<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section240.14a-11(c) or
Section240.14a-12
PRECEPT BUSINESS SERVICES, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
PRECEPT BUSINESS SERVICES, INC.
1909 WOODALL ROGERS FWY., SUITE 500
DALLAS, TEXAS 75201
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 3, 1999
------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of Precept
Business Services, Inc. ("Precept" or the "Company") will be held at CityPlace,
2711 North Haskell Avenue, Dallas, Texas 75204 on November 3, 1999 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 of the Company's 1998 Stock Incentive Plan (the
"1998 Plan"), increasing from 857,143 to 1,657,143 the number of shares
reserved for issuance under the 1998 Plan and effecting certain
administrative amendments as described more fully herein.
(3) To ratify the selection of the Company's independent auditors.
(4) To transact such other business as may properly come before the meeting
or any adjournment thereof.
Only shareholders of record Class A Common Stock or Class B Common Stock at
the close of business on October 7, 1999 (the "Record Date") are 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 Rogers Fwy., Suite 500,
Dallas, Texas 75201.
The items of business to be acted upon at the Annual Meeting are described
more fully 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. YOU MAY REVOKE YOUR PROXY
IN THE MANNER DESCRIBED IN THE ACCOMPANYING PROXY STATEMENT AT ANY TIME BEFORE
IT HAS BEEN VOTED AT THE ANNUAL MEETING. ANY SHAREHOLDER MAY ATTEND THE ANNUAL
MEETING AND VOTE IN PERSON, WHETHER OR NOT HE OR SHE HAS RETURNED A SIGNED
PROXY.
By Order of the Board of Directors,
/S/ DOUGLAS R. DEASON
PRESIDENT AND CHIEF OPERATING OFFICER
Dallas, Texas
October 11, 1999
<PAGE>
PRECEPT BUSINESS SERVICES, INC.
1909 WOODALL ROGERS FWY., SUITE 500
DALLAS, TEXAS 75201
------------------------
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
---------------------
TO BE HELD NOVEMBER 3, 1999
This Proxy Statement and the accompanying Proxy are being first mailed on or
about October 11, 1999 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 to be held at
CityPlace, 2711 North Haskell Avenue, Dallas, Texas 75204, on November 3, 1999
at 10:00 a.m., local time, or at such other time and place to which the Meeting
may be adjourned (the "Meeting").
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 be duly elected or qualified; (ii) an amendment to the
Company's 1998 Stock Incentive Plan (the "1998 Plan"), to increase from 857,143
to 1,657,143 the number of shares reserved for issuance under the Plan and
effecting certain administrative amendments, as described more fully herein;
(iii) ratification of the selection of the Company's independent auditors; and,
(iv) 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 nevertheless may 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 (the "Transfer Agent"), 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 Plan, as set forth in "PROPOSAL
NO. 2--AMENDMENT OF 1998 STOCK INCENTIVE PLAN"; (iii) FOR the ratification of
the selection of Ernst & Young LLP as the Company's independent auditors for the
fiscal year ending June 30, 2000; and, (iv) 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 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, 1999 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.
<PAGE>
RECORD DATE AND VOTING SECURITIES
The Board of Directors of the Company has fixed the close of business on
October 7, 1999 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. As of the close of business on
the Record Date, the Company had outstanding 8,728,044 shares of Class A Common
Stock, par value $0.01 per share ("Class A Common Stock"), and 592,142 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 Annual
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 or her 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 and Class B Common Stock will vote together as a class as
to Proposals Nos. 1, 2 and 3.
QUORUM AND VOTE REQUIRED
The presence at the Annual Meeting, in person or by proxy, of the holders of
issued and outstanding shares of Common Stock entitled to vote and representing
a majority of the votes entitled to be cast thereat is necessary to constitute a
quorum to transact business at the Annual Meeting.
Abstentions 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. Abstentions 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 represented
at the meeting is required.
The election inspectors will treat shares referred to as "broker non-votes"
(i.e., shares held by brokers or nominees as to which they have no discretionary
power to vote on a particular matter and have received no instructions from the
beneficial owners or persons entitled to vote thereon), if any, as shares that
are present and entitled to vote for purposes of determining the presence of a
quorum. However, for the purposes of determining the outcome of any matter
requiring discretionary voting, broker non-votes will be treated as not present
and not entitled to vote with respect to that matter (even though those shares
are considered entitled to vote for quorum purposes and may be entitled to vote
on other matters). Brokers or nominees have discretionary power to vote on
Proposals No. 1 and 3, but have no discretionary power to vote with respect to
Proposal No. 2 Accordingly, broker non-votes will not be counted with respect to
Proposal No. 2.
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 will not affect the outcome of the
vote on the proposal.
Approval of Proposals Nos. 2 and 3 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 these proposals will have the same effect as a vote
against such proposal.
