<PAGE>
PRECEPT BUSINESS SERVICES, INC.
1909 WOODALL RODGERS FWY, SUITE 500
DALLAS, TEXAS 75201
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 11, 1998
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Precept
Business Services, Inc. (the "Company") will be held at CityPlace, 2711 North
Haskell Avenue, Dallas, Texas 75204 on November 11, 1998 at 10:00 a.m., local
time, for the following purposes:
(1) To elect three directors to hold office for a three year term and
until their respective successors shall have been duly elected and
qualified;
(2) To approve an amendment to the Company's Restated and Amended
Articles of Incorporation to effect a one-for-five reverse stock split of
the Company's Common Stock (both Class A and Class B). [THE BOARD OF
DIRECTORS, IN ITS SOLE DISCRETION, MAY CHANGE THE REVERSE STOCK SPLIT
RATIO PRIOR TO THE MAILING OF THE DEFINITIVE PROXY STATEMENT.]
(3) To approve an amendment to the Company's Restated and Amended
Articles of Incorporation to provide that any action which, under the
provisions of the Texas Business Corporation Act, would otherwise require
the affirmative vote of the holders of any specified portion of the shares
of the Company, will instead require the approval of the holders of shares
representing a MAJORITY of the votes entitled to be cast thereon.
(4) To consider and ratify the selection of the Company's independent
auditors.
(5) To transact such other business as may properly come before the
meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on October 8,
1998 as the record date (the "Record Date") for determining holders of Class
A Common Stock and Class B Common Stock entitled to notice of and to vote at
the Annual Meeting of Shareholders or any adjournments thereof (the "Annual
Meeting"). For a period of at least 10 days prior to the Annual Meeting, a
complete list of shareholders entitled to vote at the Annual Meeting will be
open for examination by any shareholder during ordinary business hours at the
offices of the Company, 1909 Woodall Rodgers Fwy., Suite 500, Dallas, Texas
75201.
Information concerning the matters to be acted upon at the Annual Meeting
is set forth in the accompanying Proxy Statement.
ALL HOLDERS OF CLASS A COMMON STOCK AND CLASS B COMMON STOCK (WHETHER THEY
EXPECT TO ATTEND THE ANNUAL MEETING OR NOT) ARE URGED TO COMPLETE, DATE, SIGN
AND RETURN THE PROXY CARD ENCLOSED WITH THIS NOTICE.
By Order of the Board of Directors,
DAVID L. NEELY
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
Dallas, Texas
October 24, 1998
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PRECEPT BUSINESS SERVICES, INC.
1909 WOODALL RODGERS FWY., SUITE 500
DALLAS, TEXAS 75201
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 11, 1998
This Proxy Statement is being first mailed on or about October 25, 1998 to
shareholders of Precept Business Services, Inc. ("Precept" or the "Company") by
the Board of Directors to solicit proxies (the "Proxies") for use at the Annual
Meeting of Shareholders (the "Meeting") to be held at CityPlace, 2711 North
Haskell Avenue, Dallas, Texas 75204, on November 11, 1998 at 10:00 a.m., local
time, or at such other time and place to which the Meeting may be adjourned.
The purpose of the Meeting is to consider and vote upon (i) the election
of three directors to hold office for a three year term and until their
respective successors shall have been duly elected and qualified; (ii) an
amendment to the Company's current Restated and Amended Articles of
Incorporation (the "Articles") to effect a one-for-five reverse stock split of
the Company's Common Stock (both Class A and Class B) [THE BOARD OF
DIRECTORS, IN ITS SOLE DISCRETION, MAY CHANGE THE REVERSE STOCK SPLIT
RATIO PRIOR TO THE MAILING OF THE DEFINITIVE PROXY STATEMENT]; (iii)
an amendment to the Company's Articles to provide that any action which would
otherwise require the affirmative vote of the holders of any portion of the
shares of the Company specified by the Texas Business Corporation Act, will
instead require the approval of the holders of shares representing a MAJORITY
of the votes entitled to be cast thereon; (iv) ratification of the selection
of the Company's independent auditors; and (v) such other matters as may
properly come before the Meeting or any adjournment thereof.
VOTING OF PROXIES, REVOCATION AND EXPENSES
All proxies that are properly completed, signed and returned prior to the
Annual Meeting will be voted as indicated on the Proxy. If the enclosed Proxy
is signed and returned, it may, nevertheless, be revoked at any time prior to
the voting thereof at the pleasure of the shareholder signing it, by such
shareholder: (i) providing written notice of such revocation to Continental
Stock Transfer & Trust Company, 2 Broadway, New York, NY 10004, Attention: Gail
Konsker, (ii) delivering another duly executed proxy statement dated subsequent
to the date thereof to the addressee named in the enclosed proxy, or (iii)
attending the Meeting and voting the shares covered thereby in person.
All shares represented by duly executed Proxies in the accompanying form
will be voted in accordance with the instructions indicated on such proxies,
and, if no such instructions are indicated thereon, will be voted: (i) FOR
the election of each person named herein under "Proposal No. 1, Election of
Directors" as a nominee for election as a director of the Company for the
term described therein, (ii) FOR the amendment of the Articles to effect a
one-for-five reverse stock split of the Company's Common Stock, (iii) FOR the
amendment of the Company's Articles to provide that any action which would
otherwise require the affirmative vote of the holders of any portion of the
shares of the Company specified by the Texas Business Corporation Act, will
instead require the approval of the holders of shares representing a MAJORITY
of the votes entitled to be cast thereon, (iv) FOR the ratification of the
selection of Ernst & Young LLP as the Company's independent auditors for the
fiscal year ending June 30, 1999; and (v) at the discretion of the Proxy
holders with regard to any other matter that may properly come before the
Meeting or any adjournment thereof. Abstentions, broker non-votes and proxies
directing that the shares are not to be voted will not be counted as a vote
in favor of a matter called for vote.
The cost of preparing, assembling, printing, and mailing the Proxy
Statement and the enclosed proxy form and the cost of soliciting proxies
related to the Annual Meeting will be borne by the Company. The Company will
request banks and brokers to solicit their customers who are beneficial
owners of shares of Common Stock listed of record in
<PAGE>
names of nominees, and will reimburse such banks and brokers for the
reasonable out-of-pocket expenses for such solicitation. In addition to
solicitation by mail, the officers and employees of the Company may solicit
Proxies by telephone, telegraph or personally, without additional
compensation. The Company's annual report to shareholders for the fiscal
year ended June 30, 1998 is being mailed with this proxy statement to
shareholders entitled to vote at the Meeting. The Annual Report is not to be
deemed part of this Proxy Statement.
RECORD DATE AND VOTING SECURITIES
The Board of Directors of the Company has fixed the close of business on
October 8, 1998 as the record date (the "Record Date") for the Annual Meeting.
Only holders of record of shares of Class A Common Stock and Class B Common
Stock outstanding at the close of business on the Record Date are entitled to
notice of, and to vote at, the Annual Meeting or any adjournments thereof. As
of the close of business on the Record Date, the Company had outstanding
55,064,335 shares of Class A Common Stock, par value $0.01 per share ("Class A
Common Stock"), and 4,145,000 shares of Class B Common Stock, par value $0.01
per share ("Class B Common Stock"). The Class A Common Stock and Class B Common
Stock (collectively, "Common Stock") are the only outstanding securities of the
Company entitled to vote at the Meeting. A holder of shares of Class A
Common Stock is entitled to one vote, in person or by proxy, for each share of
Class A Common Stock standing in his or her name on the books of the Company on
the Record Date on any matters properly presented to a vote of the shareholders
at the Annual Meeting. A holder of shares of Class B Common Stock is entitled to
ten (10) votes, in person or by proxy, for each share of Class B Common Stock
standing in his name on the books of the Company on the Record Date on any
matter properly presented to a vote of the shareholders at the Annual Meeting.
At the Meeting, the holders of Class A Common Stock, voting separately as a
class, and the holders of Class B Common Stock, voting separately as a class are
entitled to vote on the proposed amendments to the Company's Articles (See
"Proposal No. 2-- The Reverse Stock Split" and "Proposal No. 3-- Change In
Shareholder Vote Required For Certain Matters"). As to the election of
directors, the ratification of the Company's independent auditors, and any other
matters that may properly come before the Meeting, the holders of Class A Common
Stock and Class B Common Stock vote together as a class, with each holder of
Class A Common Stock having one vote for each share of Class A Common Stock held
by him or her, and each holder of Class B Common Stock having ten votes for each
share of Class B Common Stock held by him or her.
QUORUM AND VOTE REQUIRED
The presence at the Meeting, in person or by proxy, of the holders of
issued and outstanding shares of Common Stock entitled to vote at the meeting
and representing a majority of the votes entitled to be cast thereat is
necessary to constitute a quorum to transact business at the Meeting.
Abstentions and broker non-votes are counted for purposes of determining the
presence or absence of a quorum for transaction of business. Abstentions are
counted in tabulations of the votes cast on proposals presented to
shareholders to determine the total number of votes cast. Broker non-votes
are not counted in tabulations of the votes cast on proposals presented to
shareholders to determine the total number of votes cast. Abstentions and
broker non-votes are not counted as votes for or against any such proposal,
but may have the practical effect of a vote against a proposal where the
affirmative vote of a specified percentage of the shares is required.
Election of the director nominees named in Proposal No. 1, or any of them,
requires the affirmative vote of the holders of shares of Class A Common Stock
and Class B Common Stock, voting together as a class, having a plurality of the
voting power of the Company present or represented at the Annual Meeting and
entitled to vote thereon. Votes may be cast in favor or withheld with respect
to each of the director nominees, or any of them. Because the election is based
on a plurality of votes and does not require the affirmative vote of any
percentage of votes present and represented, abstentions, broker non-votes,
and instructions to withhold authority to vote for one or more of the
nominees will result in these nominees receiving fewer votes, but will not
reduce the number of votes otherwise received by these nominees.
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Approval of Proposal No. 2 requires the affirmative vote of the holders of
two-thirds of the shares of Class A Common Stock outstanding and entitled to
vote, voting separately as a class thereon, the affirmative vote of the holders
of two-thirds of the shares of Class B Common Stock outstanding and entitled to
vote, voting separately as a class thereon, and the affirmative vote of the
holders of shares of Class A Common Stock and Class B Common Stock, voting
together as a class, having two-thirds of the voting power of the total Common
Stock outstanding and entitled to vote (in each case regardless of the number of
shares actually voting at the Annual Meeting). Abstentions and broker
non-votes on the proposal will have the same effect as a vote against the
proposal.
Approval of Proposal No. 3 requires the affirmative vote of the holders of
shares of Class A Common Stock and Class B Common Stock, voting together as a
class, having two-thirds of the voting power of the total Common Stock
outstanding and entitled to vote. Abstentions and broker non-votes on the
proposal will have the same effect as a vote against the proposal.
Approval of Proposal No. 4 requires the affirmative vote of the holders of
shares of Common Stock having a majority of the voting power of the Company
present or represented at the Annual Meeting and entitled to vote thereon.
Abstentions on the proposal will have the same effect as a vote against the
proposal. Broker non-votes will not be treated as entitled to vote on the
proposal and will not be counted as votes for or against the proposal.
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PRINCIPAL SHAREHOLDERS AND MANAGEMENT OWNERSHIP
The following table sets forth certain information as of the Record Date
with respect to the shares of Class A Common Stock and Class B Common Stock
beneficially owned by (i) shareholders known to the Company to own more than
5% of the outstanding shares of such classes and (ii) each of the Company's
directors and executive officers and by all the Company's executive officers
and directors as a group. The persons named in the table have sole voting
and investment power with respect to all shares of Common Stock owned by
them, unless otherwise noted.
<TABLE>
<CAPTION>
CLASS A COMMON STOCK(1) CLASS B COMMON
------------------------ -------------------- TOTAL SHARES
STOCK(2) OF CLASS A PERCENT
-------------------- AND CLASS B OF TOTAL
NAME OF BENEFICIAL PERCENT PERCENT COMMON VOTING
OWNER OR GROUP NUMBER OF CLASS NUMBER OF CLASS STOCK TOGETHER POWER(1)
- --------------------------------- ------------- -------- --------- -------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE
OFFICERS:
Darwin Deason . . . . . . . . . . 20,175,618(3) 36.6 4,145,000 100 24,320,618 63.9
David L. Neely. . . . . . . . . . 5,157,110 9.4 0 * 5,157,110 5.3
Douglas R. Deason . . . . . . . . 4,678,722(4) 8.5 0 * 4,678,722 4.8
Layne A. Deutscher. . . . . . . . 115,299(5) 0.2 0 * 115,299 0.1
William W. Solomon, Jr. . . . . . 0 * 0 * 0 *
D. Paul Cabra . . . . . . . . . . 1,039,370 1.9 0 * 1,039,370 1.1
Ron Sorci . . . . . . . . . . . . 19,500 * 0 * 19,500 *
Glenn R. Smith. . . . . . . . . . 876,919 1.6 0 * 876,919 0.9
J. Livingston Kosberg . . . . . . 623,190(6) 1.1 0 * 623,190 0.6
Sheldon I. Stein. . . . . . . . . 0(7) * 0 * 0 *
Robert I. Blackman. . . . . . . . 10,000(8) * 0 * 10,000 *
All executive officers and
directors as a group . . . . 20,943,607 38.0 4,145,000 100 25,088,607 64.6
BENEFICIAL OWNERS OF MORE
THAN 5% OF PRECEPT
COMMON STOCK:
California Federal Bank . . . . . 3,286,263 6.0 0 * 3,286,263 3.4
Joseph D. Greco . . . . . . . . . 3,634,494 6.6 0 * 3,634,494 3.8
</TABLE>
- --------------------
* Less than 0.1%
(1) The information set forth for Class A Common Stock does not include the
shares of Class B Common Stock of such holder which are convertible, at
any time and from time to time, into shares of Class A Common Stock on a
share-for-share basis.
