PRECEPT BUSINESS SERVICES INC
10-Q, 2000-05-19
PAPER & PAPER PRODUCTS
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<PAGE>

================================================================================

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                              Washington D.C. 20549


                                    FORM 10-Q


                QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934
                       FOR THE PERIOD ENDED MARCH 31, 2000

                        Commission file number: 000-23735
                                                ---------


                         PRECEPT BUSINESS SERVICES, INC.
             (Exact name of registrant as specified in its charter)

                Texas                                           75-2487353
   (State or other jurisdiction of                          (I.R.S. Employer
   incorporation or organization)                          Identification No.)

1909 Woodall Rodgers Freeway, Suite 500                            75201
(Address of principal executive offices)                        (Zip Code)

       Registrant's telephone number, including area code: (214) 754-6600





Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No



As of May 12, 2000, there were 10,191,925 outstanding shares of Class A Common
Stock and 592,142 outstanding shares of Class B Common Stock.




================================================================================

<PAGE>

<TABLE>
<CAPTION>

                         PRECEPT BUSINESS SERVICES, INC.

                               INDEX TO FORM 10-Q

DESCRIPTION                                                                                    PAGE
- -----------                                                                                    ----
<S>               <C>                                                                          <C>
PART I            FINANCIAL INFORMATION

Item 1            Condensed Consolidated Balance Sheets as of
                      March 31, 2000 and June 30, 1999..................................        3
                  Condensed Consolidated Statements of Operations
                      for the three-month and nine-month periods ended
                      March 31, 2000 and 1999...........................................        4
                  Condensed Consolidated Statements of Cash Flows for the
                      nine-month periods ended March 31, 2000 and 1999..................        5
                  Condensed Consolidated Statements of Changes in
                      Shareholders' Equity for the nine-month periods
                      ended March 31, 2000 and 1999.....................................        6
                  Notes to Condensed Consolidated Financial Statements..................        7

Item 2            Management's discussion and analysis of financial
                      condition and results of operations...............................       14

Item 3            Quantitative and Qualitative Disclosure for Market Risk...............       22

PART II           OTHER INFORMATION

Item 1            Legal Proceedings.....................................................       22

Item 2            Changes in Securities and Use of Proceeds.............................       22

Item 3            Defaults Upon Senior Securities.......................................       23

Item 4            Submission of Matters to a Vote of Security Holders...................       23

Item 6            Exhibits and Reports on Form 8-K......................................       23

                  Signature.............................................................       23
</TABLE>

                                       2

<PAGE>

PART I - FINANCIAL INFORMATION - ITEM 1

                         PRECEPT BUSINESS SERVICES, INC.
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                (Amounts in thousands, except per share amounts)

<TABLE>
<CAPTION>

                                                                                  March 31,          June 30
                                                                                    2000               1999
                                                                               ------------        ------------
                                      ASSETS                                    (Unaudited)
<S>                                                                            <C>                 <C>
Current assets:
   Cash and cash equivalents ..............................................    $       --          $       --
   Trade accounts receivable, net .........................................          19,999              17,071
   Accounts receivable from affiliates ....................................             929               1,054
   Inventory ..............................................................           7,595               4,782
   Other current assets ...................................................           2,705               1,335
   Deferred income taxes and income taxes receivable ......................           4,012               1,734
   Net assets of discontinued operations ..................................          20,699              30,546
                                                                               ------------        ------------
       Total current assets ...............................................          55,939              56,522

Property and equipment, net ...............................................           2,781               2,518
Intangible assets, net ....................................................          19,734              16,854
Deferred income taxes .....................................................           1,010               1,010
Other assets ..............................................................              20                 613
                                                                               ------------        ------------
       Total assets .......................................................    $     79,484        $     77,517
                                                                               ============        ============

                      LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
   Trade accounts payable .................................................    $     14,042        $      7,985
   Accrued expenses .......................................................           2,219               3,007
   Accrued compensation ...................................................           2,286               1,705
   Current portion of long-term debt ......................................           1,383               1,364
                                                                               ------------        ------------
       Total current liabilities ..........................................          19,930              14,061

Long-term debt ............................................................          43,726              34,334
Mandatory redeemable convertible preferred stock ..........................           2,592                 194
Commitments and contingencies
Shareholders' equity:
   Preferred stock, $1.00 par value; 3,000 authorized shares,
       none issued ........................................................            --                  --
   Class A Common Stock, $0.01 par value; 100,000 shares authorized
       and 9,748 and 8,877 shares issued
       in 2000 and 1999, respectively .....................................              97                  89
   Class B Common Stock, $0.01 par value; 10,500 shares authorized
       and 592 shares issued ..............................................               6                   6
   Additional paid-in capital .............................................          39,757              39,717
   Retained earnings (accumulated deficit) ................................         (25,413)             (9,673)
                                                                               ------------        ------------
                                                                                     14,447              30,139
   Class A treasury stock - 149 shares ....................................          (1,211)             (1,211)
                                                                               ------------        ------------
       Total shareholders' equity .........................................          13,236              28,928
                                                                               ------------        ------------
           Total liabilities and shareholders' equity .....................    $     79,484        $     77,517
                                                                               ============        ============
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       3


<PAGE>

                         PRECEPT BUSINESS SERVICES, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                (Amounts in thousands, except per share amounts)

<TABLE>
<CAPTION>

                                                   Three months                 Nine months
                                                      Ended                        Ended
                                                     March 31,                   March 31,
                                                  2000          1999        2000          1999
                                                ---------    ---------    ---------    ---------
                                                                   (Unaudited)
<S>                                             <C>          <C>          <C>          <C>
CONTINUING OPERATIONS
Revenue - Business Products .................   $  36,728    $  35,096    $ 106,815    $ 103,874
Costs and expenses:
   Cost of goods sold .......................      24,844       23,424       71,701       70,010
   Sales commissions ........................       5,195        4,881       14,712       14,005
   Selling, general and administrative ......       5,919        6,051       15,839       16,551
   Goodwill write-down and
       other non-recurring charges ..........        -           6,727         -           6,727
   Depreciation and amortization ............         599          363        1,612        1,019
                                                ---------    ---------    ---------    ---------
                                                   36,557       41,446      103,864      108,312
                                                ---------    ---------    ---------    ---------
Operating income (loss) .....................         171       (6,350)       2,951       (4,438)
Interest expense ............................         552          201        2,322        1,148
                                                ---------    ---------    ---------    ---------
Income (loss) before income taxes ...........        (381)      (6,551)         629       (5,586)
Income tax provision (benefit) ..............        (171)      (3,038)         284       (2,526)
                                                ---------    ---------    ---------    ---------
Net income (loss) from continuing operations         (210)      (3,513)         345       (3,060)