2
<PAGE>
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 (1) shareholders known to Precept to own more than 5% of
the outstanding shares of such classes; (2) each of our directors and executive
officers; and, (3) all of Precept'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 B COMMON STOCK (2) TOTAL
CLASS A COMMON STOCK (1) NUMBER OF PERCENT OF
-------------------------------- -------------------------- CLASS A AND TOTAL
NAME AND ADDRESS OF NUMBER OF PERCENT OF NUMBER PERCENT OF CLASS B VOTING
BENEFICIAL OWNER (3) SHARES CLASS (4) OF SHARES CLASS (4) SHARES POWER (1)
- ------------------------------- ----------------- ------------- ----------- ------------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Darwin Deason.................. 3,533,669(5)(6) 40.5% 592,142 100% 4,125,811(6) 64.5%
Douglas R. Deason.............. 729,929(7) 8.4% 0 0% 729,929(7) 5.0%
William W. Solomon, Jr......... 0 0% 0 0% -- 0%
D. Paul Cabra.................. 148,481 1.7% 0 0% 148,481 1.0%
Ronald L. Sorci................ 2,786 * 0 0% 2,786 *
J. Livingston Kosberg.......... 162,215(8) 1.9% 0 0% 162,215(8) 1.1%
Sheldon I. Stein............... 0 0% 0 0% -- 0%
Robert N. Bazinet.............. 103,537 1.2% 0 0% 103,537 *
J. D. Greco.................... 519,213 5.9% 0 0% 519,213 3.5%
Peter H. Trembath.............. 4,200 * 0 0% 4,200 *
All Directors and Officers as a
Group........................ 4,325,620(6) 49.6%(6) 592,142 100% 4,917,762(6) 69.9%(6)
Beneficial Owners of more that
5% of Precept Common Stock...
First Nationwide Bank.......... 469,466 5.4% 0 0% 469,466 3.2%
David L. Neely(9).............. 735,788 8.4% 0 0% 735,788 5.0%
</TABLE>
- ------------------------
* Less than 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. However, percentages set forth in the column labeled
"Percent of Total Voting Power" assumes that the holder of Class B Common
Stock is entitled to ten votes for each such share held in his or her name.
The information set forth in this table does not include outstanding options
granted any of the named individuals to purchase shares of Class A Common
Stock, none of which options are not exercisable within sixty days of the
date hereof.
(2) Each share of Class B Common Stock is convertible into Class A Common Stock
on a share-for-share basis at any time.
(3) The address of each director and officer is in care of Precept at 1909
Woodall Rodgers Freeway, Suite 500, Dallas, Texas 75201.
3
<PAGE>
(4) Based on 8,728,044 shares of Class A Common Stock and 592,142 shares of
Class B Common Stock outstanding at October 7, 1999.
(5) Does not include 592,142 shares of Class B Common Stock. Each share of Class
B Common Stock is convertible into Class A Common Stock on a share-for-share
basis at any time. Mr. Deason owns all of the issued and outstanding shares
of Class B Common Stock.
(6) Includes 2,090,385 shares of Class A Common Stock for which Mr. Deason has
been granted proxies to vote, including the shares of Class A Common Stock
held by Douglas R. Deason, D. Paul Cabra and David L. Neely and reflected in
the above table. The share totals and percentages of class and total voting
power shown for All Directors and Officers of the Company in the above table
have been adjusted to avoid double counting any shares subject to any such
proxies granted by current officers or directors of the Company.
(7) Includes 90,125 shares of Class A Common Stock owned by a trust for the
benefit of Douglas R. Deason's children and for which Darwin Deason serves
as Trustee. Darwin Deason and Douglas R. Deason disclaim beneficial
ownership of such shares.
(8) Held by the J. Livingston Kosberg trust of which Mr. Kosberg is the sole
trustee.
(9) Mr. Neely served the Company as its Chairman and Chief Executive Officer for
a number of years. He resigned his positions in April, 1999.
4
<PAGE>
PROPOSAL NO. 1
ELECTION OF DIRECTORS
NOMINEES FOR DIRECTORS; CONTINUING DIRECTORS
The Company's Amended Articles of Incorporation provide that the Board of
Directors will be composed of not less than three and not more than fifteen
Directors. The number of directors is determined from time to time by a majority
vote of the Board of Directors. The Board of Directors has determined that there
will be eight directors. The directorships are divided into three classes, to be
as nearly equal in numbers as possible. J. Livingston Kosberg, William W.
Solomon, Jr. and Sheldon Stein are in the class whose terms expire in 2001.
Darwin Deason and Douglas R. Deason are in the class whose terms expire in 2000.
David L. Neely and Layne A. Deutscher, whose terms would have expired in 2000
and 1999, respectively, both resigned during 1999. The third class of directors,
whose terms expire this year, is composed of Robert N. Bazinet and J. D. Greco.
The nominees for election at the Annual Meeting are Robert N. Bazinet, J. D.
Greco and Peter H. Trembath.
Shares represented by Proxies returned duly executed will be voted, unless
otherwise specified, in favor of the two nominees named above. Proxies cannot be
voted for more than two 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 position with Precept 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>
NAME: DIRECTOR SINCE: POSITIONS WITH THE COMPANY
- ----------------------------------- --------------- ----------------------------------------------------------------
<S> <C> <C>
Darwin Deason (2)(3)............... 1998 Chairman of the Board
Douglas R. Deason (2).............. 1998 President, Chief Operating Officer and Director
William W. Solomon................. 1998 Executive Vice President, Chief Financial Officer and Director
J. Livingston Kosberg (2)(3)(4).... 1998 Director
Sheldon I. Stein (3)............... 1998 Director
Robert N. Bazinet (1)(4)........... 1998 Director
J. D. Greco (1) 1998 Director
Peter H. Trembath (1) * Senior Vice President, General Counsel and Secretary
</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.
