraph shall be deemed to be incorporated into each of the other
Loan Documents.
To the extent that Chapter ID of Article 5069 of the Texas Revised Civil
Statutes is relevant to Bank for the purpose of determining the Maximum Rate,
Bank hereby elects to determine the applicable rate ceiling under such
Article by the weekly rate ceiling from time to time in effect, subject to
Bank's right subsequently to change such method in accordance with applicable
law, as the same may be amended or modified from time to time.
SECTION 7.12. RIGHT OF SETOFF; DEPOSIT ACCOUNTS. Upon and after the
occurrence of an Event of Default except Section 6.1 (d), (a) each Borrower
hereby authorizes Bank, at any time and from time to time, without notice,
which is hereby expressly waived by each Borrower, and whether or not Bank
shall have declared the Credits to be due and payable in accordance with the
terms hereof, to set off against, and to appropriate and apply to the payment
of, any Borrower's obligations and liabilities under the Loan Documents
(whether matured or unmatured, fixed or contingent, liquidated or
unliquidated), any and all amounts owing by Bank to any Borrower (whether
payable in U.S. dollars or any other currency, whether matured or unmatured,
and in the case of deposits, whether general or special (except trust and
escrow accounts), time or demand and however evidenced), and (b) pending any
such action, to the extent necessary, to hold such amounts as collateral to
secure such obligations and liabilities and to return as unpaid for
insufficient funds any and all checks and other items drawn against any
deposits so held as Bank, in its sole discretion, may elect. Each Borrower
hereby grants to Bank a security interest in all deposits and accounts
maintained with Bank and with any other financial institution to secure the
payment of all obligations and liabilities of Borrowers to Bank under the
Loan Documents.
SECTION 7.13. BUSINESS PURPOSE. Each Borrower represents and warrants
that the Credits are for a business, commercial, investment, agricultural or
other similar purpose and not primarily for a personal, family or household
use.
SECTION 7.14. JOINT AND SEVERAL LIABILITY.
(a) Each Borrower has determined and represents to Bank that it is in
its best interests and in pursuance of its legitimate business purposes to
induce Bank to extend credit pursuant to this Agreement. Each Borrower
acknowledges and represents that its business is related to the business of
the
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other Borrowers, the availability of the commitments provided herein benefits
all Borrowers, and advances and other credit extensions made hereunder will
inure to the benefit of Borrowers, individually and as a group.
(b) Each Borrower has determined and represents to Bank that it has,
and after giving effect to the transactions contemplated by this Agreement
will have, assets having a fair saleable value in excess of its debts, after
giving effect to any rights of contribution or subrogation that may be
available to such Borrower, and each Borrower has, and will have, access to
adequate capital for the conduct of its business and the ability to pay its
debts as such debts mature.
(c) Each Borrower agrees that it is jointly and severally liable to
Bank for, and each Borrower agrees to pay to Bank when due the full amount
of, all indebtedness now existing or hereafter arising to Bank under or in
connection with the,Credits and all modifications, extensions and renewals
thereof, including without limitation all advances disbursed to any Borrower
under the Credits, all interest which accrues thereon and all fees, costs and
expenses chargeable to Borrowers or any of them in connection therewith.
(d) The liability of each Borrower for the Credits shall be reinstated
and revived and the rights Of Bank shall continue if and to the extent that
for any reason any amount at any time paid on account of any of the Credits
is rescinded or must otherwise be restored by Bank, whether as a result of
any proceedings in bankruptcy or reorganization or otherwise, all as though
such amount had not been laid.
(e) Each Borrower authorizes Bank, and without affecting such
Borrower's liability for the Credits, from time to time to: (i) alter,
compromise, extend, accelerate or otherwise change the time for payment of,
or otherwise change the terms of, the liabilities and obligations of any
other Borrower to Bank on account of any of the Credits; (ii) take and hold
security from any other Borrower for the payment of any of the Credits, and
exchange, enforce, waive, subordinate or release any such security; (iii)
apply such security and direct the order or manner of sale thereof, including
without limitation, a non-judicial sale permitted by the terms of the
controlling security agreement or deed of trust, as Bank in its discretion
may determine; (iv) release or substitute any one or more of the endorsers or
any guarantors of any of the Credits, or any other party obligated thereon;
and (e) apply payments received by Bank from any other Borrower to
indebtedness of such other Borrower to Bank other than the Credits.