DISCONTINUED OPERATIONS
Net income (loss) from discontinued
   operations, net of income tax provision
   (benefit) ................................        (588)      (6,886)         546       (6,000)
Net loss from sale of discontinued operations     (16,500)        -         (16,500)        -
                                                ---------    ---------    ---------    ---------
Net loss from discontinued operations .......     (17,088)      (6,886)     (15,954)      (6,000)
                                                ---------    ---------    ---------    ---------
Net income (loss) ...........................   $ (17,298)   $ (10,399)   $ (15,609)   $  (9,060)
                                                =========    =========    =========    =========
Basic net income (loss) per share:
   Continuing operations ....................   $   (0.02)   $   (0.41)   $    0.04    $   (0.37)
   Discontinued operations ..................       (1.68)       (0.81)       (1.62)       (0.73)
                                                ---------    ---------    ---------    ---------
   Net income (loss) per share ..............   $   (1.70)   $   (1.22)   $   (1.58)   $   (1.10)
                                                =========    =========    =========    =========
   Weighted average shares outstanding ......      10,153        8,512        9,859        8,208

Diluted net income (loss) per share:
   Continuing operations ....................   $   (0.02)   $   (0.41)   $    0.04    $   (0.37)
   Discontinued operations ..................       (1.68)       (0.81)       (1.55)       (0.73)
                                                ---------    ---------    ---------    ---------
   Net income (loss) per share ..............   $   (1.70)   $   (1.22)   $   (1.51)   $   (1.10)
                                                =========    =========    =========    =========
   Weighted average shares outstanding ......      10,153        8,512       10,325        8,208
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       4

<PAGE>

                         PRECEPT BUSINESS SERVICES, INC.
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                             (Amounts in thousands)

<TABLE>
<CAPTION>

                                                                                          Nine Months Ended March 31,
                                                                                          ---------------------------
                                                                                            2000               1999
                                                                                          --------           --------
                                                                                                  (Unaudited)
<S>                                                                                       <C>                <C>
Continuing operations:
   Cash flows from operating activities: ............................................     $  5,433           $  9,073

   Cash flows provided by (used in) investing activities:
       Acquisitions of businesses, including earnout payments .......................       (5,798)            (8,851)
       Acquisition of property and equipment, net ...................................         (106)              (325)
       Sale of assets of discontinued operations ....................................         -                 1,115
                                                                                          --------           --------
           Net cash used in investing activities ....................................       (5,904)            (8,061)
                                                                                          --------           --------
   Cash flows provided by (used in) financing activities:
       Payments on long-term debt and other long-term liabilities, net ..............       (1,149)            (1,034)
       Preferred stock redemption and dividend payments .............................         (809)              -
       Borrowings (repayments) on revolving line of credit, net .....................        9,566              8,535
                                                                                          --------           --------
           Net cash provided by financing activities ................................        7,608              7,501
                                                                                          --------           --------

   Net change in cash and cash equivalents - continuing operations ..................        7,137              8,513

Discontinued operations:
   Cash flows used in operating activities ..........................................         (145)            (2,156)
   Cash flows used in investing activities - primarily acquisitions of businesses ...       (4,982)            (7,181)

   Cash flows used financing activities - net repayments of debt ....................       (2,010)              (957)
                                                                                          --------           --------
   Net change in cash and cash equivalents - discontinued operations ................       (7,137)           (10,294)
                                                                                          --------           --------

Net change in cash and cash equivalents .............................................         -                (1,781)

Cash and cash equivalents at beginning of period ....................................         -                 2,291
                                                                                          --------           --------
Cash and cash equivalents at end of period ..........................................     $   -              $    510
                                                                                          ========           ========
Supplemental disclosure:
   Cash paid for:
       Interest .....................................................................     $  3,439           $  1,420
       Income taxes .................................................................     $    651           $    213
</TABLE>

      See accompanying notes to condensed consolidated financial statements


                                                5

<PAGE>

                         PRECEPT BUSINESS SERVICES, INC.
      CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                             (Amounts in thousands)

<TABLE>
<CAPTION>

                                                                             RETAINED
                                CLASS A      CLASS B       ADDITIONAL        EARNINGS                         TOTAL
                                COMMON       COMMON         PAID-IN        (ACCUMULATED                   SHAREHOLDERS'
                                 STOCK        STOCK         CAPITAL          DEFICIT)         OTHER           EQUITY
                               ---------    ---------     ------------   ----------------  ----------   ----------------
                                                                  (Unaudited)
<S>                            <C>          <C>           <C>            <C>               <C>          <C>
Balance, June 30, 1998 .....   $      69    $       6     $     23,515   $       (1,396)   $    (192)   $      22,002

Issuance of shares to
   acquire businesses ......          11           -            12,533             -             -             12,544
Exercise of stock options ..          -            -                20             -             (20)            -
Repurchase of Class A
common shares ..............                       -                                            (999)            (999)
Conversion of seller notes .          -            -               383             -                              383
Net loss ...................          -            -              -              (9,060)         -             (9,060)
                               ---------    ---------     ------------   ----------------  ----------   ----------------

Balance, March 31, 1999 ....   $      80    $       6     $     36,451   $      (10,456)   $  (1,211)   $      24,870
                               =========    =========     ============   ================  ==========   ================




Balance, June 30, 1999 .....   $      89    $       6     $     39,717   $       (9,673)   $  (1,211)   $      28,928

Issuance of shares to
   acquire businesses and
   conversion of seller
   note payable ............           8           -                40             -             -                 48
Dividends on preferred
   stock ...................          -            -              -                (131)         -               (131)
Net loss ...................          -            -              -             (15,609)         -            (15,609)
                               ---------    ---------     ------------   ----------------  ----------   ----------------


Balance, March 31, 2000 ....   $      97    $       6     $     39,757   $      (25,413)   $  (1,211)   $      13,236
                               =========    =========     ============   ================  ==========   ================
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                       6

<PAGE>

                         PRECEPT BUSINESS SERVICES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2000


1.       BUSINESS

         Precept Business Services, Inc. and its subsidiaries ("Precept" or
the "Company") primarily engage in business products distribution management
and services. The Business Products Division arranges for the manufacture,
storage, and distribution of business forms, computer supplies, advertising
information and other related business products for medium- to large-sized
corporate customers. Precept operates from offices throughout the United
States.