BUSINESS EXPERIENCE OF NOMINEES AND CONTINUING DIRECTORS
DARWIN DEASON, age 59, has served as a Director of Precept since its
formation in 1988 and since April, 1999 has served as Chairman of the Board of
Directors. Mr. Deason also serves as Chairman of the Executive Committee of the
Board of Directors. Mr. Deason is also currently the Chairman of the Board and
Chief Executive Officer of Affiliated Computer Services, Inc. ("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
5
<PAGE>
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.
DOUGLAS R. DEASON, age 37, 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.
WILLIAM W. SOLOMON, JR., age 43, has served as Executive Vice President,
Chief Financial Officer and Assistant Secretary of Precept since June 1998.
Prior to that, Mr. Solomon served as Vice President, Corporate Controller 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.
J. LIVINGSTON KOSBERG, age 62, 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 Career Staff 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 46, is a Senior Managing Director and oversees the
U.S. Regional Investment Banking Operations of Bear Stearns & Co., Inc. 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, Fresh America Corp., Home Interiors & Gifts,
Inc., The Men's Wearhouse, Inc. and Tandycrafts, Inc. He is also a Trustee of
the Greenhill School in Dallas and a Trustee of Brandeis University.
ROBERT N. BAZINET, age 58, has served as a Director of Precept since 1998.
He was previously President of Creative, which was acquired by Precept in
September 1998. Mr. Bazinet founded Creative in 1984 and has more than 38 years'
experience in the printed business products and document management service
industry. Mr. Bazinet attend St. Mary's University in Halifax, Nova Scotia.
J. D. GRECO, age 57, has served as a Director of Precept since 1998. He was
previously President of MBF Corporation, which was acquired by Precept in 1998.
Mr. Greco's career in printed business products and document management services
began when he joined Monroe Business Forms in 1969. He received a B.A. degree in
Marketing from Northeast Louisiana University in 1969.
PETER H. TREMBATH, age 46, has served as Senior Vice President, General
Counsel and Secretary of Precept since July 1999. From November, 1993 to
December, 1998, Mr. Trembath served as Vice President, Secretary and General
Counsel of Benson Eyecare Corporation and then its successor, Lumen
Technologies, Inc. (f/k/a BEC Group, Inc.), both of which were publicly held
corporations. He also served from March, 1997 to December, 1998 as Vice
President, Secretary and General Counsel of Bolle, Inc., which was spun off
publicly by Lumen Technologies in March of 1997. From January, 1999 through
June, 1999, Mr. Trembath was engaged in the private practice of law and acted as
an independent consultant. Prior to November, 1993, Mr. Trembath served for a
number of years as Vice President, Secretary and General Counsel of BMC
Industries, Inc., a publicly held corporation. Mr. Trembath received his B.A.
6
<PAGE>
(with highest honors and high distinction), M.A., and J.D. (cum laude) degrees
from the University of Michigan.
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" THE NOMINEES 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 periodically to review significant developments
affecting the Company and to act on matters requiring Board approval. It may
from time to time also hold special meetings or act by unanimous written consent
in lieu of a meeting when an important matter requires Board action. The Board
of Directors met one time and acted four times by written consent during the
fiscal year ended June 30, 1999.
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, 1999 are described below.
The functions performed by the Audit Committee include: recommending to the
Board of Directors selection of the Company's independent accountants for the
ensuing year; reviewing with the independent accountants and management the
scope and results of the audit; reviewing the independence of the independent
accountants; reviewing the independent accountants' 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 N. Bazinet and
J. Livingston Kosberg. The committee met one time during the 1999 fiscal year.
The Compensation Committee administers the Company's 1996 Stock Option Plan
and the 1998 Plan and reviews other matters regarding the compensation of
employees of the Company. The committee currently is composed of Darwin Deason,
J. Livingston Kosberg and Sheldon I. Stein. The committee met one time during
the 1999 fiscal year.
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
to itself and except for those matters specifically reserved to the full Board
pursuant to the Texas Business Corporation Act (the "TBCA"). The Executive
Committee currently comprises Darwin Deason (Chairman), J. Livingston Kosberg,
and Douglas R. Deason. The Executive Committee acted by written consent seven
times and did not meet during the 1999 fiscal year.
During fiscal year ended June 30, 1999, each director attended more than 75%
of the meetings of the Board of Directors and respective committees on which he
served.