(2) Each share of Class B Common Stock is convertible into Class A Common
Stock on a share-for-share basis at any time.
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<PAGE>
(3) Includes 11,752,121 shares for which David Neely, Douglas Deason, Paul
Cabra and Glenn R. Smith have granted Mr. Deason proxies to vote and an
additional 2,449,700 shares of Class A Common Stock for which Mr. Deason
holds proxies from various other shareholders of the Company.
(4) Includes 200,000 shares of Class A Common Stock owned by a trust for
the benefit of Douglas Deason's children and for which Darwin Deason
serves as Trustee. Darwin Deason and Douglas Deason disclaim beneficial
ownership of such shares.
(5) Does not include 324,902 shares of Class A Common Stock purchasable
pursuant to options.
(6) Held by the J. Livingston Kosberg trust of which Mr. Kosberg is the sole
trustee. Does not include options to purchase 25,000 shares of Class A
Common Stock, which options have not vested and are not currently
exercisable.
(7) Does not include options to purchase 50,000 shares of Class A Common
Stock, which options have not vested and are not currently exercisable.
(8) Does not include options to purchase 25,000 shares of Class A Common
Stock, which options have not vested and are not currently exercisable.
PROPOSAL NO. 1
ELECTION OF DIRECTORS
NOMINEES FOR DIRECTORS; CONTINUING DIRECTORS
The Board of Directors is comprised of nine directorships, divided into
three classes. Darwin Deason, David L. Neely, and Douglas R. Deason are in the
class whose terms expire in 2000. Layne A. Deutscher is in the class whose term
expires in 1999. Scott Walker and Michael Margolies, also in the class whose
terms expire in 2000, resigned from the Board of Directors in May and August of
1998, respectively, leaving two vacancies which the Board of Directors intends
to fill pursuant to the Bylaws. The third class of directors, whose terms
expire this year and whose positions are to be filled at the Annual Meeting is
currently comprised of J. Livingston Kosberg, Robert I. Blackman, and Sheldon
I. Stein. However, Robert I. Blackman was not nominated for reelection at the
Annual Meeting and the nominees for election at this Annual Meeting are J.
Livingston Kosberg, William W. Solomon, Jr., and Sheldon I. Stein.
Shares represented by proxies returned duly executed will be voted,
unless otherwise specified, in favor of the three nominees for the Board of
Directors named above. The proxies cannot be voted for more than three
nominees. The nominees have indicated that they are able and willing to serve as
directors. If any (or all) such persons should be unable to serve, the persons
named in the enclosed proxy will vote the shares covered thereby for such
substitute nominee (or nominees) as the Board of Directors may select.
Shareholders may withhold authority to vote for any nominee by entering the name
of such nominee in the space provided for such purpose on the proxy card.
The following table lists the name and principal occupation of each
nominee and each continuing director, and the year in which each such person was
first elected as a director of the Company:
<TABLE>
<CAPTION>
DIRECTOR
NAME SINCE POSITIONS WITH THE COMPANY
---- ----- --------------------------
<S> <C> <C>
Darwin Deason (2)(3) 1998 Director and Chairman of Executive Committee
David L. Neely (2)(3) 1998 Chairman of the Board, Chief Executive Officer and Director
Douglas R. Deason (2) 1998 President, Chief Operating Officer and Director
Layne A. Deutscher 1998 Senior Vice President, General Counsel, Secretary and Director
William W. Solomon, Jr. (1)(5) 1998 Senior Vice President, Chief Financial Officer and Treasurer
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<PAGE>
J. Livingston Kosberg (1)(3)(4) 1998 Director
Sheldon I. Stein (1) 1998 Director
Robert I. Blackman (1)(4)(5) 1998 Director
</TABLE>
- --------------------
(1) Nominee for election as a director at this year's Annual Meeting.
(2) Member of the Executive Committee.
(3) Member of the Compensation Committee.
(4) Member of the Audit Committee.
(5) Mr. Blackman will not run for re-election to the Board of Directors.
William W. Solomon, Jr. is the nominee for election to fill the position
formerly occupied by Mr. Blackman.
BUSINESS EXPERIENCE OF NOMINEES AND CONTINUING DIRECTORS
DARWIN DEASON, age 58, has served as a Director of Precept since its
formation in 1988. Mr. Deason is also currently the Chairman of the Board and
Chief Executive Officer of ACS. Prior to the formation of ACS, Mr. Deason spent
20 years with MTech, a data processing subsidiary of MCorp, a bank holding
corporation based in Dallas, Texas ("MCorp"), serving as MTech's Chief Executive
Officer and Chairman of the Board from 1978 until April 1988, and served on the
board of various subsidiaries of MTech and MCorp. Prior to that, Mr. Deason was
employed in the data processing department of Gulf Oil in Tulsa, Oklahoma.
Darwin Deason is the father of Douglas R. Deason.
DAVID L. NEELY, age 52, has served as Chairman of the Board and Chief
Executive Officer of Precept and Precept Business Products, Inc., its business
products distribution company, from formation in October 1988. Prior to the
spinoff of Precept from ACS, Mr. Neely also served as Executive Vice President
of ACS. Prior to founding Precept, Mr. Neely was a senior officer of MTech and
an Executive Vice President of Image Tech, the business products affiliate of
MTech. Mr. Neely has over 20 years of experience in the business products
industry.
DOUGLAS R. DEASON, age 36, has served as President and Chief Operating
Officer of Precept since 1995. Mr. Deason joined Precept in 1991 and from 1993
through 1995 served as Executive Vice President of an operating subsidiary of
Precept. For the seven years immediately prior to joining Precept, Mr. Deason
was a senior commercial real estate broker with the Dallas branch of New York
based Cushman and Wakefield. Douglas R. Deason is the son of Darwin Deason.
LAYNE A. DEUTSCHER, age 39, joined Precept as Senior Vice President and
General Counsel in May 1997. Prior to joining Precept, he was with ACS from
February 1993 until May 1997 serving most recently as Senior Vice President of
Corporate Development responsible for all merger and acquisition activity and
before that as Senior Vice President and Associate General Counsel--Mergers and
Acquisitions. Mr. Deutscher previously was an attorney with the law firm of
Haynes and Boone, L.L.P. from 1987 until February 1993. He was licensed as a
Certified Public Accountant in 1988, and is a graduate of the Wharton School of
the University of Pennsylvania and the University of Texas School of Law.
WILLIAM W. SOLOMON, JR., age 42, has served as Senior Vice President and
Chief Financial Officer of Precept since June 1998. Prior to that, Mr. Solomon
served as Vice President, Corporate Controller, Acting Chief Financial Officer
and Assistant Secretary of American Pad & Paper Company, a publicly traded
company, from September 1996 to June 1998. From 1992 to 1996, Mr. Solomon was a
Senior Manager with BDO Seidman LLP and Price Waterhouse LLP. From 1990 to
1992, Mr. Solomon was Chief Financial Officer and Controller of Eagle Hardware &
Garden, a publicly traded home improvement retail company. From 1978 through
1990, Mr. Solomon was an employee of Ernst & Young LLP. He was licensed as a
Certified Public Accountant in 1979.
J. LIVINGSTON KOSBERG, age 61, has served as Chairman of the Board of
U.S. Physical Therapy, Inc. ("U.S. Physical Therapy") since April 1992 and as
the Chief Executive Officer of that Company from April 1992 to August 1995. From
September 1991 to June 1995, Mr. Kosberg also served as Chairman of the Board
and was employed by
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<PAGE>
CareerStaff Unlimited, Inc., which is a national provider of temporary
rehabilitation therapist staffing. Prior to April 1992, Mr. Kosberg was
primarily engaged in managing personal investments through a variety of
ventures and entities, including National Rehab Associates, Inc., the
predecessor of U.S. Physical Therapy. Mr. Kosberg was Chairman of the Board
from April 1990 to April 1992, and a member of the Board from May 1993 to
March 1994,of BioMedical Waste Systems, Inc., a medical waste treatment
company.
SHELDON I. STEIN, age 45, is a Senior Managing Director and ovesees Bear
Stearns' Southwestern Corporate Finance Department. Mr. Stein received a
Bachelors degree Magna Cum Laude from Brandeis University where he was a member
of Phi Beta Kappa and a J. D. from Harvard Law School. He is a director of
CellStar Corporation, FirstPlus Financial Group, Inc., Fresh America Corp., The
Men's Wearhouse, Inc. and Tandycrafts, Inc. He is also a Trustee of the
Greenhill School in Dallas and a Fellow of Brandeis University.
Except as otherwise noted above, (i) no family relationships exist among
the directors of the Company, and (ii) none of the nominees holds a directorship
in any company with a class of securities registered pursuant to Section 12 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or subject
to the requirements of Section 15(d) of the Exchange Act or any company
registered as an investment company under the Investment Company Act of 1940, as
amended.
THE BOARD RECOMMENDS A VOTE "FOR" EACH OF THE NOMINEES FOR DIRECTOR SET
FORTH ABOVE.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The business of the Company is managed under the direction of the Board
of Directors. The Board meets on a regularly scheduled basis to review
significant developments affecting the Company and to act on matters requiring
Board approval. It also holds special meetings when an important matter
requires Board action between scheduled meetings. The Board of Directors met
one time and acted one time by written consent during the fiscal year ended June
30, 1998.
The Board of Directors has three standing committees, the Audit
Committee, the Compensation Committee and the Executive Committee and the full
Board of Directors acts to nominate persons to serve on the Board. The
functions of the committees, their current members and the number of meetings
held during the fiscal year ended June 30, 1998 are described below.
The functions performed by the Audit Committee include: recommending to
the Board of Directors selection of the Company's independent auditors for
the ensuing year; reviewing with the independent auditors and management the
scope and results of the audit; reviewing the independence of the independent
auditors; reviewing the independent auditors' written recommendations and
corresponding actions by management; and meeting with management and the
independent auditors to review the effectiveness of the Company's system of
internal controls. The committee currently is composed of Robert Blackman and
J. Livingston Kosberg. The committee did not meet during the 1998 fiscal year,
but met on September 23, 1998 to discuss and act on matters relating to the 1998
fiscal year.
The Compensation Committee administers the Company's 1996 Stock Option
Plan and 1998 Stock Incentive Plan and reviews other matters regarding the
compensation of employees of the Company. The committee currently is composed
of Darwin Deason, David L. Neely, and J. Livingston Kosberg. The committee did
not meet during the 1998 fiscal year, but met on September 23, 1998 to discuss
and act on matters relating to fiscal 1998 compensation matters.
The function of the Executive Committee is to direct and manage the
business and affairs of the Company in the intervals between meetings of the
Board of Directors. The Executive Committee is empowered to act in lieu of the
Board on any matter except that for which the Board has specifically reserved
authority for itself and except for those
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<PAGE>
matters specifically reserved for the full Board pursuant to the Texas
Business Corporation Act (the "TBCA"). The Executive Committee is currently
comprised of Darwin Deason (Chairman), David L. Neely, and Douglas R. Deason.
The Executive Committee acted by written consent one time and met one time
during the 1998 fiscal year.
During the fiscal year ended June 30, 1998, each director attended
more than 75% of the meetings of the Board of Directors and respective
committees on which he served.
PROPOSAL NO. 2
THE REVERSE STOCK SPLIT
GENERAL
The Board of Directors has unanimously approved, subject to approval by
the shareholders of the Company, a proposal to amend the Fourth Article of the
Articles to effect a one-for-five reverse stock split (the "Reverse Stock
Split") of the Company's Common Stock (both Class A and Class B). [THE BOARD OF
DIRECTORS, IN ITS SOLE DISCRETION, MAY CHANGE THE REVERSE STOCK SPLIT
RATIO PRIOR TO THE MAILING OF THE DEFINITIVE PROXY STATEMENT.] A copy of the
Articles, as proposed to be amended and restated as a result of the actions
described in this Proposal No. 2 and in Proposal No. 3 (the "Amended and
Restated Articles"), is attached hereto as Exhibit A. However, the text of such
proposed Amended and Restated Articles is subject to change to the extent
required by the Texas Secretary of State, and to the extent that one or the
other, but not both, of Proposals No. 2 and 3 is approved (in which case the
amendments set forth in Appendix A relating to the unapproved Proposal would be
eliminated). If the amendment is approved by the shareholders, each five shares
of Common Stock of the Company (the "Old Common Stock") will be converted
automatically into one share of new Common Stock ("New Common Stock") of the
same class (i.e., each ten shares of Class A Common Stock will be converted into
one share of Class A New Common Stock and each five shares of Class B Common
Stock will be converted into one share of Class B New Common Stock). To avoid
the existence of fractional shares of Common Stock, shareholders who would
otherwise be entitled to receive a fractional share of New Common Stock as a
result of the Reverse Stock Split (the "Fractional Shareholders") shall receive
a cash distribution in lieu thereof. The effective date of the Reverse Stock
Split will be the date on which the Amended and Restated Articles are filed with
the Secretary of State of Texas, which is anticipated to be as soon as
practicable following the date of the Annual Meeting. The Board of Directors
reserves the right, in its sole discretion, to abandon the Reverse Stock
Split at any time, even after approval by the shareholders.