         DISCONTINUED OPERATIONS - TRANSPORTATION SERVICES DIVISION

         The Transportation Services Division provides chauffeured corporate
transportation, livery and courier services from locations in the tri-state
New York metropolitan area and in the states of Texas, Michigan, Kentucky and
Ohio. During the quarter ended March 31, 2000, our Board of Directors approved
a plan to sell the Transportation Division, and we signed a revised letter of
intent to sell substantially all the assets and liabilities of the
Transportation Division to a company funded by a group of investors, led by
Holding Capital Group and certain members of the Transportation Division's
executive management. The sale of the Transportation Division, which is
subject to a number of conditions including the execution of a definitive
purchase agreement, is expected to be completed by the end of September 2000.
The revised letter of intent contemplates the Transportation Division is to be
sold for five times the annual pro forma free cash flow of the division and
for an earnout based on future earnings of the new company. Free cash flow
would be defined as the earnings before interest, income taxes, depreciation
and amortization less the annual debt service for the division. Under the
foregoing, the purchase price for the Transportation Division would be
approximately $20.0 million. In addition, the new company would assume the
debt of the Transportation Division.

         PUBLICLY TRADED COMPANY

         Our Class A common stock trades under the Nasdaq symbol "PBSI".

         CONSOLIDATED FINANCIAL STATEMENTS

         The consolidated financial statements comprise the accounts of the
Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.

         PRO FORMA INFORMATION

         The pro forma information included in these financial statements and
notes is unaudited.

         FISCAL YEAR END AND QUARTERLY REPORTING PERIODS

         We maintain a June 30 fiscal year end and report our quarterly
operating results for the periods that end on September 30, December 31, and
March 31, respectively. For purposes of the Company's current report on Form
10-Q, references to 2000 and 1999 are meant to be the three-month and
nine-month reporting periods ended March 31, 2000 and 1999, respectively.
References to fiscal years 2000 and 1999 are meant to be for the fiscal year
ending June 30, 2000 and the fiscal year ended June 30, 1999, respectively.

2.       SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Significant accounting policies followed in the preparation of the
consolidated financial statements are consistent with the accounting policies
described in the Company's notes to consolidated financial statements included
in the Company's Annual Report to Shareholders and Form 10-K for the fiscal
year ended June 30, 1999.

                                      7

<PAGE>

                         PRECEPT BUSINESS SERVICES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2000


         INTERIM FINANCIAL INFORMATION

         The accompanying interim financial statements and information are
unaudited. We have omitted or condensed certain information and disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles, although we believe that the
disclosures included herein are adequate to make the information presented not
misleading. You should read these interim financial statements in conjunction
with the Company's consolidated financial statements for the year ended June
30, 1999. We have included in the interim financial statements all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the Company's financial position, its results of
operations and its cash flows. We do not believe that the operating results
for any particular interim period are necessarily indicative of the operating
results for a full fiscal year.

         We derived the financial information for the year ended June 30, 1999
from our audited financial statements for the same year that are included in
the Company's Annual Report to Shareholders and Form 10-K for fiscal year 1999.

         DISCONTINUED OPERATIONS

         We reported the historical operating results for the Transportation
Division as "Discontinued operations" on the accompanying condensed
consolidated statements of operations for all periods presented. We have
aggregated and separately identified the Transportation Division's related
assets and liabilities on the condensed consolidated balance sheets as "Net
assets of discontinued operations." We also separated the cash flow from
discontinued operations on the condensed consolidated statements of cash
flows. We have recognized the net income (loss) from these operations during
the three and nine-month periods ended March 31, 2000 in the statement of
operations. Based on the current letter of intent between the Company and
Holding Capital Group, Inc., we have recorded an estimated loss on the sale of
the Transportation Division.

         The loss on the sale of the discontinued operations does not include
the expected future net income or loss expected to be generated by the
Transportation Division. Since we are endeavoring to sell the Transportation
Division within the next six months, we do not expect that the amount of such
net income would have a material effect on the size of the net loss from
discontinued operations. As a result, the expected future net income of the
Transportation Division is not included in the net loss from discontinued
operations.

         We did not include a provision for tax benefit in the loss on the
sale of the discontinued operations. We expect that the majority of the loss
from the sale of the Transportation Division will not be able to be deducted
for tax purposes. We estimate that the tax basis of the Transportation
Division will be close to the amount of the taxable sales price for the
division. If there is a taxable loss, the future tax benefit of such loss will
be evaluated at the time of the completion of the sale. If there is a taxable
gain, we expect that the Company's tax net operating loss carryforward amounts
will be used to offset the taxable gain.

         We have included in the net income (loss) from the Transportation
Division an allocation of our interest expense on the outstanding debt under
our Credit Agreement. We based the allocation of this interest expense on the
operating results of the Transportation Division, on its capital expenditures,
on its contribution towards corporate expenses and on its changes in working
capital. We did not allocate any corporate selling, general and administrative
expenses to the net income (loss) from the Transportation Division.

3.       ACQUISITIONS

         During the first quarter of fiscal year 2000 we acquired two business
products distribution companies with combined annual revenues of $10.2
million. We accounted for these acquisitions using the purchase method of
accounting. For each of these purchase acquisitions, we allocated the
aggregate

                                      8

<PAGE>

                         PRECEPT BUSINESS SERVICES, INC.
              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                 MARCH 31, 2000


acquisition cost to the net assets acquired based on the fair market value of
such net assets. We have included the operating results of such companies in
our historical results of operations for all periods following the
acquisition. The aggregate acquisition cost for such purchased businesses
amounted to $5.0 million and consisted of $1.0 million in cash, funded by the
Company's revolving line of credit, $3.0 million in redemption value of
mandatory redeemable convertible preferred stock and $1.0 million in assumed
debt and deal costs.