PROPOSAL NO. 2
AMENDMENT OF 1998 STOCK INCENTIVE PLAN (THE "1998 PLAN")
At the Meeting, Precept's shareholders will be asked to approve certain
amendments to 1998 Plan, which is described below under "Description of 1998
Plan". The principal amendment is to increase the total number of shares of
Class A Common Stock that may be awarded to participants under the 1998 Plan by
800,000 shares, to a total of 1,657,413 shares. In connection with such
amendment, the 1998 Plan would
7
<PAGE>
be amended to increase from 12.5% to 19% of Precept's issued and outstanding
Common Stock, the total number of shares of Class A Common Stock outstanding
from time to time that (a) remain available for issuance under the 1998 Plan,
(b) are subject to existing grants under the 1998 Plan, or (c) are subject to
previously existing options under the Company's prior 1996 Stock Option Plan
(the "1996 Plan"). Precept is seeking shareholder approval of the amended 1998
Plan in order to comply with the requirements of Section 422 and Section 162(m)
of the Internal Revenue Code (the "Code") in order for compensation paid under
the 1998 Plan to be deductible by Precept irrespective of the $1 million limit
in such Section. Shareholder approval is also required by the NASDAQ Stock
Market in order for shares of Class A Common Stock issued to directors and
officers under the 1998 Plan to be listed for trading thereunder. In addition,
the amended 1998 Plan includes certain amendments, for which shareholder
approval is not required, to provide the Board of Directors greater flexibility
in its administration of the 1998 Plan, including granting the plan
administrator discretionary authority to determine whether and how existing
options should be adjusted in the event of major acquisitions, divestitures,
mergers, changes of control or other significant corporate events. These
administrative amendments will be effected whether or not the increase in shares
reserved for issuance under the 1998 Plan is approved by Precept's shareholders
at the Annual Meeting and will apply only to option grants made after the
effective date of such administrative amendments.
Precept's management and Board of Directors believe that the proposed
increase in the number of shares available for grant under the 1998 Plan is
necessary in order to provide a sufficient number of shares of Class A Common
Stock to incentivize current employees and new employees who may be joining
Precept, as well as to assist in the negotiation of potential future
acquisitions. Precept believes that key employees should have a stock interest
in Precept, thereby tying their financial interest to Precept's performance, and
that the proposed increase in the number of shares available for issuance under
the 1998 Plan will provide a useful vehicle for rewarding performance and
thereby tying employees to the Company's performance.
Prior to adoption of the proposed amendment of the 1998 Plan, there are
857,413 shares of Class A Common Stock reserved for issuance thereunder. Of this
number, as of the Record Date, approximately 365,000 shares of Class A Common
Stock remained available for issuance under the 1998 Plan. The weighted average
exercise price of currently outstanding options is approximately $14.88 per
share, and consequently most currently outstanding options are not in the money.
DESCRIPTION OF THE 1998 PLAN
The following general description of the 1998 Plan is qualified in its
entirety by reference to the terms and conditions set forth in such 1998 Plan.
GENERAL. The 1998 Plan is designed to comply with the requirements of
Section 16b of the Securities and Exchange Act (the "Exchange Act"). The maximum
aggregate number of shares of Precept Class A Common Stock available for
issuance under the 1998 Plan initially was 857,413, which amount included shares
of Class A Common Stock that would have continued to be available for grant
pursuant to options under the 1996 Plan and which amount, when added to the
number of shares of Class A Common Stock covered by options outstanding under
the 1996 Plan, equaled approximately 12.5% of the total number of shares of
Class A Common Stock and Class B Common Stock outstanding after giving effect to
the number of shares issued in connection with the acquisition by Precept of
certain assets of U. S. Transportation Systems, Inc. ("USTS").
ADMINISTRATION. Under its terms, the 1998 Plan may be administered by
Precept's Board of Directors or one or more committees thereof, as permitted by
Rule 16b-3 ("Rule 16b-3") promulgated under the Exchange Act. Performance-based
awards to Precept's named executive officers are administered by a committee of
outside directors, as set forth in Section 162(m) of the Code. Precept's Board
of Directors or
8
<PAGE>
the Compensation Committee thereof administering the 1998 Plan at any particular
time (the "Administrator") determines the individuals eligible to receive awards
under the1998 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. The Administrator is also responsible for, among
other things, determining the advisability and terms of any buyout of options
previously granted and the reductions, if any, in the exercise prices of
previously granted options.
ELIGIBILITY. Employees (including employee directors) ("Employees") of and
consultants ("Consultants") to Precept and any parent or subsidiary of Precept
as well as outside directors of Precept ("Outside Directors") are eligible to
receive awards under the 1998 Plan.
TYPES OF GRANTS. The 1998 permits the grant of nonstatutory stock options
("Nonstatutory Stock Options"), stock purchase rights ("Stock Purchase Rights"),
stock appreciation rights ("SARs"), deferred stock ("Deferred Stock"), dividend
equivalents ("Dividend Equivalents") and awards of restricted stock ("Restricted
Stock") to Employees, Consultants and Outside Directors. The 1998 Plan also
permits the grant of Incentive Stock Options to Employees. The 1998 Plan further
permits the Administrator to designate the grant of Options or SARs to a
"covered employee" (as defined in Section 162(m)(3) of the Code) as a
"performance based grant" ("Performance Based Grant"). Nonstatutory Stock
Options and Incentive Stock Options (collectively, "Options") entitle the
holders thereof to purchase Precept Class A Common Stock. All awards under the
1998 Plan will be evidenced by a written agreement in form approved by the
Administrator. The Administrator may grant awards under the 1998 Plan alone or
in addition to, in tandem with or in substitution for any other award under the
1998 Plan. Awards granted in addition to or in tandem with other awards under
the 1998 Plan may be granted either at the same time or at different times.
Generally, awards under the 1998 Plan will be granted for no consideration other
than services.