This amendment to the Articles will reduce the number of shares of Class
A and Class B Common Stock outstanding, but will not reduce or otherwise change
the number of shares of Common Stock authorized and available for issuance.
PLEASE NOTE THAT THE REVERSE STOCK SPLIT WILL NOT CHANGE YOUR PROPORTIONATE
EQUITY INTERESTS IN THE COMPANY, EXCEPT AS MAY RESULT FROM THE ELIMINATION OF
FRACTIONAL SHARES.
REASONS FOR THE REVERSE STOCK SPLIT
Many investors look upon low priced stock as unduly speculative in nature
and, as a matter of policy, avoid investment in such stocks. Such investors may
believe that low stock prices reflect companies that are of low quality or poor
performers. Accordingly, the Board of Directors believes that the current per
share price of the Common Stock may reduce the effective marketability of the
shares because of the reluctance of many leading brokerage firms to recommend
low priced stocks, particularly stocks that trade at or below $1.00, to their
clients. Various brokerage firm policies and practices tend to discourage
individual brokers from dealing in low priced stocks for various reasons,
including the perception that such stocks are unduly speculative. Some of those
policies and practices pertain to the payment of brokers' commissions and to
time-consuming procedures which function to make the handling of low priced
stocks unattractive to brokers from an economic standpoint. Additionally, many
institutional investors have policies prohibiting them from holding low priced
stock in their own portfolios. In addition, the structure of trading
commissions also tends to have an adverse impact upon holders of low priced
stock because the brokerage commission on a purchase or sale of low priced stock
generally represents a higher percentage of the sales price than the commission
-8-
<PAGE>
on higher priced issues. Moreover, the analysts at many brokerage firms will
not monitor the trading activity of lower priced stocks.
The Board of Directors believes that the Reverse Stock Split should
result in a stock price of five times the current price range, putting the Class
A Common Stock in a price range which enhances its marketability to the
financial community and investing public, and mitigates any reluctance on the
part of brokers and investors to trade in the Company's Class A Common Stock.
In addition, the Board of Directors is hopeful that the Reverse Stock Split will
permit the Class A Common Stock to be eligible for quotation on the Nasdaq
National Market, or listed or admitted for trading on a national securities
exchange, which would result in a broader trading market for the Company's
securities. The Company's Class A Common Stock is currently quoted on the
Nasdaq SmallCap Market. The Board of Directors believes that the Reverse Stock
Split will increase the trading price of the Class A Common Stock and thereby
help Precept to remain in compliance with the criteria required for Precept to
continue to be listed on the Nasdaq SmallCap Market (the "Criteria").
Currently, in order to maintain the Company's Nasdaq SmallCap Listing, the
Criteria requires that the Precept Class A Common Stock have a minimum bid price
of $1.00. On October 12, 1998, the Class A Common Stock closed at $1.0625.
Notwithstanding the foregoing, there can be no assurance that (i) the
market price of the Class A Common Stock immediately after implementation of
the Reverse Stock Split will increase, and, if it increases, no assurance
that such increase can be maintained for any period of time, or that such
market price will approximate five times the market price before the Reverse
Stock Split, (ii) any increase in the market price of the Class A Common
Stock would increase investment in the stock by brokerage houses or
individual investors, especially since there are many other factors that
affect demand for stock, (iii) the Reverse Stock Split will permit the Common
Stock to be eligible for quotation on the Nasdaq National Market or listed or
admitted to trading on a national securities exchange, or (iv) as a result of
the Reverse Stock Split or otherwise, Precept will be capable of maintaining
compliance with all of the Criteria. In addition, while the Board of
Directors believes that the likely increase in stock price resulting from the
Reverse Stock Split will help Precept comply with such Criteria, the Reverse
Stock Split will also have the effect of decreasing the Company's "public
float" and the number of "round lot" shareholders of the Company, which could
ultimately have a negative impact on Precept's continued compliance with
certain of the Criteria regarding these items. The Board of Directors
believes that, for purpose of compliance with the Criteria, the benefits of
the likely increase in stock price resulting from the Reverse Stock Split
outweighs the negative effect of any decrease in public float and the number
of round lot shareholders.
Dissenting shareholders have no appraisal rights under Texas law or under
the Articles or Bylaws in connection with the Reverse Stock Split.
FOR THE REASONS STATED ABOVE, THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE APPROVAL OF THE AMENDMENT.
EFFECTIVENESS OF THE REVERSE STOCK SPLIT
If Proposal No. 2 is approved by the shareholders, the Reverse Stock
Split would become effective at such time as the Company files the Restated and
Amended Articles of Incorporation with the Secretary of State of Texas (the
"Effective Date"), which is anticipated to be as soon as practicable following
the date of the Annual Meeting. Even if the Reverse Stock Split is approved by
the shareholders, it is within the discretion of the Board of Directors not to
carry out the Reverse Stock Split. Upon the filing of the Amended and Restated
Articles of Incorporation, all of the Old Common Stock will be converted into
New Common Stock of the same class, as described above and as set forth in the
Amended and Restated Articles. No fractional shares will be issued in the
Reverse Stock Split. In lieu of any such fractional shares, each Fractional
Shareholder will instead receive an amount of cash (without interest) determined
by multiplying (i) the fractional interest to which such holder would otherwise
be entitled (after taking into account all shares of Common Stock then held by
such holder) and (ii) the average of the closing price of the Class A
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<PAGE>
Common Stock on the Nasdaq SmallCap Market for the five successive trading days
immediately preceding the Effective Date. From and after the Effective Date,
certificates representing shares of Old Common Stock shall be deemed to
represent only the right to receive shares of New Common Stock of the same class
to which an individual shareholder is entitled.
EFFECTS OF REVERSE STOCK SPLIT
If the Amendment is approved by the shareholders and implemented by the
Board of Directors, the principal effect of the Reverse Stock Split will be to
decrease the number of outstanding shares of Common Stock from 59,209,335 shares
to approximately 11,841,867, shares, based on share information as of October 8,
1998. The Reverse Stock Split would not affect the PROPORTIONATE equity
interest in the Company of any holder of Common Stock, except as may result from
the provisions for the elimination of fractional shares as described below. In
addition, the Board of Directors will take appropriate action to adjust
proportionately the number of shares of Common Stock issuable upon exercise of
outstanding warrants, options and other convertible securities, and to adjust
the related exercise and conversion prices, to reflect the Reverse Stock Split.
The Reverse Stock Split will not affect the registration of the Common Stock
under the Exchange Act or the listing of the Common Stock on the Nasdaq SmallCap
Market. The relative rights and preferences of the New Common Stock (both Class
A and Class B) will be identical to the relative rights and preferences of the
Old Common Stock (both Class A and Class B).
The Reverse Stock Split may leave certain shareholders with one or more
"odd lots" of New Common Stock, i.e., stock in amounts of less than 100 shares.
These odd lots may be more difficult to sell or require greater transactions
costs per share to sell, than shares in even multiples of 100.
The shares of New Common Stock will be fully paid and non-assessable.
The relative voting and other rights of holders of the New Common Stock (both
Class A and Class B) will not be altered by the Reverse Stock Split. Because
no fractional shares of New Common Stock will be issued, any shareholder who
owns less than five shares of either Class A or Class B Old Common Stock will
cease to be a shareholder of the Company as of the Effective Date;
nevertheless, the Company does not anticipate that the Reverse Stock Split
will result in any material reduction in the number of holders of Common
Stock. Each shareholder's percentage ownership of the New Common Stock will
not be altered except for the effect of the elimination of fractional shares.
The Company estimates that it will cost less than $5,000 to pay for
fractional shares. While the authorized Common Stock of the Company will
remain unchanged, the Reverse Stock will greatly reduce the number of
shares of Common Stock outstanding, and the overall effect will be an
increase in authorized but unissued shares of Common Stock as a result of the
Reverse Stock Split. The Company has authorized (and will continue to have
after the Reverse Stock Split) 100 million shares of Class A Common Stock and
10.5 million shares of Class B Common Stock. As of October 8, 1998, the
Company has 44,935,665 shares of authorized but unissued Class A Common Stock
and 6,355,000 shares of authorized but unissued Class B Common Stock. As a
result of the Reverse Stock Split, the Company will have 88,987,133 shares of
authorized but unissued Class A Common Stock and 9,671,000 shares of
authorized but unissued Class B Common Stock. Such shares may be issued by
the Board of Directors in its discretion. After the Reverse Stock Split, (i)
the Class A Common Stock issued and outstanding will represent approximately
11.0% of the Company's authorized Class A Common Stock, whereas the Class A
Old Common Stock represented approximately 55.1% of the authorized Class A
Common Stock as of October 8, 1998, and (ii) the Class B Common Stock issued
and outstanding will represent approximately 7.9% of the Company's authorized
Class B Common Stock, whereas the Class B Old Common Stock represented
approximately 39.5% of the authorized Class B Common Stock. Any future
issuance will have the effect of diluting the percentage of stock ownership
and voting rights of the present holders of Common Stock. The Board of
Directors has no present plans with respect to such an issuance.
The following table illustrates the principal effects of the Reverse
Stock Split discussed in the preceding paragraphs:
-10-
<PAGE>
<TABLE>
<CAPTION>
NUMBER OF SHARES OF COMMON STOCK PRIOR TO REVERSE STOCK SPLIT AFTER REVERSE STOCK SPLIT
- -------------------------------- ---------------------------- -------------------------
<S> <C> <C>
AUTHORIZED:
Class A.................... 100,000,000 100,000,000
Class B.................... 10,500,000 10,500,000
OUTSTANDING:
Class A.................... 55,064,335 11,012,867
Class B.................... 4,145,000 829,000
AVAILABLE FOR FUTURE ISSUANCE:
Class A.................... 44,935,665 88,987,133
Class B.................... 6,355,000 9,671,000
</TABLE>
As an additional result of the Reverse Stock Split, the Company's stated
capital, which consists of the par value per share of the Common Stock
multiplied by the number of shares of Common Stock outstanding, will be reduced
by approximately $473,674 to $118,419 on the Effective Date. Correspondingly,
the Company's capital in excess of stated capital, which consists of the
difference between the Company's stated capital and the aggregate amount paid to
the Company upon the issuance by the Company of all currently outstanding Common
Stock, will be increased by approximately $473,674.
While the Board of Directors believes it advisable to authorize and
approve the Reverse Stock Split for the reasons set forth above, the Board of
Directors is aware that the increase in the number of authorized but unissued
shares of Common Stock may have a potential anti-takeover effect in that it
would enhance the ability of the Company to issue additional shares which could
be used to thwart persons, or otherwise dilute the stock ownership of
shareholders seeking to control the Company. In addition, the mere availability
of such additional shares may work to discourage an attempt to acquire control
of the Company other than through negotiations with the Board of Directors. The
Reverse Stock Split is not being recommended by the Board of Directors as part
of an anti-takeover strategy and the Board of Directors has no knowledge of any
party seeking to alter its current stockholding position in the Company.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary of certain federal income tax consequences of the
Reverse Stock Split is based on current law, including the Internal Revenue Code
of 1986, as amended (the "Code"), regulations thereunder, administrative rulings
and court decisions, all of which are subject to change (possibly
retroactively). The summary does not address state, local or foreign tax
consequences, and is for general information only. The tax treatment of a
shareholder may vary depending upon the particular facts and circumstances of
such shareholder. Certain shareholders, including insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, non-resident
aliens, foreign corporations and persons who do not hold the Common Stock as a
capital asset, may be subject to special rules not discussed below.
ACCORDINGLY, EACH SHAREHOLDER SHOULD CONSULT HIS OR HER OWN TAX ADVISOR
TO DETERMINE THE PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF THE REVERSE STOCK
SPLIT, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL OR FOREIGN
INCOME TAX AND OTHER LAWS.
The Reverse Stock Split will qualify as a recapitalization described
in Section 386(a)(1)(E) of the Code, and no gain or loss will be recognized
by the Company in connection with the Reverse Stock Split. The receipt by a
shareholder of shares of New Common Stock (except to the extent that cash is
received in lieu of fractional shares) in the Reverse Stock Split will be a
nontaxable transaction for federal income tax purposes. Consequently, except
with respect to cash received in lieu of fractional shares of New Common
Stock, a shareholder will not recognize taxable gain or loss with respect to
shares of New Common Stock received as a result of the Reverse Stock Split.
In addition, the aggregate tax basis of such shareholder's shares of Old
Common Stock prior to the Reverse Stock Split (excluding the portion of
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<PAGE>
such basis allocable to fractional shares of New Common Stock) will carry
over as the tax basis of the shareholder's shares of New Common Stock
received in the Reverse Stock Split. Each shareholder will be required to
allocate such shareholder's basis in such shareholder's shares of Old Common
Stock ratably among the total number of shares of New Common Stock received
as a result of the Reverse Stock Split. The holding period of the shares of
New Common Stock will include the holding period during which the shareholder
held the Old Common Stock, provided that such Old Common Stock was held by
the shareholder as a capital asset on the Effective Date.
The receipt by a shareholder of cash in lieu of a fractional share of
New Common Stock pursuant to the Reverse Stock Split will be a taxable
transaction for federal income tax purposes. The receipt of cash in lieu of a
fractional share of New Common Stock will generally result in taxable gain or
loss to the shareholder measured by the difference between the amount of cash
received and the adjusted basis of the fractional share. However, a
shareholder should consult his or her tax advisor as to the possibility of
dividend treatment upon the receipt of cash in lieu of a fractional share
pursuant to Section 302 of the Code. Assuming that the receipt of cash in
lieu of a fractional share is not treated as a dividend and that the Old
Common Stock was held by the shareholder as a capital asset on the Effective
Date, any such gain or loss will be a capital gain or loss, and will be a
long term capital gain or loss if, on the Effective Date, the shares of Old
Common Stock have been held by the shareholder for more than one year.