         During the first quarter of fiscal year 1999, we acquired four
business products distribution companies with combined annual revenues of
$34.3 million. We accounted for these acquisitions using the purchase method
of accounting. For each of these purchase acquisitions, we allocated the
aggregate acquisition cost to the net assets acquired based on the fair market
value of such net assets. We included the operating results of such companies
in our historical results of operations for all periods following the
acquisitions. The aggregate acquisition cost for such purchased businesses
amounted to $18.6 million and consisted of $5.7 million in cash, funded by
working capital and the Company's revolving line of credit, 0.7 million shares
of Class A common stock with an aggregate fair market value of $9.6 million,
and $3.3 million in seller notes, assumed debt and deal costs.


<TABLE>
<CAPTION>

                                                                            Nine months ended
                                                                                March 31,
                                                                        ------------------------
                                                                           2000          1999
                                                                        ----------    ----------
<S>                                                                     <C>           <C>
Purchase consideration:
     Cash paid.....................................................     $    1,000    $    5,736
     Amounts due sellers of acquired businesses....................          -             1,380
     Common stock and mandatory preferred stock issued.............          3,000         9,604
     Liabilities assumed...........................................            900         1,777
     Other.........................................................             75           107
                                                                        ----------    ----------
Fair value of net assets acquired..................................     $    4,975    $   18,604
                                                                        ==========    ==========


</TABLE>


<TABLE>
<CAPTION>

                                                                            Nine months ended
                                                                                March 31,
                                                                        ------------------------
                                                                           2000          1999
                                                                        ----------    ----------
<S>                                                                     <C>           <C>
Allocation of fair value of net assets acquired:
     Goodwill and intangible assets................................     $    3,474    $   13,323
     Accounts receivable...........................................          1,237         3,704
     Inventory and other, net......................................            264         1,577
                                                                        ----------    ----------
                                                                        $    4,975    $   18,604
                                                                        ==========    ==========

</TABLE>


         The following table presents the pro forma results of continuing
operations as if all the acquisitions described above had occurred at the
beginning of each period presented. Pro forma adjustments reflect additional
amortization expense since the excess of acquisition cost over the fair value
of the assets acquired is amortized for a full period. Pro forma adjustments
also reflect additional interest expense due to the related debt being
outstanding for a full period. The income tax effect of the pro forma
adjustments has also been reflected. These pro forma results are presented for
comparative purposes only and do not purport to be indicative of what would
have occurred had the businesses actually been acquired as of those dates or
of results which may occur in the future.


<TABLE>
<CAPTION>

                                             Nine months ended                Three months ended
                                                  March 31,                        March 31,
                                        ---------------------------       --------------------------
                                            1999            2000              1999            2000
                                        -----------     -----------       ----------      ----------
<S>                                     <C>             <C>               <C>             <C>
Total revenues .......................  $   111,427     $   121,196       $   36,728      $   38,984
Income (loss) before income taxes ....  $     1,461     $     2,009       $     (381)     $      311
Net income (loss).....................  $       760     $     1,045       $     (210)     $      162
Diluted net income (loss) per share...  $      0.07     $      0.12       $    (0.02)     $     0.02


</TABLE>


                                                9

<PAGE>

                             PRECEPT BUSINESS SERVICES, INC.
                  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                     MARCH 31, 2000

         The following table presents the same information as the table above
except that the information below includes the goodwill write-down and other
non recurring charges recorded during the quarter ended March 31, 1999.

<TABLE>
<CAPTION>

                                                          Nine months ended                    Three months ended
                                                              March 31,                             March 31,
                                                    ----------------------------            -------------------------
                                                       2000              1999                  2000            1999
                                                    ----------        ----------            ---------       ---------
<S>                                                 <C>               <C>                   <C>             <C>
Total revenues                                      $  111,427        $  121,196            $  36,728       $  38,984
Income (loss) before income taxes ....              $    1,461        $   (4,859)           $    (381)      $  (6,537)
Net income (loss).....................              $      760        $   (5,823)           $    (210)      $  (6,687)
Diluted net income (loss) per share...              $     0.07        $    (0.69)           $   (0.02)      $   (0.77)

</TABLE>

4.       PROPERTY AND EQUIPMENT

         Property and equipment consists of the following:

<TABLE>
<CAPTION>
                                                                                March 31,          June 30,
                                              Estimated Lives                      2000              1999
                                              ---------------                  -----------       -----------
     <S>                                      <C>                              <C>               <C>
     Land                                                                      $         -       $         -
     Buildings                                15 to 40 years                           106               733
     Leasehold improvements                    1 to 10 years                         1,479             1,296
     Equipment and vehicles                    3 to 5 years                          5,484             4,416
     Capitalized leasehold rights              3 to 5 years                            440               440
                                                                               -----------       -----------
                                                                                     7,509             6,885
     Accumulated depreciation and amortization....................                   4,728             4,367
                                                                               -----------       -----------
                                                                               $     2,781       $     2,518
                                                                               ===========       ===========

</TABLE>

5.       INTANGIBLE ASSETS

         Intangible assets consist of the following:

<TABLE>
<CAPTION>
                                                                                March 31,          June 30,
                                                                                   2000              1999
                                                                               -----------       -----------
     <S>                                                                       <C>               <C>
     Goodwill.....................................................             $    24,215       $    20,378
     Other........................................................                     570               570
                                                                               -----------       -----------
                                                                                    24,785            20,948
     Accumulated amortization.....................................                   5,051             4,094
                                                                               -----------       -----------
                                                                               $    19,734       $    16,854
                                                                               ===========       ===========

</TABLE>

6.       LONG-TERM DEBT

         Long-term debt consists of the following:

<TABLE>
<CAPTION>
                                                                                March 31,          June 30,
                                                                                   2000              1999
                                                                               -----------       -----------
     <S>                                                                       <C>               <C>
     Revolving line of credit.....................................             $    40,666       $    31,100
     Convertible notes payable to sellers.........................                   1,123             3,285
     Mortgage and equipment notes payable.........................                   2,652               292
     Capitalized lease obligations................................                     194               777
     Other........................................................                     474               244
                                                                               -----------       -----------
                                                                                    45,109            36,698
     Less current portion due within one year.....................                   1,383             1,364
                                                                               -----------       -----------
     Long-term debt...............................................             $    43,726       $    34,334
                                                                               ===========       ===========

</TABLE>

         In April 2000, our Credit Agreement with our banking group was
amended to increase the amount available for borrowing to $42.3 million. To
satisfy a lender condition to this amendment, the Company's Chairman and
controlling shareholder guaranteed $2.3 million of bank debt, and we agreed to
use our best