OPTIONS. Each Option will be designated in the written option agreement
evidencing its grant whether the option is an Incentive Stock Option or a
Nonstatutory Stock Option. The exercise price of an Incentive Stock Option shall
be no less than 100% of the fair market value of Precept Class A Common Stock at
the time of the grant (110% of fair market value if the grant is made to an
employee that owns stock representing more than 10% of the voting power of all
classes of stock of Precept or any parent or subsidiary of Precept (a "10%
Holder"). Fair market value is determined by reference to the stock's closing
price on the date of the grant. Incentive Stock Options shall have a term of no
more than 10 years (5 years if granted to a 10% Holder). The Administrator
determines the exercise price of a Nonstatutory Stock Option. In the event that
an Employee, Consultant or Outside Director is terminated for cause as set forth
in the 1998 Plan, all Options granted to such person under the 1998 Plan,
whether or not vested, are forfeited unless previously exercised. If an
Employee, Consultant or Outside Director's relationship with Precept terminates
other than for cause, a vested Option granted to such person is exercisable to
the extent provided in the agreement granting the Option, but, in the case of an
Incentive Stock Option, shall be exercised within 60 days of the date of such
termination (12 months, if the termination was the result of a disability) and
only to the extent exercisable on the date of such termination. If there is a
change in control of Precept, all Options previously granted prior to the
effective date of the amendments described herein, whether or not vested, shall
become fully vested and exercisable, effective the day immediately prior to the
change in control. Treatment of options granted after the effective date of the
amendments described herein in the event of any change in control or other
significant corporate event will be subject to the determination of the Board of
Directors, at its discretion. If the recipient of an Option dies, the Option may
be exercised only to the extent vested at the time of death and only by the
estate of the recipient or a person who acquired the Option by bequest or
inheritance. The 1998 Plan also gives the Administrator the authority to include
a similar change of control provision in other grants under the 1998 Plan (i.e.,
SARs, Restricted or Deferred Stock, etc.)
9
<PAGE>
TRANSFERABILITY. Generally, no Option is transferable by a recipient except
by will or the laws of descent and distribution. However, the Administrator
shall, with respect to the holder of a Nonstatutory Option who has a severance
agreement with Precept and may, in its discretion with respect to any other
holder of a Nonstatutory Option, permit the transfer and pledge of such options
under limited circumstances.
FEDERAL INCOME TAX CONSEQUENCES. The grant of an Incentive Stock Option has
no immediate federal income tax consequences to the optionee or Precept. The
exercise of an Incentive Stock Option while the optionee is an Employee or
within three months after termination of employment generally has no immediate
tax consequences to Precept or the optionee. If the optionee is subject to the
alternative minimum tax, however, the exercise of an Incentive Stock Option
would result in an increase in the optionee's alternative minimum taxable income
equal to the excess of the fair market value of the shares of Precept Class A
Common Stock at the time of exercise over the exercise price. If an optionee
holds the shares of Precept Class A Common Stock acquired pursuant to the
exercise of an Incentive Stock Option for the required holding period, the
optionee generally recognizes capital gain or loss upon a subsequent sale of the
shares in the amount of the difference between the amount realized upon the sale
and the exercise price of the shares. In such a case, Precept is not entitled to
a deduction in connection with the grant or exercise of the Incentive Stock
Option or the sale of shares of Precept Class A Common Stock acquired pursuant
to such exercise. If, however, an optionee exercises an Incentive Stock Option
more than three months after termination of employment or disposes of the shares
prior to the expiration of the required holding period, the optionee generally
recognizes ordinary income equal to the excess of the fair market value of the
shares of Precept Class A Common Stock on the date of exercise over the exercise
price. The required holding period is the longer of two years from the date the
option was granted and one year after the date of issuance of the shares upon
the exercise of the option.
The grant of a Nonstatutory Stock Option has no immediate federal income tax
consequences to the optionee or Precept. Upon the exercise of a Nonstatutory
Stock Option, the optionee recognizes ordinary income (subject to wage
withholding and employment taxes) in an amount equal to the excess of the fair
market value of the shares of Precept Class A Common Stock on the date of the
exercise over the exercise price, and Precept is entitled to a corresponding
deduction if the compensation constitutes an ordinary and necessary business
expense. The optionee's tax basis in the shares of Precept Class A Common Stock
is the exercise price plus the amount of ordinary income recognized by the
optionee, and the optionee's holding period will commence on the date the shares
are received. Upon a subsequent sale of the shares of Precept Class A Common
Stock, any difference between the optionee's tax basis in the shares and the
amount realized on the sale generally is treated as capital gain or loss.
AMENDED AND RESTATED 1998 PLAN.
As described above, the principal amendment included in the amended 1998
Plan is the increase from 857,413 shares to 1,657,413 the total number of shares
of Class A Common Stock reserved for issuance thereunder. In conjunction
therewith, the amended 1998 Plan raises the percentage of the Approved Amount
from 12.5% to 19% of the number of shares of Class A Common Stock and Class B
Common Stock outstanding from time to time. Precept cannot forecast the extent
of option grants that will be made in the future. Information with respect to
compensation paid and other benefits, including options, granted in respect of
fiscal year 1999 to the Company's executive officers is set forth below under
"Executive Compensation". During fiscal 1999, 607,045 options were granted under
the 1998 Plan to plan participants. Of those, 67,856 options were granted to
executive officers and additional 539,189 options were granted to employees and
consultants. Existing stock options have been granted at an average exercise
price of $14.88 per share.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE COMPANY'S SHAREHOLDERS
VOTE FOR THE PROPOSED AMENDMENT TO THE 1998 PLAN.