Based on the Treasury regulations promulgated under the Code, the Company
does not believe that it or any of its shareholders will be subject to backup
withholding with respect to the distribution of cash in lieu of a fractional
share to a shareholder.
EXCHANGE OF STOCK CERTIFICATES
If the proposal to implement the Reverse Stock Split is approved by the
shareholders and effected by the Board of Directors, shareholders will be
required to exchange their stock certificates for new certificates representing
the shares of New Common Stock. Shareholders of record on the Effective Date
will be furnished the necessary materials and instructions for the surrender and
exchange of share certificates at the appropriate time by the Company's transfer
agent, Continental Stock Transfer & Trust Company (the "Transfer Agent").
Shareholders will not have to pay a transfer fee or other fee in connection with
the exchange of certificates. Shareholders should not submit any certificates
until requested to do so.
As soon as practicable after the Effective Date, the Company will request
all shareholders to return their stock certificates representing issued shares
of Old Common Stock outstanding on the Effective Date ("Old Certificates") in
exchange for certificates representing the number of whole shares of New Common
Stock of the same class into which the shares of Old Common Stock have been
converted ("New Certificates") as a result of the Reverse Stock Split. Each
shareholder will receive a letter of transmittal from the Transfer Agent
containing instructions on how to exchange certificates. SHAREHOLDERS SHOULD
NOT SUBMIT THEIR OLD CERTIFICATES TO THE TRANSFER AGENT UNTIL THEY RECEIVE THESE
INSTRUCTIONS. In order to receive New Certificates, shareholders must surrender
their Old Certificates pursuant to the Transfer Agent's instructions, together
with the properly executed and completed letter of transmittal and such evidence
of ownership of such shares as the Company may require.
Beginning with the Effective Date, each Old Certificate, until
surrendered and exchanged as described above, will be deemed for all corporate
purposes to evidence ownership of the whole number of shares of New Common Stock
into which the shares evidenced by such Old Certificates have been converted.
No fractional shares of New Common Stock will be issued as a result of
the Reverse Stock Split. In lieu of receiving fractional shares, shareholders
who hold a number of shares not evenly divisible by five immediately prior to
the Reverse Stock Split will be entitled to receive cash for any fractional
share, as described above.
Until they have surrendered their stock certificates for exchange,
shareholders will not be entitled to receive any dividends or other
distributions that may be declared and payable to holders of record. Upon the
surrender of certificates
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<PAGE>
representing Old Common Stock, certificates representing New Common Stock
together with any such withheld dividends or other distributions, without
interest, will be delivered. At the same time or as soon as possible
thereafter, any cash payment for a fractional share will be paid (without
interest).
Any shareholder whose certificate for Old Common Stock has been lost,
destroyed or stolen will be entitled to issuance of a certificate representing
the shares of New Common Stock of the same class into which such shares will
have been converted upon compliance with such requirements as the Company and
the Transfer Agent customarily apply in connection with lost, stolen or
destroyed certificates.
VOTE REQUIRED
Adoption of the proposal to amend the Articles to increase the number of
authorized shares of Common Stock requires the affirmative vote of the holders
of two-thirds of the shares of Class A Common Stock outstanding and entitled to
vote, voting separately as a class thereon, the affirmative vote of the holders
of two-thirds of the shares of Class B Common Stock outstanding and entitled to
vote, voting separately as a class thereon, and the affirmative vote of the
holders of shares of Class A Common Stock and Class B Common Stock, voting
together as a single class, having two-thirds of the voting power of the
total Common Stock outstanding and entitled to vote (in each case regardless
of the number of shares actually voting at the Annual Meeting). If approved
by the shareholders, the Reverse Stock Split will become effective upon the
filing with the Secretary of State of the State of Texas of the Amended and
Restated Articles of Incorporation. Unless otherwise instructed, it is the
intent of the persons named in the Proxy to vote all Proxies FOR the adoption
of this proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE AMENDMENT TO THE COMPANY'S
ARTICLES TO EFFECT THE REVERSE STOCK SPLIT.
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<PAGE>
PROPOSAL NO. 3
AMENDMENT TO ARTICLES TO CHANGE VOTE
REQUIRED FOR CERTAIN ACTIONS
The Board of Directors has unanimously approved, subject to approval by
the shareholders of the Company, a proposal to amend the Articles to provide
that any action which, under the provisions of the TBCA would otherwise (but for
such contrary provision in the Articles) be required to be authorized by the
affirmative vote of the holders of any specified portion of the shares of the
Company entitled to vote thereon, will instead require the approval of the
holders of shares representing a MAJORITY of the votes entitled to be cast
thereon. In addition, the amendment will specify that any action which, under
the TBCA would otherwise require the affirmative vote of the holders of a
specified portion of the shares of any class or series voting separately as a
class or series, will instead require the approval of the holders of shares
representing a MAJORITY of shares of such class or series entitled to vote
thereon.
The amendment will be effected by adding a new Article Sixteen to the
Articles. A copy of the Articles, as proposed to be amended and restated as a
result of the actions described in this Proposal No. 3 and in Proposal No. 2, is
attached hereto as Exhibit A. However, the text of such proposed Amended and
Restated Articles is subject to change to the extent required by the Texas
Secretary of State, and to the extent that one or the other, but not both, of
Proposals No. 2 and 3 is not approved, or is otherwise abandoned by the Board,
at its discretion (in which case the amendments set forth in Appendix A relating
to the unapproved or abandoned Proposal would be eliminated).
REASONS FOR AMENDMENT
Management believes that the proposed amendment would benefit the Company
by making it less difficult and costly for the Board of Directors to effect any
required amendments the Articles of Incorporation in the future and to take any
other actions which would, but for the proposed amendment, require approval by
any required vote other than a simple majority of the votes entitled to be cast
thereon. The amendment would make the vote required for such actions consistent
with that required under the laws of a number of jurisdictions, including under
the Delaware General Corporation Law. The amendment would permit the Company
to pursue certain extraordinary corporate activities (such as a merger) or
make future changes to the Company's Articles of Incorporation with the
approval of the majority of the votes entitled to be cast thereon, which
management believes would provide the Company with greater corporate
flexibility. Management believes that the need to obtain the affirmative vote
of the holders of shares representing greater than a majority of the votes to
be cast can be unduly costly and burdensome, and allows the holders of a
minority of the voting power to slow down the Company's ability to act on
certain matters and, potentially, to thwart the desire of the holders of a
majority of the Company's voting power.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE PROPOSAL TO
AMEND THE ARTICLES TO CHANGE THE VOTE REQUIRED FOR ALL MATTERS TO A MAJORITY.
EFFECTS OF AMENDMENT
The TBCA currently specifies that, unless provided otherwise in the
articles of incorporation, certain matters require approval by the vote of a
specified percentage of shares of a corporation greater than a simple majority.
For example, under the TBCA, amendments to a corporation's articles of
incorporation normally require approval by the affirmative vote of the holders
of at least two-thirds of the outstanding shares entitled to vote thereon (and,
in certain cases where a class-vote is required, two-thirds of each class so
entitled, voting separately as a class). In addition, absent a provision in the
articles of incorporation (such as that proposed to be added to the Articles as
a result of this Proposal No. 3) specifying a different vote, the TBCA requires
approval by a greater than majority vote for certain mergers, sales of all or
substantially all of a corporation's assets, and certain other extraordinary
corporate actions.
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<PAGE>
As a result of the proposed amendment, any action which would otherwise
be required under the TBCA to be authorized by the affirmative vote of the
holders of any specified portion of the shares of the Company, will instead
require the approval of the holders of shares representing a MAJORITY of the
votes entitled to be cast thereon. Where, pursuant to the TBCA, a class or
series of the Company's stock would be entitled to vote separately as a class or
series on a matter, such requirement shall not be affected by the proposed
amendment, and such class or series shall remain entitled to vote separately as
a class or series.
The principal effect of the amendment will be to make it easier for the
Board of Directors to seek and obtain shareholder approval of certain matters
which, under the TBCA, would otherwise require more than a majority of the
shareholder voting power for approval. The Board of Directors believes that
this amendment will provide greater operating flexibility and reduce expenses in
connection with such matters. The requirement of a majority vote for
shareholder approval is consistent with the vote required under the corporate
statutes of a number of jurisdictions, including Delaware. By virtue of his
ownership of shares and voting proxies granted by certain members of management
and other persons, Darwin Deason has approximately 63.9% of the total voting
power of the combined Common Stock (see "Principal Shareholders and Management
Ownership", above), and, if the proposed amendment were adopted, would be able,
acting alone, to approve certain matters which would previously have required
the affirmative vote of stockholders representing two-thirds of the shares
entitled to vote. However, since Darwin Deason and all of the other executive
officers and directors hold, in the aggregate, only 38% of the Class A Common
Stock outstanding, the proposed amendment would not enable them, acting alone,
to approve any action requiring the approval of the holders of the Class A
Common Stock voting separately as a class.
VOTE REQUIRED
Adoption of the proposal to amend the Articles to change the vote
required for shareholder approval of certain matters to a majority of the votes
entitled to vote thereon requires the affirmative vote of the holders of shares
of Class A Common Stock and Class B Common Stock, voting together as a class,
and having two-thirds of the voting power of the total Common Stock outstanding
and entitled to vote (in each case regardless of the number of shares actually
present or voting at the Annual Meeting). If approved by the shareholders, the
amendment will become effective upon the filing with the Secretary of State of
the State of Texas of the Amended and Restated Articles of Incorporation.
Unless otherwise instructed, it is the intent of the persons named in the Proxy
to vote all Proxies FOR the adoption of this proposal.
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<PAGE>
PROPOSAL NO. 4
INDEPENDENT AUDITORS
Upon the recommendation of the Audit Committee and subject to
ratification by the shareholders at the Meeting, the Board of Directors has
selected Ernst & Young LLP to audit the consolidated financial statements of the
Company for fiscal 1999. Ernst & Young LLP has served the Company in this
capacity since 1994. Representatives of Ernst & Young LLP are expected to be
present at the Meeting, will have the opportunity to make a statement if they
desire to do so, and will be available to respond to appropriate questions.
VOTE REQUIRED
Ratification of the selection of the Company's independent auditors
requires the affirmative vote of the holders of shares of Common Stock having a
majority of the voting power of the Company present or represented at the Annual
Meeting and entitled to vote thereon. Unless otherwise instructed or
restricted, it is the intent of the persons named in the Proxy to vote Proxies
FOR ratification of the selection of the Company's independent auditors.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE PROPOSAL TO
RATIFY THE SELECTION OF THE COMPANY'S INDEPENDENT AUDITORS.
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MANAGEMENT
EXECUTIVE OFFICERS
The following table sets forth certain information regarding the
Company's executive officers. Officers are elected annually by the Board of
Directors and serve at its discretion:
<TABLE>
<CAPTION>
NAME POSITIONS WITH THE COMPANY
---- --------------------------
<S> <C>
David L. Neely Chairman of the Board, Chief Executive Officer
and Director
Douglas R. Deason President, Chief Operating Officer and Director
Layne A. Deutscher Senior Vice President, General Counsel, Secretary
and Director
William W. Solomon, Jr. Senior Vice President, Chief Financial Officer and
Treasurer
D. Paul Cabra President, Precept Business Products, Inc.
Ronald P. Sorci President, Precept Transportation Services, LLC
Glenn R. Smith Executive Vice President and Chief Administrative
Officer, Precept Business Products, Inc. and Precept
Transportation Services, LLC
</TABLE>
BUSINESS EXPERIENCE OF MANAGEMENT TEAM
FOR BIOGRAPHICAL INFORMATION REGARDING MESSRS. NEELY, DEASON,
DEUTSCHER AND SOLOMON, SEE "PROPOSAL NO. 1 -- ELECTION OF DIRECTORS".
D. PAUL CABRA, age 52, has served as President of Precept Business
Products, Inc., the business products subsidiary of Precept, since July 1,
1998. Prior thereto, Mr. Cabra served as Executive Vice President of Sales
and Operations for Precept from August 1997, as the Senior Vice President of
Sales for Precept's Central, South and Eastern regions from 1993 to August
1997, and as Branch Manager from June 1991 to 1993. He was the Chief
Executive Officer and sole shareholder of CABCO Business Forms, Inc., a
business products distributor, which was acquired by Precept in 1991. Mr.
Cabra has over 18 years experience in the business products industry.
RONALD P. SORCI, age 48, has served as President of Precept
Transportation Services, LLC, the transportation services subsidiary of
Precept, since March 1998. Prior to this position, Mr. Sorci served as
President and Treasurer (Chief Financial Officer) of U.S. Transportation
Systems, Inc. ("USTS") since August 1997. From July 1996 until his election
as President of USTS, Mr. Sorci was the Controller of USTS. Prior to joining
USTS, Mr. Sorci was President and owner of RPS Executive Limousines Ltd., a
luxury town car and limousine service.
GLENN R. SMITH, age 41, has served as Executive Vice President and Chief
Administrative Officer of each of Precept Business Products, Inc., the business
products subsidiary of Precept, and Precept Transportation Services, LLC, the
transportation services subsidiary of Precept, since July 1, 1998. Prior
thereto, from December 1989, Mr. Smith served as Executive Vice President and
Chief Administrative Officer of Precept, responsible for corporate purchasing,
distribution operations and all administrative functions of Precept. Mr. Smith
joined Precept as Corporate Purchasing Manager at its formation in October 1988.