(f) Each Borrower represents and warrants to Bank that it has
established adequate means of obtaining from all other
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Borrowers on a continuing basis financial and other information pertaining to
such Borrowers' financial condition, and each Borrower agrees to keep
adequately informed from such means of any facts, events or circumstances
which might in any way affect its risks hereunder. Each Borrower further
agrees that Bank shall have no obligation to disclose to it any information
or material about any other Borrower that is acquired by Bank in any manner.
(e) Each Borrower waives any right to require Bank to: (i) proceed
against any other Borrower or any other person; (ii) marshal assets or
proceed against or exhaust any security held from any of the Borrowers or any
other person; (iii) take any action or pursue any other remedy in Bank's
power; or (iv) make any presentment or demand for performance, or give any
notices of any kind, including without limitation, any notice of
nonperformance, protest, notice of protest, notice of dishonor, notice of
intention to accelerate or notice of acceleration hereunder or in connection
with any obligations or evidences of Credits held by Bank as security for or
which constitute in whole or in part the Credits guaranteed hereunder, or in
connection with the creation of new or additional Credits.
(f) Each Borrower waives any defense to its obligations hereunder based
upon or arising by reason of: (i) any disability or other defense of any of
the Borrowers or any other person; (ii) the cessation or limitation from any
cause whatsoever, other than payment in full, of the Credits of any of the
Borrowers or any other person; (iii) any lack of authority of any officer,
director, partner, agent or any other person acting or purporting to act on
behalf of any of the Borrowers which is a trust, corporation, partnership or
other type of entity, or any defect in the formation of any such Borrower;
(iv) the application by any of the Borrowers of the proceeds of any Credits
for purposes other than the purposes represented by Borrowers to, or intended
or understood by, Bank or Borrower; (v) any act or omission by Bank which
directly or indirectly results in or aids the discharge of any of the
Borrowers or any portion of the Credits by operation of law or otherwise, or
which in any way impairs or suspends any rights or remedies of Bank against
any of the Borrowers; (vi) any impairment of the value of any interest in any
security for the Credits or any portion thereof, including without
limitation, the failure to obtain or maintain perfection or recordation of
any interest in any such security, the release of any such security without
substitution, and/or the failure to preserve the value of, or to comply with
applicable law in disposing of, any such security; or (vii) any modification
of the Credits, in any form whatsoever, including any modification made after
revocation hereof to any Credits incurred prior to such revocation, and
including without limitation the renewal, extension, acceleration or other
change in time for payment of, or other change in the terms of, the Credits
or any portion thereof, including increase or decrease of the rate of
interest
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thereon. Until all Credits shall have been paid in full, no Borrower shall
have any right of subrogation, and each Borrower waives any right to enforce
any remedy which Bank now has or may hereafter have against any of the
Borrowers or any other person, and waives any benefit of, or any right to
participate in, any security now or hereafter held by Bank. Each Borrower
further waives all rights and defenses such Borrower may have arising out of
(A) any election of remedies by Bank, even though that election of remedies,
such as a non-judicial foreclosure with respect to any security for any
portion of the Credits, destroys its rights of subrogation or its rights to
proceed against any other Borrower for reimbursement, or (B) any loss of
rights Borrower may suffer by reason of any rights, powers or remedies of any
of other Borrower in connection with any anti-deficiency laws or any other
laws limiting, qualifying or discharging any Borrower's indebtedness, whether
by operation of law or otherwise, including any rights Borrower may have to a
fair market value hearing to determine the size of a deficiency following any
trustee's foreclosure sale or other disposition of any real property security
for any portion of the Credits.