10
<PAGE>
PROPOSAL NO. 3
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 2000. Ernst & Young LLP has served the Company in this capacity since
1995. 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.
MANAGEMENT
EXECUTIVE OFFICERS
The following table sets forth certain information regarding the Company's
current executive officers. Officers are elected by the Board of Directors and
serve at its discretion:
<TABLE>
<CAPTION>
NAME POSITIONS WITH THE COMPANY
- ------------------------------ -------------------------------------------------------------
<S> <C>
Douglas R. Deason............. President, Chief Operating Officer and Director
William W. Solomon, Jr........ Executive Vice President and Chief Financial Officer
Peter H. Trembath............. Senior Vice President, General Counsel and Secretary
D. Paul Cabra................. President, Precept Business Products, Inc.
Ronald P. Sorci............... President, Precept Transportation Services, LLC
</TABLE>
BUSINESS EXPERIENCE OF MANAGEMENT TEAM
FOR BIOGRAPHICAL INFORMATION REGARDING MESSRS. DEASON, SOLOMON AND TREMBATH,
SEE "PROPOSAL NO. 1-- ELECTION OF DIRECTORS".
D. PAUL CABRA, age 54, 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 49, 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 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.
11
<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
DIRECTORS' COMPENSATION
Precept's directors, other than Darwin Deason, are not paid any cash
compensation for serving on the Board of Directors of Precept, although Precept
may in the future decide to pay directors' fees. Directors are reimbursed for
their travel expenses in connection with meetings. However, Messrs. Stein and
Kosberg have received grants, respectively, of 8,572 and 4,082 options under the
1998 Plan, in consideration of consulting services provided to Precept and
unrelated to their services as directors. For further information regarding
total remuneration paid to Darwin Deason for fiscal 1999, see, "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS", below.
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, 1999 whose salary and bonus exceeded
$100,000 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
-----------------------------------------------------
AWARDS
--------------------------------
ANNUAL COMPENSATION OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING
FISCAL ------------------------ COMPENSA AWARDS OPTIONS/
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) -TION ($)(1) (2) SARS (#)
- --------------------------- ----------- ----------- ----------- ------------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
David L. Neely............. 1999 300,000 0 -- -- --
Chairman and Chief 1998 241,500 362,250 -- -- --
Executive Officer (3) 1997 241,500 279,700 -- -- --
Douglas R. Deason.......... 1999 250,000 250,000 -- -- --
President and Chief 1998 210,000 210,000 -- -- --
Operating Officer 1997 210,000 162,310 -- -- --
William W. Solomon, Jr.,... 1999 140,000 105,000 -- -- 10,714
Executive Vice President, 1998 -- -- -- -- --
Chief Financial Officer 1997 -- -- -- -- --
and Asst. Secretary
D. Paul Cabra.............. 1999 175,000 175,000 -- -- -- 28,571
President, Precept 1998 141,783 100,000 -- -- --
Business Products, Inc 1997 96,000 39,000 -- -- --
Ronald P. Sorci............ 1999 173,750 175,000 -- -- 28,571
President, Precept 1998 -- -- -- -- --
Transportation Services, 1997 -- -- -- -- --
LLC
<CAPTION>
PAYOUTS
-------------
LTIP
PAYOUTS ALL OTHER
NAME AND PRINCIPAL POSITION ($) COMPENSATION ($)
- --------------------------- ------------- ---------------------
<S> <C> <C>
David L. Neely............. -- --
Chairman and Chief -- --
Executive Officer (3) -- --
Douglas R. Deason.......... -- --
President and Chief -- --
Operating Officer -- --
William W. Solomon, Jr.,... -- --
Executive Vice President, -- --
Chief Financial Officer -- --
and Asst. Secretary
D. Paul Cabra.............. -- --
President, Precept -- --
Business Products, Inc -- --
Ronald P. Sorci............ -- --
President, Precept -- --
Transportation Services, -- --
LLC
</TABLE>
- ----------------------------
(1) None of the Named Executive Officers received personal benefits, securities
or property in excess of the lesser of $50,000 or 10% of such individuals
reported salary and bonus.
(2) Precept did not grant any restricted stock awards or SARs or long-term
incentive plan payouts to the Named Executive Officers during the fiscal
year ended June 30, 1999.
(3) Mr. Neely previously served Precept for a number of years in the indicated
positions. He resigned in April, 1999.
12
<PAGE>
OPTIONS/SAR GRANTS IN FISCAL YEAR 1999
Except as indicated in the following table, Precept did not grant stock
options or stock appreciation rights (SARs) to any of the Named Executive
Officers during fiscal 1999.