Prior to joining Precept, Mr. Smith was Corporate Purchasing Manager of
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MTech. He began his employment with MTech as a corporate buyer in October of
1984. Mr. Smith has over 13 years experience in the business products
industry.
EXECUTIVE COMPENSATION AND OTHER INFORMATION
DIRECTORS' COMPENSATION
Precept's directors are not paid any compensation for serving on the
Board of Directors of Precept, although Precept may in the future decide to pay
directors' fees. Directors will be reimbursed for their travel expenses in
connection with meetings.
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table sets forth certain information regarding compensation
paid during each of the Company's last three fiscal years to the Company's Chief
Executive Officer and each of the Company's other executive officers serving at
the end of fiscal year ended June 30, 1998 whose salary and bonus exceeded
$100,000 (collectively, the "Named Executive Officers").
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation(2)
---------------------------
Annual Compensation Awards Payouts
------------------------------------ ---------- -------
Securities
Name and Other Annual Restricted Underlying LTIP All Other
Principal Fiscal Compensation Stock Options/SARs Payouts Compensation
Position Year Salary ($) Bonus ($) ($)(1) Award(s) (#) ($) ($)
- -------------------- ------ ---------- --------- ------------ ---------- ------------ ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
David L. Neely 1998 241,500 362,250 - - - - -
Chairman and Chief 1997 241,500 279,700 - - - - -
Executive Officer 1996 230,000 345,000 - - - - -
Douglas R. Deason, 1998 210,000 210,000 - - - - -
President and Chief 1997 210,000 162,310 - - - - -
Operating Officer 1996 200,000 200,000 - - - - -
Glenn R. Smith, 1998 104,832 50,000 - - - - -
Executive Vice 1997 104,832 25,800 - - - - -
President-Business 1996 97,853 67,500 - - - - -
Products and
Transportation Groups
D. Paul Cabra, 1998 141,783 100,000 - - - - -
President-Business 1997 96,000 39,100 - - - - -
Products Group 1996 96,000 69,000 - - - - -
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<PAGE>
Layne A. Deutscher, 1998 120,000 60,000 - - - - -
Senior Vice President, 1997 15,000 0 - - - - -
General Counsel and 1996 - - - - - - -
Secretary
</TABLE>
- ----------------
(1) None of the Named Executive Officers received personal benefits,
securities or property in excess of the lesser of $50,000 or 10% of such
individual's reported salary and bonus.
(2) Precept did not grant any restricted stock awards or SARs or long-term
incentive plan payouts to the Named Executive Officers during the fiscal
year ended June 30, 1998.
OPTIONS GRANTED AND EXERCISED DURING 1998 FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
No options were granted to or exercised by any of the named executive
officers in fiscal year 1998. None of the named executive officers currently
hold any options to purchase securities of the Company.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION
The Company's executive compensation program is administered by the
Compensation Committee of the Board of Directors. The Compensation Committee is
responsible for administering the Company's 1998 Stock Incentive Plan and
approving compensation plans for the Company's senior executives, including
recommending to the Board of Directors policies and plans concerning salaries,
bonuses and other compensation for all executive officers. During fiscal year
1998, the Committee was composed of two independent, nonemployee directors, and
one director who is an officer and employee of the Company. The Committee is
committed to a strong, positive link between business, performance and strategic
goals, and compensation and benefit programs.
EXECUTIVE COMPENSATION.
The objective of the Precept executive compensation program is to attract
and retain qualified, motivated executives and to closely align their financial
interests with both the short and long-term interests of the Precept
shareholders. The executive compensation program is intended to provide the
executive officers of Precept with overall levels of compensation that are
competitive within the business services industry, as well as within a broader
spectrum of companies of size and complexity.
The three principal components of the Precept executive compensation
program are base salary, annual incentive bonus opportunities, and stock
options.
BASE SALARIES. Each executive officer's base salary is reviewed annually
and is subject to adjustment on the basis of individual, corporate, and business
unit performance, as well as competitive and inflationary considerations.
INCENTIVE BONUS. Incentive bonus payments for executive officers other
than the Chief Executive Officer and Chief Operating Officer are made at the end
of each fiscal year based upon the achievement of consolidated financial
criteria, business unit financial criteria, and the attainment of individual
goals, all of which are established informally by the Board of Directors of
Precept. Compensation for the Chief Executive Officer and Chief Operating
Officer of Precept consisted of a base salary and bonus compensation. Bonus
compensation of such officers was substantially dependent on the achievement of
three targeted financial measures: consolidated revenues, consolidated earnings
before interest, taxes and depreciation, and consolidated pre-tax earnings.
During fiscal year 1998, Precept
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achieved 100% of such measures. For fiscal year 1998, executive officers
were eligible to receive maximum bonuses of between 50% and 150% of salary
provided certain financial goals were met.
1998 STOCK INCENTIVE PLAN. In order to provide greater flexibility
for incentive based compensation, the Board of Directors and shareholders of
Precept adopted the 1998 Stock Incentive Plan (the "1998 Plan") in February
of 1998. The 1998 Plan is administered by the Compensation Committee, which
determines the individuals eligible to receive awards under the 1998 Plan,
the types and number of awards to be granted, the terms and conditions of
such awards (including, for example, with respect to options, the exercise
price, exercise date, any restrictions on exercise), and prescribes the forms
of award agreements. Employees (including employee directors) of and
consultants to Precept and any parent or subsidiary of Precept as well as
outside directors of Precept are eligible to receive awards under the 1998
Plan. The 1998 Plan permits the grant of nonstatutory stock options, "stock
purchase rights", stock appreciation rights, deferred stock, dividend
equivalents and awards of restricted stock. The 1998 Plan also permits the
grant of Incentive Stock Options to employees. The maximum aggregate number
of shares of Precept Class A Common Stock available for issuance under the
1998 Plan is currently 6,000,000. In fiscal 1998, the Company granted an
aggregate of 100,000 stock options to its officers and directors under the
1998 Plan.
OTHER EMPLOYEE BENEFIT PLANS. Precept has a contributory retirement and
savings plan which covers eligible employees and meets the requirements of
Section 401(k) of the Internal Revenue Code. The plan also allows for a
discretionary contribution by Precept as determined by Precept's Board of
Directors. There have been no contributions made by Precept to date.
EMPLOYMENT AGREEMENTS. Precept has no employment agreements with the
Named Executive Officers. Precept does not anticipate any other contractual
compensation arrangements with any such officers.
Submitted by the Compensation Committee
of the Board of Directors:
DARWIN DEASON
DAVID L. NEELY
J. LIVINGSTON KOSBERG
STOCK PERFORMANCE CHART
The following graph compares the yearly percentage change in the
cumulative total shareholder return of the Company's Class A Common Stock from
March 20, 1998 (the "Public Listing Date") through the fiscal year ended
June 30, 1998, with that of the Montgomery Securities Consolidators Index and
the Russell 2000 Index. The comparison assumes $100 was invested on the Public
Listing Date and assumes reinvestment of dividends. The stock price performance
shown on the graph is not necessarily indicative of future stock performance.
The Companies whose stocks are in the Montgomery Securities Consolidators
Index are:
COMPARISON OF TOTAL CUMULATIVE RETURN FROM MARCH 20, 1998
THROUGH JUNE 30, 1998 OF PRECEPT BUSINESS SERVICES, INC. CLASS A
COMMON STOCK, THE MONTGOMERY SECURITIES CONSOLIDATORS INDEX AND THE
RUSSELL 2000 INDEX
[GRAPH]
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<TABLE>
<CAPTION>
03/20/98 06/30/98
-------- --------
<S> <C> <C>
Precept 100 75.73
Montgomery Securities Consolidators Index 100 97.7
Russell 2000 Index 100 96.5
</TABLE>
THE ABOVE REPORT OF THE COMPENSATION COMMITTEE AND THE STOCK PERFORMANCE
GRAPH WILL NOT BE DEEMED TO BE SOLICITING MATERIAL OR TO BE FILED WITH OR
INCORPORATED BY REFERENCE INTO ANY FILING BY THE COMPANY UNDER THE SECURITIES
ACT OF 1933 OR THE SECURITIES EXCHANGE ACT OF 1934, EXCEPT TO THE EXTENT THAT
THE COMPANY SPECIFICALLY INCORPORATES SUCH REPORT OR GRAPH BY REFERENCE.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1998, the members of the Compensation Committee were
primarily responsible for determining executive compensation and matters
relating to stock options, although certain of such matters were discussed by
the full Board of Directors. Darwin Deason and David L. Neely, who are
directors of the Company, participated in such discussions as members of
the Compensation Committee. David Neely, Chief Executive Officer of the
Company, is also an executive officer of a number of subsidiaries of
Precept, but receives no separate compensation for acting in such capacity.
The Company believes that the transactions described below under
"Precept Certain Relationships and Related Transactions" are beneficial to
the Company and are on terms as favorable to the Company as could be obtained
from unaffiliated third parties. Such transactions are expected to be
continued in the future, with review of and the approval required by the
independent members of the Board of Directors.
PRECEPT CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In connection with the spinoff of Precept from its former parent company,
ACS, in 1994, Precept entered into a Reciprocal Services Agreement (the
"Services Agreement") with ACS, effective June 30, 1994, pursuant to which
Precept sells business products and provides package delivery services to ACS.
The Services Agreement was amended on May 1, 1998 to extend the term as set
forth below. Precept received approximately $5,400,000 and $4,300,000 from ACS
in fiscal 1997 and fiscal 1998, respectively. In addition to the foregoing, ACS
provided data processing services to Precept pursuant to the Services Agreement.
Precept incurred expenses of $416,179 and approximately $300,000 to ACS in
fiscal 1997 and fiscal 1998, respectively, for these services. Pricing for ACS
services provided to Precept was no less than ACS' direct costs attributable to
such services. Precept discontinued the purchase of these services from ACS on
June 30, 1998. The Services Agreement contains the agreements of ACS and Precept
to use reasonable efforts to recommend the services of the other company to
their customers and prospects. The Services Agreement, which had an initial term
of one year, was extended through April 30, 2005, and thereafter automatically
renews for additional consecutive one-year periods. The Services Agreement may
be terminated by ACS or Precept upon 180 days' written notice given prior to
June 30 of any year during the term of the Services Agreement. Mr. Darwin
Deason, a director and Chairman of the Executive Committee of Precept, is
Chairman and Chief Executive Officer of ACS.
During fiscal 1996, Precept loaned each of David L. Neely, Chairman and
Chief Executive Officer and Douglas R. Deason, President, Chief Operating
Officer and a Director, $379,988, the proceeds of which were used solely to
acquire shares of Precept Class A Common Stock from shareholders. The loans were
evidenced by notes which become due upon the earlier of (i) June 8, 2005, (ii)
upon the sale or transfer of the shares of Precept Class A Common Stock
purchased with the proceeds or (iii) upon termination of the employment of the
maker of the particular note prior to June
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<PAGE>
8, 2000. Each of the notes were secured by the shares of Precept Class A
Common Stock purchased with the proceeds of each loan. Interest accrued at
the 90-day U.S. Treasury Bill Rate as stated on June 8 of each year. In lieu
of cash payment, annually on June 8, interest was added to the then
outstanding principal amount of the note. The notes were paid in full during
fiscal 1998.
On January 2, 1997, in connection with the exercise of options granted on
the same date pursuant to the Precept 1996 Stock Option Plan, Messrs. Neely,
Doug Deason, Smith, Cabra and Walker were made loans by Precept evidenced by
non-interest bearing demand promissory notes payable to Precept as consideration
for such exercise in the amounts of $42,230; $42,230; $20,600; $30,900 and
$20,600, respectively. These notes were repaid in October 1997.
In an effort to focus on its core business, Precept consummated the
following transactions in connection with the discontinuation of the business,
real estate construction and investments, respectively, of Precept Builders,
Inc. ("Builders") and Precept Holdings, Inc. ("Holdings"), two subsidiaries of
the Company that performed real estate and related construction activities.
During fiscal year 1998, Precept decreased its ownership percentage in
Builders as the result of a private placement of common stock by Builders, which
offering was directed solely to (a) the other shareholders of Builders other
than Precept, (b) the existing shareholders of Precept and (c) any of their
affiliates or assignees. Darwin Deason, a Director and the Chairman of the
Executive Committee of Precept, acquired the full amount of the private
placement, the other offerees having waived their right to purchase their pro
rata portion of the shares in the offering. Precept's percentage ownership in
Builders decreased from 90.5% to 1.8% of the total outstanding stock of
Builders, and Darwin Deason holds approximately 98% of the total outstanding
stock of Builders. By participating in the offering by Builders, Darwin Deason
also agreed (i) to guarantee, if required, existing and future performance bonds
securing Builders' construction projects, and (ii) to provide to the companies
issuing the performance bonds letters of credit up to $7 million securing
Builders obligations. These guarantees were previously provided by Precept,
Darwin Deason and certain of Precept's affiliates.
During fiscal year 1998, the Company disposed of the majority of the
assets of Holdings in order to effect its focus on core operations:
Ranch property located in Bells, Texas (the "Bells Property") owned by
Holdings was sold to D3 Holdings, Inc., ("D3 Holdings"), a corporation
controlled by Darwin Deason, a Director and Chairman of Precept's Executive
Committee, Douglas Deason, Precept's President and Chief Operating Officer and
David Neely, Chairman and the Chief Executive Officer of Precept, for $1,200,000
in cash. It is estimated that the purchase price paid to Holdings for the Bells
Property, together with the terms and structure of the purchase was
approximately equal to the estimated fair market value of the Bells Property at
the time of the sale. Precept has subsequently entered into a five year lease
for a more limited use of the Bells Property with variable monthly rental
payments, the amount of which currently is approximately $10,000 per month.