                                       10

<PAGE>

                             PRECEPT BUSINESS SERVICES, INC.
                  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                     MARCH 31, 2000

efforts to sell our Transportation Division or our Business Products Division
with the proceeds to be applied to our bank debt. If we sell the
Transportation Division for more than $17.5 million by October 24, 2000, the
guaranty will be removed. If the Transportation Division is not sold by
October 24, 2000, the banking group has the option to request the Company's
Chairman to provide common stock of Affiliated Computer Services, Inc. as
collateral for the guaranty. If such a request is made, then the Chairman has
the right to request Precept to provide the requested collateral. Since all of
Precept's assets are pledged as collateral to the banking group and other
lenders, we would not be able to provide the collateral. In consideration of
the personal guaranty provided by our Chairman, Precept has agreed to
reimburse the Chairman for any amounts he may have to pay under the guaranty
and, if he is required by the bank to collateralize the guaranty, Precept has
agreed to deliver to him as a guaranty fee securities equal to what he would
have received if the guaranteed amount had been invested in preferred stock
and warrants on the same terms as the recent investment by the Shaar Fund
described elsewhere in this report or, at his election, consideration of
reasonably equivalent value.

         As part of the amendment to the Credit Agreement, the banking group
changed the total debt to pro forma EBTIDA (earnings before interest, income
taxes, depreciation and amortization) ratio to 3.53 to 1 for the measurement
period ended December 31, 1999. The mandatory redeemable convertible preferred
stock that was issued by the Company in April, July and September of calendar
year 1999 will be included in the total debt amount for the ratio.

         As of March 31, 2000, we did not comply with three of the financial
covenants in the Credit Agreement: specifically, the total debt to pro forma
EBITDA, the historical EBITDA to interest and the net worth financial
covenants. Our banking group has indicated in writing that they are willing
to amend or waive the applicable covenants as of March 31, 2000. As a result
of such written agreement, we have continued to present the outstanding debt
under the Credit Agreement as long-term debt.

7.       PREFERRED STOCK

         In April 2000, we sold $2.0 million in convertible preferred stock to
The Shaar Fund Ltd. and used the net proceeds to pay vendors. The preferred
stock is convertible into Class A Common Stock at a rate of $2.75 or 85% of
the market price of the Class A Common Stock, defined as the average of the
five days closing price of the stock prior to the conversion. No conversion is
permitted for the first five months. In addition, we may redeem the preferred
stock at 120% of the face value during the first five months. We will pay a
quarterly dividend of 8% of the face value in cash or Class A Common Stock. As
part of the transaction, we issued warrants to purchase 125,000 shares of
Class A Common Stock at an exercise price of $2.50 per share. We also provided
registration rights to The Shaar Fund Ltd. for the shares of Class A Common
Stock which may be issued upon conversion and for the dividends to be paid.

         In consideration of the personal guaranty provided by our Chairman,
we have agreed to reimburse the Chairman for any amounts he may have to pay
under the guaranty, and if he is required by the bank to collateralize the
guaranty, Precept has agreed to deliver to him as a guaranty fee securities
equal to what he would have received if the guaranteed amount had been
invested in preferred stock and warrants on the same terms as the investment
by the Shaar Fund described above or, at his election, consideration of
reasonably equivalent value.

8.       MANDATORY REDEEMABLE CONVERTIBLE PREFERRED STOCK

         As part of its acquisition of two businesses during the first quarter
of fiscal year 2000 and one acquisition during the third quarter of fiscal
year 1999, the Company issued 3,200 shares of mandatory redeemable preferred
stock in three series with an aggregate initial redemption value of
$3,260,000. The preferred stock pays dividends at annual rates ranging from
6.0% to 9.0% on a monthly and quarterly basis. The preferred stock includes a
mandatory redemption in the following annual amounts: $0.1 million for the
remainder of fiscal year 2000; $0.3 million in 2001; $0.3 million in 2002;
$1.8 million in 2003; and $0.1


                                       11

<PAGE>

                             PRECEPT BUSINESS SERVICES, INC.
                  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                     MARCH 31, 2000


million in 2004. The preferred stock is generally convertible at the option of
the holder at a range of $8.00 to $30.00 for one share of Class A Common Stock.

         Dividends on the mandatory redeemable preferred stock of $0.1 million
for fiscal year 2000 are not reflected on the face of the condensed
consolidated statement of operations as the amount was not considered
significant to the net loss for the three- and nine-month periods ended March
31, 2000.

9.       DISCONTINUED OPERATIONS

         The net assets for the discontinued operations of the Transportation
Division as of March 31, 2000 and June 30, 1999 are shown below:

<TABLE>
<CAPTION>
                                                                                March 31,          June 30,
                                                                                   2000              1999
                                                                               -----------       -----------
     <S>                                                                       <C>               <C>
     Trade accounts receivable, net...............................             $     2,674       $     2,720
     Other current assets.........................................                   1,686             1,260
                                                                               -----------       -----------
     Total current assets.........................................                   4,360             3,980
     Property and equipment, net..................................                   7,945             8,491
     Intangible and other assets, primarily goodwill, net.........                  31,054            26,801
                                                                               -----------       -----------
     Total assets.................................................                  43,359            39,272
     Accounts payable, accrued expenses and
         other current liabilities................................                  (1,261)           (3,562)
     Current portion of long-term debt............................                  (2,521)           (2,554)
                                                                               -----------       -----------
     Total current liabilities....................................                  (3,782)           (6,116)
     Long-term debt...............................................                  (2,378)           (2,610)
     Loss on sale of discontinued operations......................                 (16,500)             -
                                                                               -----------       -----------
     Net assets of discontinued operations........................             $    20,699       $    30,546
                                                                               ===========       ===========
</TABLE>

         The condensed results of operations for the discontinued operations of
the Transportation Division are shown below for the three-month and the nine
month periods ended March 31, 2000 and 1999.