OPTION/SAR GRANT TABLE
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT
--------------------------------------------- ASSUMED ANNUAL RATES
NUMBER OF OF STOCK
SECURITIES PERCENT OF TOTAL PRICE APPRECIATION FOR
UNDERLYING OPTIONS/SARS OPTION
OPTIONS/ GRANTED TO EXERCISE OR TERM
SARS EMPLOYEES IN BASE PRICE EXPIRATION ----------------------
NAME GRANTED (#) FISCAL YEAR ($/SH) DATE 5% ($) 10% ($)
- ----------------------------------- ----------- ------------------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
David L. Neely..................... 0 -- -- -- -- --
Douglas R. Deason.................. 0 -- -- -- -- --
Sept.,
William W. Solomon, Jr............. 10,714 1.8% $ 14.88 2003 $ 44,057 $ 97,331
Sept.,
D. Paul Cabra...................... 28,571 4.7% $ 14.88 2003 $ 230,676 $ 259,551
Sept.,
Ronald P. Sorci.................... 28,571 4.7% $ 14.88 2003 $ 230,676 $ 259,551
</TABLE>
OPTIONS/SAR EXERCISE AND FISCAL YEAR-END OPTION/SAR VALUE TABLE
The following table provides information on options/SARs exercised during
fiscal 1999 by the Named Executive Officers and the value of each such officer's
unexercised options/SARs as of the end of such fiscal year.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION/SAR VALUE
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISABLE
OPTIONS/SARS AT IN-THE-MONEY
FISCAL OPTIONS/SARS AT FISCAL
YEAR END (#) YEAR END ($)
--------------------- -----------------------
SHARES ACQUIRED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) VALUE REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- --------------------------------- --------------------- ----------------------- --------------------- -----------------------
<S> <C> <C> <C> <C>
David L. Neely................... 0 0 0 / 0 0 / 0
Douglas R. Deason................ 0 0 0 / 0 0 / 0
William W. Solomon, Jr........... 0 0 0 / 10,714 0 / 0
D. Paul Cabra.................... 0 0 0 / 28,571 0 / 0
Ronald P. Sorci.................. 0 0 0 / 28,571 0 / 0
</TABLE>
13
<PAGE>
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 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. The Committee members presently include
Darwin Deason, Sheldon I. Stein and J. Livingston Kosberg. Darwin Deason has
received remuneration from the Company during fiscal 1999 for his services as
Chairman of the Board, while Messrs. Stein and Kosberg are both independent non-
employee directors. See, "EXECUTIVE COMPENSATION AND OTHER INFORMATION--
DIRECTORS' COMPENSATION" and "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS".
During fiscal 1999, David L. Neely, the Company's former Chief Executive
Officer, was also a member of the Committee until his resignation in April,
1999. 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 the Chief Operating Officer are made after the
end of each fiscal year based upon the achievement of consolidated financial
criteria and business unit financial criteria, all of which are established
informally by the Board of Directors of Precept. Compensation for the Chief
Executive Officer and the 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 1999,
Precept achieved 100% of such measures. For fiscal year 1999, executive officers
were eligible to receive maximum bonuses of between 50% and 100% 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 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
14
<PAGE>
to employees. The maximum aggregate number of shares of Precept Class A Common
Stock available for issuance under the 1998 Plan is currently 857,143. In fiscal
1999, the Company granted an aggregate of 105,509 stock options to its officers
and directors under the 1998 Plan. See, "PROPOSAL NO. 2-- AMENDMENT OF 1998
STOCK INCENTIVE PLAN (THE "1998 PLAN")", above.
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. As a general rule, Precept does not enter into
written employment agreements with its executive officers. In connection with
the acquisition of substantially all of the assets of USTS, the Company entered
into an employment agreement, dated March 19, 1998, with Mr. Sorci. The
agreement provides for an initial employment term of five years, annual base
salary (set initially at $170,000) and an annual bonus based on the Company
achieving Board-approved financial goals.
Submitted by the Compensation
Committee
of the Board of Directors:
DARWIN DEASON
SHELDON I. STEIN
J. LIVINGSTON KOSBERG
15
<PAGE>
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, 1999,
with that of the Company's peer group 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 peer group of companies selected by Precept for comparison on the stock
performance graph consists of other companies considered to be consolidators in
their industries, with weighting towards service industry consolidation
companies. The peer group includes the following companies: Metals USA, Coach
USA, Carey Limousine, Reynolds & Reynolds, Workflow Management, American
Business Products, Ennis Business Forms, New England Business Svcs, Wallace
Computer, HaLo Industries, FYI Inc., Big Flower Holdings, Standard Register, US
Liquids, Office Staff Svcs., Rural Metro, Apple Orthodonix, Lason, Pentacom, SI
Tech
COMPARISON OF TOTAL CUMULATIVE RETURN FROM MARCH 20, 1998
THROUGH JUNE 30, 1999 OF PRECEPT BUSINESS SERVICES, INC. CLASS A COMMON STOCK,
THE COMPANY'S PEER GROUP AND THE RUSSELL 2000 INDEX
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
PBSI AVG INDEX - AVG INDEX -
<S> <C> <C> <C>
DATE INDEX RUSSELL 2000 PEER GROUP
Mar-98 100.00 100.00 100.00
Apr-98 68.49 101.88 105.51
May-98 59.93 95.19 93.89
Jun-98 75.63 96.50 94.40
Jul-98 67.09 88.56 86.53
Aug-98 59.95 71.30 68.65
Sep-98 31.41 76.71 72.87
Oct-98 24.28 73.79 73.37
Nov-98 34.26 83.92 81.29
Dec-98 29.76 89.03 84.26
Jan-99 32.62 90.14 84.98
Feb-99 53.82 82.76 73.64
Mar-99 39.95 83.90 71.21
Apr-99 19.57 91.32 73.73
May-99 16.72 91.34 73.04
Jun-99 15.49 96.56 79.37
</TABLE>
<TABLE>
<CAPTION>
03/20/98 06/30/99
----------- -----------
<S> <C> <C>
Precept........................................................................ 100 15.49
Peer Group Index............................................................... 100 79.37
Russell 2000 Index............................................................. 100 96.56
</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.