In 1992, Holdings purchased a building in Dallas for development into
condominiums for sale or lease. In April 1994, Darwin Deason leased a one-floor
condominium in the building as his residence under an 18-month lease (which was
subsequently modified). The lease contained an obligation of Mr. Deason to
purchase the condominium for the estimated fair market value of the condominium.
During the lease term and prior to the sale of the condominium, Mr. Deason
received a waiver of lease payments, the benefit of which was approximately
$9,400 per month. In September 1998, one full-floor condominium and one
half-floor condominium were sold to Darwin Deason for approximately $1.6 million
in cash, which is the estimated fair market value for the condominiums.
During September 1998, Darwin Deason purchased from Holdings (i) certain
real estate located at 72-191 Highway 111, Palm Desert, California (the "Palm
Desert Property") for $1,025,125 in cash and (ii) a 49% interest in
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<PAGE>
CCC&D Corp., (which represents all of Precept's interest in such entity), a
privately held company operating a restaurant on the Palm Desert Property for
$90,000 in cash.
Darwin Deason, a director and the Chairman of the Executive Committee of
Precept, has entered into proxy agreements with David L. Neely, Chief Executive
Officer and Chairman of the Board of the Company, and Douglas Deason, President
and Chief Operating Officer of the Company (and Darwin Deason's son), whereby
Darwin Deason controls the votes that may be cast with shares of Class A Common
Stock owned by them. Such agreement continues until the majority shareholder's
death or his disability, whichever event occurs first.
Darwin Deason, Precept and ACS, along with two other investors, are the
stockholders of DDH Aviation, Inc. ("DDH"), a startup corporate airplane
brokerage firm organized in late 1997. On a fully diluted basis, Mr. Deason
owns over one-third of the equity interests in DDH and Precept, which invested
$99,900, owns approximately 3% of the equity interests. Darwin Deason is the
Chairman of the Board and Douglas Deason is a director of the five-member board
of directors of DDH. Precept has access to the aircraft of DDH.
In fiscal year 1998, Precept entered into a separation agreement and
general release agreement with USTS' former chairman, Michael Margolies, that
provided for the resignation of Michael Margolies, the former chairman of USTS,
from Precept's board of directors in exchange for monthly payments of $21,075
through March 2001. In July 1998, Precept sold the owned and leased buses of
one of its subsidiaries to Michael Margolies in exchange for a reduction of
$593,000 in Precept's note payable to Mr. Margolies.
SECTION 16 REQUIREMENTS
Section 16(a) of the Exchange Act requires the Company's directors and
officers, and persons who own more than 10% of a registered class of the
Company's equity securities, to file initial reports of ownership and reports of
changes in ownership with the Securities and Exchange Commission (the "SEC") and
the American Stock Exchange. Such persons are required by SEC regulation to
furnish the Company with copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms received by it
with respect to fiscal 1998, or written representations from certain reporting
persons, the Company believes that all filing requirements applicable to its
directors, officers and persons who own more than 10% of a registered class of
the Company's equity securities have been complied with, except for late Forms 3
filed by each of the executive officers and directors, and late Forms 4 filed by
Messrs. Neely, Deason (Douglas), Walker and Smith for the month of March 1998.
INDEPENDENT AUDITORS
The Board of Directors selected Ernst & Young LLP as independent auditors
to audit the Company's financial statements for the 1999 fiscal year.
Representatives of Ernst & Young LLP are expected to be present at the Meeting
with the opportunity to make a statement if they desire to do so and to be
available to answer appropriate questions.
SHAREHOLDERS' PROPOSALS
Shareholders may submit proposals on matters appropriate for
shareholder action at subsequent annual meetings of the Company consistent
with Rule 14a-8 promulgated under the Securities Exchange Act of 1934, as
amended. For such proposals to be considered in the Proxy Statement and
Proxy relating to the 1999 Annual Meeting of Shareholders, such proposals
must be received by the Company not sooner than May 23 1999, but not later
than June 22, 1999. Such proposals should be directed to Precept Business
Services, Inc., 1909 Woodall Rodgers Fwy., Suite 500, Dallas, Texas 75201,
Attn: Chief Financial Officer.
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<PAGE>
OTHER BUSINESS
The Board of Directors knows of no matters other than those described
herein that will be presented for consideration at the Meeting. However, should
any other matters properly come before the Meeting or any adjournment thereof,
it is the intention of the persons named in the accompanying Proxy to vote in
accordance with their best judgment in the interest of the Company.
A COPY OF THE COMPANY'S ANNUAL REPORT ON FORM 10-K, INCLUDING THE
FINANCIAL STATEMENTS, BUT NOT INCLUDING EXHIBITS, WILL BE FURNISHED AT NO CHARGE
TO EACH PERSON TO WHOM A PROXY STATEMENT IS DELIVERED UPON THE WRITTEN REQUEST
OF SUCH PERSON ADDRESSED TO PRECEPT BUSINESS SERVICES, INC., ATTN: GENERAL
COUNSEL, 1909 WOODALL RODGERS FWY., SUITE 500, DALLAS, TEXAS 75201.
By Order of the Board of Directors
DAVID L. NEELY
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE OFFICER
Dallas, Texas
October 25, 1998
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<PAGE>
APPENDIX A
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
PRECEPT BUSINESS SERVICES, INC.
SECTION ONE
PRECEPT BUSINESS SERVICES, INC., pursuant to the provisions of Article 4.07
of the Texas Business Corporation Act (the "Act"), hereby adopts these Restated
Articles of Incorporation which accurately copy the Articles of Incorporation
and all amendments thereto that are in effect to date (the "Old Articles")
and as further amended by such Restated Articles of Incorporation as
hereinafter set forth and which contain no other change in any provision
thereof.
SECTION TWO
The Old Articles of the corporation are amended by the Restated Articles of
Incorporation as follows:
A new Article Sixteen will be added to provide that (i) any action that
under the provisions of the Act would, but for such Article Sixteen, be required
to be authorized by the affirmative vote of the holders of any specified portion
of the shares of the Corporation will require the approval of the holders of
shares representing a majority of the votes entitled to be cast thereon, and
(ii) any action that under the provisions of the Act would, but for such
Article Sixteen, be required to be authorized by the affirmative vote of the
holders of any specified portion of the shares of any class or series of
shares of the Corporation voting separately as a class or series, will
instead require the approval of the holders of shares representing a majority
of the shares of such class or series entitled to vote thereon.
All outstanding shares of the Corporation's Class A Common Stock, par
value $0.01 per share ("Class A Common Stock") are reclassified and
converted, effective upon the filing of these Restated Articles of
Incorporation, into new shares of Class A Common Stock, on the basis of one
share of Class A Common Stock for each five outstanding shares of Class A
Common Stock.
Further, all outstanding shares of the Corporation's Class B Common
Stock, par value $0.01 per share ("Class B Common Stock") are reclassified
and converted, effective upon the filing of these Restated Articles of
Incorporation, into new shares of Class B Common Stock, par value $0.01, on
the basis of one share of Class B Common Stock for each five outstanding
shares of Class B Common Stock.
The reclassification and conversion shall have no effect on the number
of shares of Class A Common Stock and Class B Common Stock authorized for
issuance, which shall remain as set forth in Article Four of these Amended
and Restated Articles of Incorporation.
The reclassification and conversion of all of the 59,209,335 outstanding
shares of Class A and
<PAGE>
Class B Common Stock (i) decreases the number of shares of Class A Common
Stock outstanding by 44,051,468 shares from 55,064,335 shares to 11,012,867
shares and thereby decreases the stated capital represented by the
outstanding Class A Common Stock by $440,514 from $550,643 to
$110,129, (ii) decreases the number of shares of Class B Common Stock
outstanding by 3,316,000 shares from 4,145,000 shares to 829,000 shares and
thereby decreases the stated capital represented by the outstanding Class B
Common Stock by $33,160 from $41,450.00 to $8,290, (iv) results in the
Corporation having a total stated capital of $59,209.33, and (v) increases
the surplus of the Corporation by $__________. As of the time of filing of
these Restated Articles of Incorporation, there are no shares of Preferred
Stock outstanding.
There are outstanding options and warrants to purchase an aggregate of
_______ shares of Class A Common Stock. Upon the filing of these Restated
Articles of Incorporation, such options and warrants shall become options or
warrants to purchase a number of shares of Class A Common Stock adjusted to
reflect the reclassification described herein upon the terms and conditions
set forth in the respective options and warrants.
The full text of each of the amended provisions as so amended is set
forth below in Section Six of these Restated Articles of Incorporation.
SECTION THREE
Each such amendment made by these Restated Articles of Incorporation has
been effected in conformity with the provisions of the Act and such Restated
Articles of Incorporation and each such amendment made by the Restated Articles
of Incorporation were duly recommended by the board of directors and adopted
by the shareholders of the Corporation on the 11th day of November, 1998.
SECTION FOUR
59,209,335 shares of Common Stock of the Corporation are currently
outstanding, of which 55,064,335 shares are Class A Common Stock and
4,145,000 shares are Class B Common Stock. No shares of Preferred Stock of
the Corporation are outstanding. The holders of the shares of the Class
A Common Stock and the Class B Common Stock, respectively, were each entitled
to vote on the Restated Articles of Incorporation as a separate class. All
59,209,335 shares of Common Stock outstanding were entitled to vote on the
Restated Articles of Incorporation and all amendments contained therein (and
the holders of the shares of each of the Class A and Class B Common Stock
were entitled to vote as separate classes thereon).
SECTION FIVE
Written consent to these Restated Articles of Incorporation and the
amendments effected hereby has been given in accordance with the provisions
of Article 9.10A of the Act, and all such written notice as required by
Article 9.10A of the Act has been given.
2
<PAGE>
SECTION SIX
The Old Articles are hereby superseded by the following Restated Articles
of Incorporation which accurately copy the entire text thereof as further
amended as set forth:
ARTICLE ONE
The name of the Corporation is PRECEPT BUSINESS SERVICES, INC.
ARTICLE TWO
The period of its duration is perpetual.
ARTICLE THREE
The purpose for which the Corporation is organized is the transaction of
any and all lawful business for which a corporation may be incorporated under
the Texas Business Corporation Act.
ARTICLE FOUR
Section 1. AUTHORIZED CAPITAL STOCK. The total number of shares of
all classes of capital stock that the Corporation shall have authority to
issue is 113,500,000 shares, consisting of (a) 100,000,000 shares of Class A
Common Stock, par value $0.01 per share ("Class A Common Stock"), (b)
10,500,000 shares of Class B Common Stock, par value $0.01 per share ("Class
B Common Stock" and together with Class A Common Stock, "Common Stock"), and
(c) 3,000,000 shares of Preferred Stock, par value $1.00 per share
("Preferred Stock").
The number of authorized shares of any class or classes of capital stock
of the Corporation may be increased or decreased (but not below the number of
shares thereof then outstanding) by the affirmative vote of the holders of a
majority of the stock of each class of the Corporation, respectively,
entitled to vote thereon voting as a class. The Board of Directors shall
have the authority to fix or alter the powers, designations, preferences and
relative, participating, optional or other special rights of all classes of
the capital stock of the corporation; provided, however, that in no case
shall the powers, preferences and rights of the Class A Common Stock be
greater than those provided herein. Except as otherwise required by law or
expressly provided for herein, the rights, powers, and preferences of the
shares of Common Stock and the qualifications, limitations, or restrictions
thereof, shall be in all respects identical.
Section 2. COMMON STOCK. The relative rights, powers, preferences,
qualifications, limitations and restrictions of the Class A Common Stock and
Class B Common Stock from and after the Effective Time shall be as follows:
3
<PAGE>
(a) VOTING RIGHTS. Each share of Class A Common Stock shall be
entitled to one vote, and each share of Class B Common Stock shall be
entitled to ten votes, on all matters submitted to a vote of the
shareholders. Except as otherwise provided herein or by law or in any
resolution or resolutions of the Board of Directors of the Corporation
providing for the issuance of Preferred Stock, all actions submitted to
a vote of the shareholders of the Corporation shall be voted on by the
holders of the Class A Common Stock and Class B Common Stock (as well as
the holders of any series of Preferred Stock, if any, entitled to vote
thereon), voting together as a single class.
(b) CONVERSION. The Class A Common Stock has no conversion
rights. Each share of Class B Common Stock is convertible at any time,
and from time to time, at the option of and without cost to the holder
thereof, into one fully paid and nonassessable share of Class A Common
Stock on and subject to the terms and conditions set forth herein;
provided however, that for a period of one year from the Effective Time
shares of Class B Common Stock may only be converted into Class A Common
Stock 90 days after the delivery to the Corporation of a Conversion
Notice (as hereinafter defined); and provided further, however, that
shares of Class B Common Stock shall be automatically converted, without
any action on the part of the holder thereof, into share of Class A
Common Stock on the occurrence of the events described in subsection (c)
of this Section 2.