<TABLE>
<CAPTION>

                                                  Three months ended                   Nine months ended
                                                       March 31,                           March 31,
                                             ----------------------------        ---------------------------
                                                2000              1999             2000               1999
                                             ----------        ----------        ---------         ---------
<S>                                          <C>               <C>               <C>               <C>
Revenue.............................         $    7,502        $    7,115        $  23,609         $  17,992
Cost of goods sold..................              4,997             4,059           14,682            10,474
Other operating expenses............              1,821             8,639            4,335            10,374
Depreciation and amortization.......                811               570            2,377             1,441
Interest expense....................                932               463            1,222               709
Income (loss) before income tax
         provision (benefit)........             (1,059)           (6,616)             993            (5,006)
Net income (loss)...................               (588)           (6,886)             546            (6,000)

</TABLE>

         The results of operations for the discontinued operations include an
allocation of interest expense on the Company's debt outstanding under the
Credit Agreement. The allocation is based on the amount of debt used by the
Transportation Division for acquisitions, capital expenditures and working
capital, offset by the cash flow generated from its operations.

         During the second quarter of fiscal year 1999, we acquired one
corporate transportation services company located in North Arlington, New
Jersey, which provides executive limousine and town car service to the
tri-state New York metropolitan area and had annual revenues of $14.0 million.
We accounted for this acquisition using the purchase method of accounting. We
allocated the aggregate acquisition cost to the net assets acquired based on
the fair market value of such net assets. We have included the operating
results of this company in our historical results of operations for all
periods following the acquisition. The


                                       12

<PAGE>

                             PRECEPT BUSINESS SERVICES, INC.
                  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                     MARCH 31, 2000


aggregate acquisition cost for this purchased business amounted to $9.0
million and consisted of $3.4 million in cash, funded by working capital and
the Company's revolving line of credit, 0.3 million shares of Class A common
stock with an aggregate fair market value of $2.9 million, and $4.4 million in
assumed debt and transaction costs.

10.      WEIGHTED AVERAGE SHARES OUTSTANDING

         The following table provides information to reconcile the basic and
diluted weighted average shares outstanding for the three-month and nine-month
periods ended March 31, 2000 and 1999.

<TABLE>
<CAPTION>

                                                                   Three months ended                  Nine months ended
                                                                        March 31,                           March 31,
                                                              ----------------------------        ---------------------------
                                                                 2000              1999             2000               1999
                                                              ----------        ----------        ---------         ---------
<S>                                                           <C>               <C>               <C>               <C>
Basic weighted average shares outstanding:
   Common shares, Class A and Class B, outstanding
         at the beginning of the period..............              9,944             8,459            9,320             7,394
   Common shares repurchased.........................                  -               (79)               -               (79)
   Common shares issued upon exercise of options.....                  -                45                -                45
   Common shares issued upon conversion of note
         receivable..................................                 15                47               15                47
   Common shares used to acquire businesses during
         the period..................................                233               251              857             1,066
                                                              ----------        ----------        ---------         ---------
   Common shares, Class A and Class B, outstanding
         at the end of the period....................             10,192             8,723           10,192             8,473
                                                              ==========        ==========        =========         =========
   Weighted average number of common shares
         outstanding during the period based on the
         number of days outstanding (A)..............             10,153             8,512            9,859             8,208
                                                              ==========        ==========        =========         =========

Diluted weighted average shares outstanding:
   Common stock options:
      Number of outstanding options..................                                                 1,331
      Number of options which would be exercised
         based on average market value of common
         stock during the period.....................                                                   853
      Proceeds from exercise of options..............                                             $   3,119
      Common shares repurchased with proceeds........                                                   803
      Common shares issued from exercise of options,
         net (B).....................................                                                    50
                                                                                                  =========
      Warrants to purchase common stock:
      Number of warrants outstanding.................                                                    43
      Number of warrants which would be exercised
         based on average market value of common
         stock during the period.....................                                                     -
      Net proceeds from exercise of warrants.........                                             $       -
      Common shares repurchased with proceeds........                                                     -
      Common shares issued from exercise of warrants
         (C).........................................                                                     -
                                                                                                  =========
   Convertible notes payable:
      Face value of notes which would be converted
         based on average market value of common
         stock during the period.....................                                             $   1,614
      Interest expense savings, net of tax effect,
         on notes which would be converted...........                                             $      85
      Common shares issued upon conversion (D).......                                                   416
                                                                                                  =========
   Diluted weighted average common shares
         outstanding  (A + B + C + D)................             10,153             8,512           10,325             8,208
                                                              ==========        ==========        =========         =========

</TABLE>


                                       13
<PAGE>

ITEM 2     -      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                  AND RESULTS OF OPERATIONS

THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION
27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT
OF 1934. THESE FORWARD-LOOKING STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
HISTORICAL RESULTS OR ANTICIPATED RESULTS.

OVERVIEW

         Precept is an independent distributor of custom and stock business
products and is a provider of document management services ("Business
Products Division") to businesses in a variety of industries throughout the
United States. We were one of the first distribution companies to begin
nationwide consolidation of operating companies in the Business Products
industry.

         We also operate corporate transportation services ("Transportation
Services Division") companies in the United States. As discussed more fully
below under "Discontinued Operations" we have signed a letter of intent to
sell the operating assets and liabilities of the Transportation Services
Division. Unless otherwise indicated, discussion of the operating results of
the Company relates only to continuing operations.

STRATEGIC ALTERNATIVES REVIEW

         In July 1999, the Company announced its engagement of Southwest
Securities as financial advisor to the Company as it evaluated its strategic
alternatives. Southwest Securities and Precept have worked together on the sale
of the Transportation Division discussed elsewhere in this Report. Currently,
the Company has directed Southwest Securities to continue to investigate future
sources of equity and debt financing, as well as acquisition and disposition
transactions.

ACQUISITIONS

         Our results of operations and the comparability of our results of
operations from period to period have been affected significantly by
businesses acquired in each period. From 1991 through the date of this
report, we completed 21 acquisitions of Business Products distribution
companies.

         In the three-month period ended September 30, 1999, we completed the
acquisition of two Business Products companies located in North Carolina with
aggregate annual revenues of $10.2 million. We paid for such acquisitions
with $1.0 million in cash, financed by the Company's working capital and its
revolving line of credit, $3.0 million in mandatory redeemable convertible
preferred stock and $1.0 million in assumed debt and deal costs.

         In the three-month period ended September 30, 1998, we completed the
acquisition of four Business Products companies located in Salt Lake City, Utah;
Houston, Texas; Bangor, Maine; and Florence, South Carolina with combined annual
revenues of $34.3 million. We paid for such acquisitions with an aggregate of
$5.7 million in cash, financed by the Company's working capital and revolving
line of credit, $1.4 million in seller notes, 0.7 million shares of Class A
common stock with a fair market value of $9.6 million and $1.9 million in
assumed debt and deal costs.