(g) Each Borrower further waives (i) each and every right to which it
may be entitled by virtue of any suretyship law, including without
limitation, any rights arising pursuant to Rule 31 of the Texas Rules of
Civil Procedure, Section 17.001 of the Texas Civil Practice and Remedies
Code.and Chapter 34 of the Texas Business and Commerce Code, as the same may
be amended from time to time, and (ii) without limiting any of the waivers
set forth herein, any other fact or event that, in the absence of this
provision, would or might constitute or afford a legal or equitable discharge
or release of or defense to such Borrower.
(h) If any of the waivers herein is determined to be contrary to any
applicable law or public policy, such waiver shall be effective only to the
extent permitted by law.
(i) It is the position of the Borrowers that each Borrower benefits
from the Credits that have been made available by Bank under this Agreement
and from each extension of credit thereunder, regardless of whether such
credit is disbursed to a joint account of Borrowers or to or for the account
of any Borrower.
SECTION 7.15. ARBITRATION.
(a) ARBITRATION. Upon the demand of any party, any Dispute shall be
resolved by binding arbitration (except as set forth in (e) below) in
accordance with the terms of this Agreement. A "Dispute" shall mean any
action, dispute, claim or controversy of any kind, whether in contract or
tort, statutory or common law, legal or equitable, now existing or hereafter
arising under or in connection with, or in any way pertaining to, any of the
Loan Documents, or any past, present or future extensions of credit and other
activities, transactions or obligations of any kind
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related directly or indirectly to any of the Loan Documents, including
without limitation, any of the foregoing arising in connection with the
exercise of any self-help, ancillary or other remedies pursuant to any of the
Loan Documents. Any party may by summary proceedings bring an action in
court to compel arbitration of a Dispute. Any party who fails or refuses to
submit to arbitration following a lawful demand by any other party shall bear
all costs and expenses incurred by such other party in compelling arbitration
of any Dispute.
(b) GOVERNING RULES. Arbitration proceedings shall be administered by
the American Arbitration Association ("AAA") or such other administrator as
the parties shall mutually agree upon in accordance with the AAA Commercial
Arbitration Rules. All Disputes submitted to arbitration shall be resolved
in accordance with the Federal Arbitration Act (Title 9 of the United States
Code), notwithstanding any conflicting choice of law provision in any of the
Loan Documents. The arbitration shall be conducted at a location in Texas
selected by the AAA or other administrator. If there is any inconsistency
between the terms hereof and any such rules, the terms and procedures set
forth herein shall control. All statutes of limitation applicable to any
Dispute shall apply to any arbitration proceeding. All discovery activities
shall be expressly limited to matters directly relevant to the Dispute being
arbitrated. Judgment upon any award rendered in an arbitration may be
entered in any court having jurisdiction; provided however, that nothing
contained herein shall be deemed to be a waiver by any party that is a bank
of the protections afforded to it under 12 U.S.C. Section 91 or any similar
applicable state law.
(c) NO WAIVER: PROVISIONAL REMEDIES, SELF-HELP AND FORECLOSURE. No
provision hereof shall limit the right of any party to exercise self-help
remedies such as setoff, foreclosure against or sale of any real or personal
property collateral or security, or to obtain provisional or ancillary
remedies, including without limitation injunctive relief, sequestration,
attachment, garnishment or the appointment of a receiver, from a court of
competent jurisdiction before, after or during the pendency of any
arbitration or other proceeding. The exercise. of any such remedy shall not
waive the right of any party to compel arbitration hereunder.