If any record owner of any shares of Class B Common Stock (a "Class
B Holder") desires to convert any of such shares into shares of Class A
Common Stock, such Class B Holder shall present and surrender the
certificate or certificates representing such shares during usual
business hours at any office or agency of the Corporation maintained for
the transfer of Class B Common Stock and shall deliver a written notice
("Conversion Notice") of the election of such Class B holder to convert
the shares represented by such certificate or any portion thereof as
specified in the Conversion Notice. The Conversion Notice shall state
the name or names (with addresses) in which the certificate or
certificates representing shares of Class A Common Stock issuable on
such conversion shall be registered. If so required by the Corporation,
any certificate representing shares of Class B Common Stock surrendered
for conversion shall be accompanied by instruments of transfer, in form
satisfactory to the Corporation, duly executed by the holder of such
shares or his authorized representative. Each conversion of shares of
Class B Common Stock shall be deemed to have been effected on the date
(the "conversion rate") on which the certificate or certificates
representing such shares shall have been surrendered and such notice and
any required instruments of transfer shall have been received as
aforesaid (or if the date of such surrender and receipt falls within the
period of one year from the Effective Time, then the conversion date
shall be 90 days after the date of such surrender and receipt). The
person or persons in whose name or names any certificate or certificates
representing shares of Class A Common Stock issuable upon such
conversion shall be, for the purpose of receiving dividends and for all
other corporate purposes whatsoever, deemed to have become the holder or
holders of record of the shares of Class A Common Stock represented
thereby on the conversion date.
4
<PAGE>
As promptly as practicable after the conversion date, the
Corporation shall issue and deliver at such office or agency, to or upon
the written order of the holder thereof, certificates for the number of
shares of Class A Common Stock issuable upon such conversion. Subject
to the provisions of subsection (c) of this Section 2, in the event any
certificate representing shares of Class B Common Stock shall be
surrendered for conversion of a part only of the shares represented
thereby, the Corporation shall deliver at such office or agency, to or
upon the written order of the holder thereof, a certificate or
certificates for the number of shares of Class B Common Stock
represented by such surrendered certificate which are not being
converted. The issuance of certificates representing shares of Class A
Common Stock issuable upon the conversion of shares of Class B Common
Stock by the registered holder thereof shall be made without charge to
the converting holder for any tax imposed on the Corporation in respect
of the issue thereof. The Corporation shall not, however, be required
to pay any tax which may be payable with respect to any transfer
involved in the issue and delivery of any certificate in a name other
than that of the registered holder of the shares being converted, and
the corporation shall not be required to issue or deliver any such
certificate unless and until the person requesting the issue thereof
shall have paid to the Corporation the amount of such tax or has
established to the satisfaction of the Corporation that such tax has
been paid.
Upon any conversion of shares of Class B Common Stock into shares of
Class A Common Stock pursuant hereto, no adjustment with respect to
dividends shall be made; only those dividends shall be payable on the
shares so converted as may be declared and are payable to holders of
record of shares of Class B Common Stock on a date prior to the
conversion date with respect to the shares so converted; and only those
dividends shall be payable on shares of Class A Common Stock issued upon
such conversion as may be declared and are payable to holders of record
of shares of Class A Common Stock on or after such conversion date.
In case of any consolidation or merger of the Corporation as a
result of which the holders of Class A Common Stock shall be entitled to
receive cash, stock, other securities, or other property with respect to
or in exchange for Class A Common Stock or in case of any sale or
conveyance of all or substantially all of the property or business of
the Corporation as an entirety, each holder of any share of Class B
Common Stock shall have the right thereafter, so long as the conversion
right hereunder shall exist, to convert such share into the kind and
amount of cash, shares of stock, and other securities and properties as
are receivable upon such consolidation, merger, sale or conveyance by
each holder of one share of Class A Common Stock and shall have no other
conversion rights with regard to such share. The provisions of this
paragraph shall similarly apply to successive consolidations, mergers,
sales or conveyances.
Shares of Class B Common Stock converted into Class A Common Stock
as provided in this subsection (b) shall be retired and shall resume the
status of authorized but
5
<PAGE>
unissued shares of Class B Common Stock.
Such number of shares of Class A Common Stock as may from time to
time be required for such purpose shall be reserved for issuance upon
conversion of outstanding shares of Class B Common Stock and for
issuance upon exercise of options, if any.
(c) RESTRICTIONS ON TRANSFER OF CLASS B COMMON STOCK. No Class
B Holder may transfer, and the Corporation shall not register the
transfer of, any shares of Class B Common Stock, whether by sale,
assignment, gift, bequest, appointment or otherwise, except to a
Permitted Transferee (as hereinafter defined).
In the case of a Class B Holder who is a natural person and the
beneficial owner of shares of Class B Common Stock proposed to be
transferred, a Permitted Transferee consists only of:
(i) such Class B Holder's spouse; provided, however, that
upon divorce any Class B Common Stock held by such spouse shall
immediately and automatically be converted into Class A Common
Stock;
(ii) any lineal descendant of any great-grandparent of such
Class B Holder, including adopted children, and any such descendant's
spouse (such descendants and their spouses, together with such Class B
Holder's spouse, are referred to herein as "family members");
(iii) the trustee or trustees of a trust (including a voting
trust) for the sole benefit of such Class B Holder and/or any of
such Class B Holder's family members, except that such trust may
also grant a general or special power of appointment to one or more
of such Class B Holder's family members and may permit trust assets
to be used to pay taxes, legacies, and other obligations of the
trust or the estates of one or more of such Class B Holder's family
members payable by reason of the death of any such family members;
provided, however, that if at any time such trust fails to meet the
requirements of this subparagraph (iii), all shares of Class B
Common Stock then held by such trustee or trustees shall
immediately and automatically be converted into Class A Common
Stock on a share-for-share basis, and stock certificates formerly
representing such shares of Class B Common Stock shall thereupon
and thereafter be deemed to represent a like number of shares of
Class A Common Stock;
(iv) any organization established by a Class B Holder or
any of such Class B Holder's family members, contributions to which
are deductible for federal income, estate, or gift tax purposes (a
"charitable organization") and a majority of whose governing board
at all times consists of such Class B Holder and/or one or more of
the Permitted Transferees of such Class B Holder, or any successor
to such
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<PAGE>
charitable organization meeting the requirements of this subparagraph
(iv); provided that, if there is any change in the composition of the
governing board of such charitable organization that would cause
such charitable organization no longer to qualify as a Permitted
Transferee of such Class B Holder, all shares of Class B Common
Stock then held by such charitable organization shall immediately
and automatically be converted into Class A Common Stock on a
share-for-share basis, and stock certificates formerly representing
such shares of Class B Common Stock shall thereupon and thereafter
be deemed to represent a like number of shares of Class A Common
Stock; and
(v) any partnership in which all of the partners are, and
all of the partnership interests are owned by, such Class B Holder
and/or any of such Class B Holder's family members, or any
corporation wholly-owned by such Class B Holder and/or any of such
Class B Holder's family members; provided that, if there is any
change in the partners of or owners of partnership interests in
such partnership or in the shareholders of such corporation that
would cause such partnership or corporation no longer to qualify as
a Permitted Transferee of such Class B Holder, any Class B Common
Stock then held by such partnership or corporation shall
immediately and automatically be converted into Class A Common
Stock on a share-for-share basis, and stock certificates formerly
representing such shares of Class B Common Stock shall thereupon
and thereafter be deemed to represent a like number of shares of
Class A Common Stock.
In the case of a Class B Holder that is a partnership or a
corporation and the beneficial owner of the shares of Class B Common Stock
proposed to be transferred, a Permitted Transferee consists only of:
(i) any partner of such partnership who was a partner
thereof on the record date of the initial distribution of Class B
Common Stock;
(ii) any shareholder of such corporation who held any share
thereof on the record date of the initial distribution of Class B
Common Stock and who receives shares of Class B Common Stock pro
rata to his stock ownership in such corporation through a dividend
or through a distribution made upon liquidation of such corporation;
(iii) any person transferring shares of Class B Common Stock
to such partnership or corporation after the record date of the
initial distribution of Class B Common Stock; provided, however,
that such transferor may not receive shares of Class B Common Stock
in excess of the shares of Class B Common Stock transferred by the
transferor to such partnership or corporation;
(iv) any Permitted Transferee of any person meeting the
requirements set
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forth in subparagraph (i), (ii) or (iii) of this paragraph, but not
in excess of the number of shares such shareholder or person is
entitled to receive pursuant to this paragraph; and
(v) the survivor of a merger or consolidation of such
corporation if those persons who owned beneficially sufficient
shares entitled to elect at least a majority of the entire board of
directors of such constituent corporation immediately prior to the
merger or consolidation own beneficially sufficient shares entitled
to elect at least a majority of the entire board of directors of
the surviving corporation, provided that if by reason of any change
in the ownership of such stock of the surviving corporation such
surviving corporation would no longer qualify as a Permitted
Transferee of such Class B Holder, all shares of Class B Common
Stock then held by such surviving corporation shall immediately and
automatically be converted into Class A Common Stock on a
share-for-share basis, and stock certificates formerly representing
such shares of Class B Common Stock shall thereupon and thereafter
be deemed to represent a like number of shares of Class A Common
Stock.
In the case of a Class B Holder holding such shares of Class B
Common Stock as trustee pursuant to a trust that is an irrevocable trust on
the record date of the initial distribution of Class B Common Stock, a
Permitted Transferee consists only of:
(i) any successor trustee of such trust who meets the
requirements set forth in subsection (ii) or (iii) of this paragraph;
(ii) any person to whom or for whose benefit the principal
or income may be distributed under the terms of such trust or any
person to whom such trust may be obligated to make future transfers,
provided such obligation exists prior to the date such trust becomes
a holder of Class B Common Stock; and
(iii) any family member of the creator of such trust.
In the case of a Class B Holder holding such shares of Class B
Common Stock as trustee pursuant to a trust that is any trust other than an
irrevocable trust described in the immediately preceding paragraph on the
date of the initial distribution of Class B Common Stock, a Permitted
Transferee consists only of:
(i) any successor trustee of such trust who meets the
requirements set forth in subsection (ii) of this paragraph; and
(ii) the person who established such trust and any Permitted
Transferee of such person.
In the case of a record (but not beneficial) owner of Class B Common
Stock as
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nominee for the person who is the beneficial owner thereof on the record
date of the initial distribution of Class B Common Stock, a Permitted
Transferee consists only of such beneficial owner and any Permitted
Transferee of such beneficial owner.
Upon the death or permanent incapacity of any Class B Holder, such
Class B Holder's Class B Common Stock shall immediately and automatically
be converted into Class A Common Stock on a share-for-share basis, and
stock certificates formerly representing such shares of Class B Common
Stock shall thereupon and thereafter be deemed to represent a like number
of shares of Class A Common Stock.
Upon the expiration of 90 days after the death or permanent incapacity
of Darwin Deason or upon the conversion by The Deason International Trust
of all of the shares of Class B Common Stock beneficially owned by Mr.
Deason into shares of Class A Common Stock, any and all shares of Class B
Common Stock shall immediately and automatically be converted into Class A
Common Stock on a share-for-share basis, and stock certificates formerly
representing such shares of Class B Common Stock shall thereupon and
thereafter be deemed to represent a like number of shares of Class A
Common Stock.
Shares of Class B Common Stock are freely transferrable among
Permitted Transferees, but any other transfer of any share of Class B
Common Stock will result in the automatic conversion of such share into
Class A Common Stock.
(d) DIVIDENDS AND LIQUIDATION RIGHTS. After dividends have been
declared and set aside for payment or paid on any series of Preferred Stock
having a preference over the Common Stock with respect to payment of such
dividends, the holders of Common Stock shall be entitled to receive and to
share equally in, when, as and if declared by the Board of Directors of the
Corporation (the "Board of Directors"), dividends per share, out of the
funds legally available therefor, in such amounts as the Board of Directors
may from time to time fix and determine, in its sole and absolute
discretion. Upon the liquidation, dissolution or winding up of the affairs
of the Corporation, whether voluntary or involuntary, after there have been
paid or set apart for the holders of any series of Preferred Stock having
a preference over the Common Stock with respect to distributions upon
liquidation the full amount to which they are entitled, the holders of
Common Stock are entitled to receive and to share equally in all assets of
the Corporation available for distribution to shareholders.
(e) OTHER RIGHTS. The holders of Common Stock are not entitled
to any preemptive right to subscribe for, purchase or receive any part of
any new or additional issue of stock of any class, whether now or hereafter
authorized, or of bonds, debentures or other securities convertible into or
exchangeable for stock, and all such additional shares of stock of any
class, or bonds, debentures, or other securities convertible into or
exchangeable for stock, may be issued and disposed of by the Corporation on
such terms and for such consideration, so far as may be permitted by law,
and to such persons as the Board of Directors in its sole and absolute
discretion may deem advisable.
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Section 3. PREFERRED STOCK. Preferred Stock may be issued in one or
more series. The Board of Directors is hereby authorized to issue the shares
of Preferred Stock in such series and to fix from time to time before
issuance the number of shares to be included in any such series and the
designation, relative powers, preferences, and rights and qualifications,
limitations, or restrictions of all shares of such series. The authority of
the Board of Directors with respect to each such series will include, without
limiting the generality of the foregoing, the determination of any or all of
the following:
(a) the number of shares of any series and the designation to
distinguish the shares of such series from the shares of all other series;
(b) the voting powers, if any, and whether such voting powers are
full or limited in such series;
(c) the redemption provisions, if any, applicable to such series,
including the redemption price or prices to be paid;
(d) whether dividends, if any, will be cumulative or noncumulative,
the dividend rate of such series, and the dates and preferences of
dividends on such series;
(e) the rights of such series upon the voluntary or involuntary
dissolution of, or upon any distribution of the assets of, the Corporation;
(f) the provisions, if any, pursuant to which the shares of such
series are convertible into, or exchangeable for, shares of any other class
or classes or of any other series of the same or any other class or classes
of stock, or any other security, of the Corporation or any other
corporation or other entity, and the price or prices or the rates of
exchange applicable thereto;
(g) the right, if any, to subscribe for or to purchase any
securities of the Corporation or any other corporation or other entity;
(h) the provisions, if any, of a sinking fund applicable to such
series; and
(i) any other relative, participating, optional, or other special
powers, preferences, rights, qualifications, limitations, or restrictions
thereof.