         PURCHASE ACCOUNTING EFFECTS

         We have accounted for our acquisitions using the purchase accounting
method. We have included the historical results of operations for our
acquisitions in our results of operations from the dates of acquisition. The
acquisitions have affected, and will prospectively affect, the Company's
results of operations in certain significant respects. Our revenues and
operating expenses have been directly affected


                                      14
<PAGE>


by the timing of the acquisitions. We have allocated the aggregate
acquisition costs, including assumption of debt, to the net assets acquired
based on the fair market value of such net assets. The allocation of the
purchase price results in an increase in the historical book value of certain
assets, including property and equipment, and will generally result in the
allocation of a portion of the purchase price to goodwill, which results in
incremental annual and quarterly amortization expense.

RESULTS OF CONTINUING OPERATIONS

         The following table sets forth various items from continuing operations
as a percentage of revenues for the three-month and nine-month periods ended
March 31, 2000 and 1999.

<TABLE>
<CAPTION>
                                                                          Three months ended     Nine months ended
                                                                               March 31,             March 31,
                                                                           2000        1999       2000       1999
                                                                          ------      ------     ------     ------
<S>                                                                       <C>         <C>        <C>        <C>
Revenue:                                                                  100.0%      100.0%     100.0%     100.0%
                                                                          ------      ------     ------     ------
Costs and operating expenses:
     Cost of goods sold...........................................         67.6%       66.7%      67.1%      67.4%
     Sales commissions............................................         14.1%       13.9%      13.8%      13.5%
     Selling, general and administrative..........................         16.2%       17.2%      14.8%      15.9%
     Goodwill write-down and other non-recurring charges..........          0.0%       19.3%       0.0%       6.5%
     Depreciation and amortization................................          1.6%        1.0%       1.5%       1.0%
                                                                           ------     ------     ------      ------
                                                                           99.5%      118.1%      97.2%     104.3%
                                                                           ------     ------     ------      ------
Operating income (loss)...........................................          0.5%      (18.1)%      2.8%      (4.3)%
Interest and other expense........................................          1.5%        0.6%       2.2%       1.1%
                                                                           ------     ------     ------      ------
Income (loss) from continuing operations before income taxes......         (1.0)%     (18.7)%      0.6%      (5.4)%
Income tax provision (benefit)....................................         (0.4)%      (8.7)%      0.3%      (2.5)%
                                                                           ------     ------     ------      ------
Net income (loss) from continuing operations......................         (0.6)%     (10.0)%      0.3%      (2.9)%
                                                                           ======     ======     ======      ======
</TABLE>


THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO THREE MONTHS ENDED MARCH 31, 1999

         REVENUE for 2000 increased by $1.6 million, or 4.7%, from $35.1
million in 1999 to $36.7 million in 2000. Our revenue increased by $2.9
million due to the effect of two companies acquired during the first quarter
of fiscal year 2000. The Business Products internal growth rate of 4.4%, or
$1.4 million, excludes the effect of $2.7 million of lost revenue from MBF
Corporation ("MBF"). On February 16, 1999 substantially all of the
management, sales force and employees of MBF resigned to join a competitor
that had been founded by the same individuals. We are in litigation with the
competitor and former MBF officers over this matter.

         COST OF GOODS SOLD during 2000 increased by $1.4 million, or 6.1%,
from $23.4 million to $24.8 million. The dollar change was due to the effects
of the companies acquired ($2.0 million) and internal growth of the Company
($1.2 million), offset by lower cost of goods related to the lower MBF
revenue ($1.8 million). As a percentage of revenue, cost of goods sold
increased from 66.7% in 1999 to 67.6% in 2000. Changes in the mix of products
sold, changes in the geographic markets served and vendor pricing all
contributed to this change. As a percentage of revenue, the effect of cost of
goods sold from companies acquired was offset by the effect of the cost of
goods sold from the lost MBF revenue.

         SALES COMMISSIONS for 2000 increased by $0.3 million, or 6.4%, from
$4.9 million, or 13.9% of revenue in 1999, to $5.2 million, or 14.1% of
revenue in 2000. The increase in both the dollar amount and percentage of
revenue for sales commissions was due to a greater proportion of the sales
revenue being generated by salespersons with higher commission rates. The
higher level of gross profit also contributed to the increase in sales
commissions as our sales force is compensated on a percentage of gross
profit.

                                      15
<PAGE>

Increases in commission expense from the companies acquired were offset by
lower commission expense as a result of the lost MBF revenue.

         SELLING, GENERAL AND ADMINISTRATIVE EXPENSE for 2000 decreased by
$0.1 million, or 2.2%, from $6.1 million in 1999 to $5.9 million in 2000. As
a percentage of revenue, such expense decreased from 17.2% in 1999 to 16.2%
in 2000. The Company reduced its selling, general and administrative expense
from existing operations due to integration and cost control efforts.
Increased selling, general and administrative expenses of $0.5 million from
companies acquired were offset by $0.5 million of expenses from MBF that did
not recur.

         DEPRECIATION AND AMORTIZATION EXPENSE increased $0.2 million in 2000
from $0.4 million in 1999 to $0.6 million in 2000 due largely to the size and
timing of the acquisitions completed since October 1, 1998.

         INTEREST EXPENSE increased $0.4 million, or 174.6%, from $0.2
million in 1999 to $0.6 million in 2000 due to the additional debt used to
finance acquisitions and fund the working capital needs of the Company.

         NET LOSS was reduced by $3.3 million in 2000 due primarily to the
non-recurrence of $6.7 million in goodwill write-down and non-recurring
charges recorded during the third quarter of 1999. The loss per basic share
was lowered from $0.41 in 1999 to $0.02 in 2000 for the same reasons.

NINE MONTHS ENDED MARCH 31, 2000 COMPARED TO NINE MONTHS ENDED MARCH 31, 1999

         REVENUE for 2000 increased by $2.9 million, or 2.8%, from $103.9
million in 1999 to $106.8 million in 2000. During the first nine months of
fiscal year 2000, Business Products revenue increased from internal growth by
$9.7 million or 10.7%. In addition, revenue increased by $5.7 million due to
the effect of two companies acquired during the first quarter of fiscal year
2000 and two companies acquired during the first quarter of fiscal year 1999.
The internal growth rate excludes the effect of $12.5 million of lost revenue
from MBF.