(d) ARBITRATOR QUALIFICATIONS AND POWERS; AWARDS. Arbitrators must be
active members of the Texas State Bar with expertise in the substantive laws
applicable to the subject matter of the Dispute. Arbitrators are empowered
to resolve Disputes by summary rulings in response to motions filed prior to
the final arbitration hearing. Arbitrators (i) shall resolve all Disputes in
accordance with the substantive law of the state of Texas, (ii) may grant any
remedy or relief that a court of the state of Texas could order or grant
within the scope hereof and such ancillary relief as is necessary to make
effective any award, and (iii) shall have the power to award recovery of all
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costs and fees, to impose sanctions and to take such other actions as they
deem necessary to the same extent a judge could pursuant to the Federal Rules
of Civil Procedure, the Texas Rules of Civil Procedure or other applicable
law. Any Dispute in which the amount in controversy is $5,000,000 or less
shall be decided by a single arbitrator who shall not render an award of
greater than $5, 000, 000 (including damages, costs, fees and expenses) By
submission to a single arbitrator, each party expressly waives any right or
claim to recover more than $5,000,000. Any Dispute in which the amount in
controversy exceeds $5,000,000 shall be decided by majority vote of a panel
of three arbitrators; provided however, that all three arbitrators must
actively participate in all hearings and deliberations.
(e) JUDICIAL REVIEW. Notwithstanding anything herein to the contrary,
in any arbitration in which the amount in controversy exceeds $25,000,000,
the arbitrators shall be required to make specific, written findings of fact
and conclusions of law. In such arbitrations (i) the arbitrators shall not
have the power to make any award which is not supported by substantial
evidence or which is based on legal error, (ii) an award shall not be binding
upon the parties unless the findings of fact are supported by substantial
evidence and the conclusions of law are not erroneous under the substantive
law of the state of Texas, and (iii) the parties shall have in addition to
the grounds referred to in the Federal Arbitration Act for vacating,
modifying or correcting an award the right to judicial review of (A) whether
the findings of fact rendered by the arbitrators are supported by substantial
evidence, and (B) whether the conclusions of law are erroneous under the
substantive law of the state of Texas. Judgment confirming an award in such
a proceeding may be entered only if a court determines the award is supported
by substantial evidence and not based on legal error under the substantive
law of the state of Texas.
(f) MISCELLANEOUS. To the maximum extent practicable, the AAA, the
arbitrators and the parties shall take all action required to conclude any
arbitration proceeding within 180 days of the filing of the Dispute with the
AAA. No arbitrator or other party to an arbitration proceeding may disclose
the existence, content or results thereof, except for disclosures of
information by a party required in the ordinary course of its business, by
applicable law or regulation, or to the extent necessary to exercise any
judicial review rights set forth herein. If more than one agreement for
arbitration by or between the parties potentially applies to a Dispute, the
arbitration provision most directly related to the Loan Documents or the
subject matter of the Dispute shall control. This arbitration provision
shall survive termination, amendment or expiration of any of the Loan
Documents or any relationship between the parties.
NOTICE: THIS DOCUMENT AND ALL OTHER DOCUMENTS RELATING TO THE INDEBTEDNESS
CONSTITUTE A WRITTEN LOAN AGREEMENT WHICH REPRESENTS
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THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES RELATING
TO THE INDEBTEDNESS.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the day and year first written above.
WELLS FARGO BANK (TEXAS),
NATIONAL ASSOCIATION
PRECEPT BUSINESS SERVICE,
INC.
By: /s/ SCOTT B. WALKER
-----------------------
Title: SVP & CFO By: /s/ BRENT BERTINO
-------------------- ---------------------------
Title: AVP
------------------------
WINGTIP COURIERS, INC. PRECEPT BUSINESS PRODUCTS, INC.
By: /s/ SCOTT B. WALKER By: /s/ SCOTT B. WALKER
----------------------- ---------------------------
Title: SVP & CFO Title: SVP & CFO
-------------------- ------------------------
PRECEPT TRANSPORTATION PRECEPT TRANSPORTATION
SERVICES OF TEXAS, INC. SERVICES, L.L.C.
By: /s/ SCOTT B. WALKER By: Precept Business
----------------------- Services, Inc., Member
Title: SVP & CFO
-------------------- By: /s/ SCOTT B. WALKER
---------------------
Title: SVP & CFO
------------------
RELAY COURIERS, INC.
By: /s/ SCOTT B. WALKER
-----------------------
Title: SVP & CFO
--------------------
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