ARTICLE FIVE
The Corporation will not commence business until it has received for the
issuance of its
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shares consideration of the value of $1,000.00.
ARTICLE SIX
The street address of its initial Registered Office, and the name of its
initial Registered Agent at this address are as follows:
CT Corporation System
350 North St. Paul, Suite 2900
Dallas, Texas 75201
ARTICLE SEVEN
The number of current Directors is seven (7). The names and addresses of
the current Directors are:
Darwin Deason David L. Neely
1909 Woodall Rodgers Frwy., Suite 500 1909 Woodall Rodgers Frwy., Suite 500
Dallas, Texas 75201 Dallas, Texas 75201
Douglas R. Deason Layne A. Deutscher
1909 Woodall Rodgers Frwy., Suite 500 1909 Woodall Rodgers Frwy., Suite 500
Dallas, Texas 75201 Dallas, Texas 75201
J. Livingston Kosberg Sheldon I. Stein
1909 Woodall Rodgers Frwy., Suite 500 1909 Woodall Rodgers Frwy., Suite 500
Dallas, Texas 75201 Dallas, Texas 75201
William W. Solomon, Jr.
1909 Woodall Rodgers Frwy., Suite 500
Dallas, Texas 75201
ARTICLE EIGHT
The Board of Directors may make, amend, and repeal the Bylaws of the
Corporation (the "Bylaws"). Any Bylaw made by the Board of Directors under
the powers conferred hereby may be amended or repealed by the Board of
Directors (except as specified in any such Bylaw so made or amended) or by
the shareholders in the manner provided in the Bylaws of the Corporation.
Notwithstanding the foregoing and anything contained in these Articles of
Incorporation to the contrary, Bylaws 1, 3, 8, 10, 11, 12, 13, 33 and 39 may
not be amended or repealed by the shareholders, and no provision inconsistent
therewith may be adopted by the shareholders, without the affirmative vote of
the holders of at least 80% of the Voting Stock, voting together as a single
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class. For the purposes of these Articles of Incorporation, "Voting Stock"
means stock of the Corporation of any class or series entitled to vote
generally in the election of Directors. Notwithstanding anything contained in
these Articles of Incorporation to the contrary, the affirmative vote of the
holders of at least 80% of the Voting Stock, voting together as a single
class, is required to amend or repeal, or to adopt any provisions
inconsistent with, this Article Eight.
ARTICLE NINE
Subject to the rights of the holders of any series of Preferred Stock,
special meetings of the shareholders of the Corporation may be called only by
(i) the Chairman of the Board of Directors (the "Chairman of the Board of
Directors"), (ii) the President of the Corporation (the "President"), (iii)
the Secretary of the Corporation (the "Secretary") within 10 calendar days
after receipt of the written request of a majority of the total number of
Directors that the Corporation would have if there were no vacancies (the
"Whole Board of Directors"), and (iv) as provided in Bylaw 3 by the holders
of at least 50% of the Voting Stock, voting together as a single class.
At any annual meeting or special meeting of shareholders of the
Corporation, only such business will be conducted or considered as has been
brought before such meeting in the manner provided in the Bylaws of the
Corporation. Notwithstanding anything contained in theses Articles of
Incorporation to the contrary, the affirmative vote of at least 80% of the
Voting Stock, voting together as a single class, will be required to amend or
repeal, or adopt any provision inconsistent with, this Article Nine.
ARTICLE TEN
Section 1. NUMBER, ELECTION, AND TERMS OF DIRECTORS. Subject to the
rights, if any, of the holders of any series of Preferred Stock to elect
additional Directors under circumstances specified in a Preferred Stock
Designation, the number of the Directors of the Corporation will not be less
than three nor more than fifteen and will be fixed from time to time in the
manner described in the Bylaws of the Corporation. The Directors will be
divided into three classes designated as Class I, Class II, and Class III,
each class to be as nearly equal in number as possible. Each Class of
directors will stand for election for the following initial terms: Class I
directors will be elected for a three-year term; Class II directors will be
elected for a two-year term; and Class III directors will be elected for a
one-year term. At each following annual shareholders' meeting, commencing
with the 1999 annual shareholders' meeting, each of the successors to the
directors of the Class whose term will expire at such annual meeting will be
elected for a term running until the third annual meeting. Election of
Directors of the Corporation need not be by written ballot unless requested
by the Chairman of the Board of Directors, the President, or the holders of a
majority of the Voting Stock present in person or represented by proxy at a
meeting of the shareholders at which Directors are to be elected.
Section 2. NOMINATION OF DIRECTOR CANDIDATES. Advances notice of
shareholder nominations for the election of Directors must be given in the
manner provided in the Bylaws of the
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Corporation.
Section 3. NEWLY CREATED DIRECTORSHIPS AND VACANCIES. Subject to the
rights, if any, of the holders of any series of Preferred Stock to elect
additional Directors under circumstances specified in a Preferred Stock
Designation, newly created directorships resulting from any increase in the
number of Directors and any vacancies on the Board of Directors resulting
from death, resignation, disqualification, removal, or other cause will be
filled solely by the affirmative vote of a majority of the remaining
Directors then in office, even though less than a quorum of the Board of
Directors, or by a sole remaining Director. No decrease in the number of
Directors constituting the Board of Directors may shorten the term of any
incumbent Director.
Section 4. REMOVAL. Subject to the rights, if any, of the holders of
any series of Preferred Stock to elect additional Directors under
circumstances specified in a Preferred Stock Designation, any Director may be
removed from office by the shareholders in the manner provided int this
Section 4. At any annual meeting or special meeting of the shareholders, the
notice of which states that the removal of a Director or Directors is among
the purposes of the meeting, the affirmative vote of the holders of at least
80% of the Voting Stock, voting together as a single class, may remove such
Director or Directors with or without cause.
Section 5. AMENDMENT, REPEAL, ETC. Notwithstanding anything contained
in these Articles of Incorporation to the contrary, the affirmative vote of
at least 80% of the Voting Stock, voting together as a single class, is
required to amend or repeal, or adopt any provision inconsistent with, this
Article Ten.
ARTICLE ELEVEN
No shareholder of the Corporation or other person shall have a preemptive
right to acquire shares of the Corporation.
ARTICLE TWELVE
Cumulative voting shall not be permitted.
ARTICLE THIRTEEN
No director of the Corporation shall be liable to the Corporation or its
shareholders for monetary damages for an act or omission in such director's
capacity as a director of the Corporation, except that this Article Thirteen
does not eliminate or limit the liability of a director of the Corporation
for:
1. a breach of such director's duty of loyalty to the Corporation
or its shareholders;
2. an act or omission not in good faith or that involves intentional
misconduct
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or a knowing violation of the law;
3. a transaction from which such director received an improper
benefit, whether or not the benefit resulted from an action taken within
the scope of such director's office;
4 an act or omission for which the liability of such director
is expressly provided by statute; or
5. an act related to an unlawful stock repurchase or payment of
a dividend.
ARTICLE FOURTEEN
Each person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, partner, venturer, proprietor, trustee, employee, agent or
similar functionary of another corporation, partnership, joint venture, sole
proprietorship, trust or other enterprise or employee benefit plan (including
the heirs, executors, administrators or estate of such person) shall be
indemnified by the Corporation to the fullest extent that a corporation is
required or permitted to grant indemnification to such person under the Texas
Business Corporation Act, as the same exists or may hereafter be amended.
Reasonable expenses incurred by a director, officer, employee or agent of the
Corporation, who was, is or is threatened to be made a named defendant or
respondent in a proceeding shall be paid or reimbursed by the Corporation, in
advance of the final disposition of the proceeding to the maximum extent
permitted under the Texas Business Corporation Act, as the same exists or may
hereafter be amended. The right to indemnification under this Article
Fourteen shall be a contract right. In the event of the death of any person
having a right of indemnification under this Article Fourteen, such right
will inure to the benefit of his or her heirs, executors, administrators and
personal representatives. The rights under this Article Fourteen will not be
exclusive of any other right which any person may have or hereinafter acquire
under any statute, bylaw, resolution of shareholders or directors, agreement
or otherwise.
ARTICLE FIFTEEN
Any action required or permitted to be taken at any meeting of the
shareholders of the Corporation may be taken without a meeting, without prior
notice and without a vote, if a consent or consents in writing, setting forth
the action so taken, shall have been signed by the holder or holders of
shares having not less than the minimum number of votes that would be
necessary to take such action at a meeting at which the holders of all shares
entitled to vote on the action were present and voted.
ARTICLE SIXTEEN
Any action that under the provisions of the Act would, but for this
Article Sixteen, be required to be authorized by the affirmative vote of the
holders of any specified portion of the shares
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of the Corporation will instead require the approval of the holders of shares
representing a majority of the votes entitled to be cast thereon. In
addition, any action that under the provisions of the Act would, but for this
Article Sixteen, be required to be authorized by the affirmative vote of the
holders of any specified portion of the shares of any class or series of
shares of the Corporation voting separately as a class or series, will
instead require the approval of the holders of shares representing a majority
of the shares of such class or series entitled to vote thereon.
DATED: November 11, 1998.
PRECEPT BUSINESS SERVICES, INC.
By
------------------------------
David L. Neely
Chief Executive Officer
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<TABLE>
<S> <C> <C>
PRECEPT BUSINESS SERVICES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE 1998 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON NOVEMBER 11, 1998
The undersigned hereby appoints David L. Neely and Douglas R. Deason, jointly and severally, proxies, with full power
P of substitution and with discretionary authority, to vote all shares of Common Stock that the undersigned is entitled to
R vote at the 1998 Annual Meeting of Shareholders of Precept Business Services, Inc. (the "Company") to be held on
O Wednesday, November 11, 1998, at CityPlace, 2711 North Haskell Avenue, Dallas, Texas 75204, at 10:00 a.m., or at any
X adjournment thereof, hereby revoking any proxy heretofore given. The undersigned hereby acknowledges receipt of the
Y
Notice of the aforesaid Annual Meeting.
THE PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED HEREIN, AND IN / / change of address
THE ABSENCE OF SPECIFIC DIRECTIONS TO THE CONTRARY, THIS PROXY WILL BE
VOTED (i) FOR THE ELECTION OF THE THREE NOMINEES FOR DIRECTOR, (ii) FOR THE (USE ONLY FOR CHANGE OF
AMENDMENT OF THE ARTICLES TO EFFECT A ONE-FOR-FIVE REVERSE STOCK SPLIT OF ADDRESS)
THE COMPANY'S COMMON STOCK, (iii) FOR THE AMENDMENT OF THE COMPANY'S ----------------------------------------
ARTICLES TO PROVIDE THAT ANY ACTION WHICH WOULD OTHERWISE REQUIRE THE ----------------------------------------
AFFIRMATIVE VOTE OF THE HOLDERS OF ANY PORTION OF THE SHARES OF THE COMPANY ----------------------------------------
SPECIFIED BY THE TEXAS BUSINESS CORPORATION ACT, WILL INSTEAD REQUIRE THE (if you have written in the above space,
APPROVAL OF THE HOLDERS OF SHARES REPRESENTING A MAJORITY OF THE VOTES please mark the corresponding box above)
ENTITLED TO BE CAST THEREON, (iv) FOR THE RATIFICATION OF THE SELECTION OF
ERNST & YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL YEAR
ENDING JUNE 30, 1999 AND (v) IN THE DISCRETION OF THE PROXYHOLDERS ON ANY
OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING AND ANY
ADJOURNMENTS THEREOF.
</TABLE>
<TABLE>
<C> <C> <C> <C>
1. Election as Directors of the three nominees listed below (except as indicated to the contrary below):
INSTRUCTION: To withhold authority to vote for any individual nominee, check the withhold box and write the nominee's
name on the space provided opposite his name.
/ / FOR all nominees listed below / / WITHHOLD AUTHORITY to vote on one or more nominees listed below, but vote FOR the
remaining nominees
J. Livingston Kosberg ------------------------------
William W. Solomon, Jr. ------------------------------
Sheldon I. Stein ------------------------------
</TABLE>
(Continued and to be signed on reverse side)
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
2. Amendment of the Articles to effect a one-for-five reverse stock split of the Company's FOR AGAINST ABSTAIN
Common Stock (both Class A and Class B). / / / / / /
3. Amendment of the Company's Articles to provide that any action which would otherwise FOR AGAINST ABSTAIN
require the affirmative vote of the holders of any portion of the shares of the Company / / / / / /
specified by the Texas Business Corporation Act, will instead require the approval of the
holders of shares representing a majority of the votes entitled to be cast thereon.
4. Ratification of the selection of Ernst & Young LLP as the Company's independent auditors FOR AGAINST ABSTAIN
for the fiscal year ending June 30, 1999. / / / / / /
5. With discretionary authority as to such other matters as may properly come before the
Annual Meeting.
__________________________________
Dated
__________________________________
Signature
__________________________________
Signature (if held jointly)
NOTE: Please sign exactly as name
appears hereon. Joint owners
should each sign. When signing as
attorney, executor, administrator,
trustee or guardian, please give
full title as such.
</TABLE>