16
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1999, 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. David L. Neely, who was an executive officer of the Company as well
as a director, participated in such discussions as a member of the Compensation
Committee until his resignation in April, 1999. See, also, "EXECUTIVE
COMPENSATION AND OTHER INFORMATION-- REPORT OF THE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION". The Company believes that the
transactions described above 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.
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 1999 and fiscal 1998, respectively. In addition to the foregoing, ACS
provided data processing services and office space to Precept pursuant to the
Services Agreement. Precept incurred expenses of approximately $300,000 to ACS
in each of fiscal 1999 and fiscal 1998 for these services. 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 8, 2000. Each of the notes was
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.
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
17
<PAGE>
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, Chairman of Precept's Board of Directors, Douglas
Deason, Precept's President and Chief Operating Officer and David Neely,
Precept's former Chairman and Chief Executive Officer, 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. Effective August 1, 1999, this
lease was terminated and all expenses were assumed by Darwin Deason.
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 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 a 3% equity interest. 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. Effective July 1,
1999, Precept divested is interest in DDH for a cash payment equal to its
initial investment plus accrued interest.
In fiscal year 1998, Precept entered into a separation agreement and general
release agreement with USTS's former chairman, Michael Margolies, which 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.
18
<PAGE>
In fiscal years 1999 and 1998, the Company purchased goods and services
amounting to $1.4 million and $1.1 million, respectively, at prices which
management considered to be arms' length fair market values, from supplier
companies which were owned by family members of the Company's Chairman, its
former chief executive officer and its current chief operating officer.
During fiscal year 1999, the Company paid its current Chairman $158,041 in
fees for his services performed as Chairman of the Executive Committee and of
the Board of Directors.
The Company has entered into a separation agreement with David L. Neely, its
former Chairman and Chief Executive Officer, who resigned in April, 1999,
pursuant to which the Company agreed to continue Mr. Neely's salary for a one
year period following the termination of his employment. Mr. Neely has agreed
not to compete with the Company for a five year period.
SECTION 16(A) REPORTING 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 1999, 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 4
filed by Mr. Bazinet.
INDEPENDENT AUDITORS
The Board of Directors selected Ernst & Young LLP as independent auditors to
audit the Company's financial statements for the 2000 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 2000
Annual Meeting of Shareholders, the Company must receive such proposals no later
than June 17, 2000. Such proposals should be directed to Precept Business
Services, Inc., 1909 Woodall Rogers Fwy., Suite 500, Dallas, Texas 75201, Attn:
Chief Financial Officer.
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 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 ROGERS FWY., SUITE 500, DALLAS, TEXAS 75201.
By Order of the Board of Directors
Dallas, Texas
October 11, 1999
<TABLE>
<S> <C>
/s/ Douglas R. Deason
President and Chief
Operating Officer
</TABLE>
19
<PAGE>
<TABLE>
<S> <C> <C>
PRECEPT BUSINESS SERVICES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE 1999 ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON NOVEMBER 3, 1999
The undersigned hereby appoints Douglas R. Deason and William W. Solomon, Jr., jointly and severally, proxies, with full
P power of substitution and with discretionary authority, to vote all shares of Common Stock that the undersigned is
R entitled to vote at the 1999 Annual Meeting of Shareholders of Precept Business Services, Inc. (the "Company") to be
O held on Wednesday, November 3, 1999, at CityPlace, 2711 North Haskell Avenue, Dallas, Texas 75204, at 10:00 a.m., or at
X any 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 COMPANY'S 1998 STOCK INCENTIVE PLAN, AS DESCRIBED IN THE ADDRESS)
PROXY STATEMENT (iii) FOR THE RATIFICATION OF THE SELECTION OF ERNST & ----------------------------------------
YOUNG LLP AS THE COMPANY'S INDEPENDENT AUDITORS FOR THE FISCAL YEAR ENDING ----------------------------------------
JUNE 30, 2000 AND (iv) IN THE DISCRETION OF THE PROXYHOLDERS ON ANY OTHER ----------------------------------------
MATTERS THAT MAY PROPERLY COME BEFORE THE MEETING AND ANY ADJOURNMENTS (if you have written in the above space,
THEREOF. please mark the corresponding box above)
</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
Robert N. Bazinet ------------------------------
J. D. Greco ------------------------------
Peter H. Trembath ------------------------------
</TABLE>
(Continued and to be signed on reverse side)
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
2. Amendment of the Company's 1998 Stock Incentive Plan to increase by 800,000 shares the FOR AGAINST ABSTAIN
number of shares of Class A Common Stock reserved for issuance thereunder, as described / / / / / /
more fully in the Company's Proxy Statement for its 1999 Annual Meeting of Shareholders.
3. Ratification of the selection of Ernst & Young LLP as the Company's independent auditors FOR AGAINST ABSTAIN
for the fiscal year ending June 30, 2000. / / / / / /
4. With discretionary authority as to such other matters as may properly come before the
Annual Meeting.
</TABLE>
__________________________________
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.