         COST OF GOODS SOLD for 2000 increased by $1.7 million, or 2.4%, from
$70.0 million in 1999 to $71.7 million in 1999. In dollar amounts, such
change was due to the effects of the companies acquired ($3.8 million) and
the internal growth of the Company ($6.3 million) offset the effect of the
lower cost of goods sold from the lost MBF revenue ($8.4 million). As a
percentage of revenue, cost of goods sold improved from 67.4% in 1999 to
67.1% in 2000 due primarily to the effects of changes in product mix,
geographic markets served and vendor pricing. As a percent of revenue, the
effect of cost of goods sold from companies acquired was offset by the effect
of the lower cost of goods sold from the lost MBF revenue.

         SALES COMMISSIONS for 1999 increased by $0.7 million, or 5.0%, from
$14.0 million, or 13.5% of revenue in 1999, to $14.7 million, or 13.8% of
revenue in 2000. The change in the percentage of revenue is due primarily to
the higher dollar amount of commissions paid to existing salespersons due to
improved gross profit levels. The increase in the dollar amount is due to
internal growth ($1.8 million), and to companies acquired ($0.6 million),
offset by lower commissions due to the lost MBF revenue ($1.7 million).

         SELLING, GENERAL AND ADMINISTRATIVE EXPENSE decreased by $0.7
million, or 4.3%, in 2000 from $16.6 million in 1999 to $15.8 million in
2000. The Company increased its selling, general and administrative expense
from existing operations by $0.3 million to support the revenue growth.
Increased selling, general and administrative expenses of $1.0 million from
companies acquired were offset by $2.0 million of expenses from MBF that did
not recur. As a percentage of revenue, selling, general and administrative
expenses have decreased from 15.9% in 1999 to 14.8% in 2000. The percentage
decrease reflects the results of the Company's continued revenue growth while
controlling costs and continuing its integration efforts.

                                      16
<PAGE>

         DEPRECIATION AND AMORTIZATION EXPENSE increased $0.6 million in 2000
from $1.0 million in 1999 to $1.6 million in 2000 due largely to acquisitions
completed since July 1, 1998.

         INTEREST EXPENSE increased by $1.2 million or 102.3% during 2000,
from $1.1 million in 1999 to $2.3 million in 2000 principally due to
additional debt incurred by us in fiscal years 1999 and 2000 to finance our
business acquisitions and our investment in working capital.

         NET INCOME increased by $3.4 million, or 111.3% in 2000, from a net
loss of $3.1 million in 1999 to net income of $0.3 million in 2000, as the
goodwill write-down and non recurring charges did not recur. The improvement
in the net income per share is due primarily to the same reason.

DISCONTINUED OPERATIONS

         The discontinued operations consist of the Transportation Division.

         During March 2000, we signed a revised letter of intent to sell
substantially all the assets and liabilities of the Transportation Division to a
company funded by a group of investors, led by Holding Capital Group and certain
members of the Transportation Division's executive management. The sale of the
Transportation Division, which is subject to a number of conditions including
the execution of a definitive purchase agreement, is expected be completed by
the end of September 2000. The revised letter of intent contemplates the
Transportation Division is to be sold for five times the annual pro forma free
cash flow of the division and for an earnout based on future earnings of the new
company. Free cash flow would be defined as the earnings before interest, income
taxes, depreciation and amortization less the annual debt service for the
division. Under the foregoing, the purchase price for the Transportation
Division would be approximately $20.0 million. In addition, the new company
would assume the debt of the Transportation Division.

         Revenue for the three months ended March 31, 2000 increased by $0.4
million, or 5.4%, to $7.5 million in 2000 as compared to $7.1 million in 1999.
Companies acquired since September 30, 1998 accounted for $2.0 million of the
revenue increase. Revenue from existing operations declined by $1.6 million due
principally to the loss of a bus service contract with Ford which was not
renewed after June 30, 1999 ($0.6 million) and to lower ride volume and lower
ride rates for the town car and limousine operations in the tri-state New York
market ($1.0 million). Revenue for the nine months ended March 31, 2000
increased by $5.6 million, or 31.2%, to $23.6 million in 2000 as compared to
$18.0 million in 1999. Companies acquired since September 30, 1998 accounted for
$9.7 million of the revenue change. Revenue from existing operations declined by
$2.4 million due principally to the loss of a bus service contract with Ford
which was not renewed after June 30, 1999 ($1.7 million) and to lower ride
volume and lower ride rates for the town car and limousine operations in the
tri-state New York market.

         Cost of goods sold for the Transportation Division for the three months
ended March 31, 2000 increased by $0.9 million, or 23.1%, from $4.1 million in
1999 to $5.0 million in 2000, primarily as a result of companies acquired since
September 30, 1998. Cost of goods sold for the Transportation Division for the
nine months ended March 31, 2000 increased by $4.2 million, or 40.2%, from $10.5
million in 1999 to $14.7 million in 2000. Companies acquired since September 30,
1998 accounted for $5.4 million of this change. Cost of goods sold from existing
operations decreased by $1.2 million due primarily to the loss of the Ford bus
contract at the end of June 1999 ($0.4 million), to lower ride volume at the
town car and limousine operations in the tri-state New York markets ($1.1
million) offset by increases in ride volume from the Transportation Division's
bus operations in Kentucky and Ohio and town car and limousine operations in
Texas.

         Selling, general and administrative expenses for the three months ended
March 31, 2000 increased by $0.8 million, or 78.4%, from $1.0 million in 1999 to
$1.8 million in 2000. Selling, general and administrative expenses for the nine
months ended March 31, 2000 increased by $1.5 million, or 14.9%, from $2.7
million in 1999 to $4.2 million in 2000. The increases in selling, general and
administrative expenses are primarily related to the acquisitions completed
since September 30, 1998.

                                      17
<PAGE>

         Depreciation and amortization expense for the three months ended March
31, 2000 increased by $0.2 million, or 33.3%, from $0.6 million in 1999 to $0.8
million in 2000. Depreciation and amortization expense for the nine months ended
March 31, 2000 increased by $1.0 million, or 71.4%, from $1.4 million in 1999 to
$2.4 million in 2000.

         Interest expense for the three months ended March 31, 2000 increased by
$0.4 million, or 83.0%, from $0.5 million in 1999 to $0.9 million in 2000.
Interest expense for the nine months ended March 31, 2000 increased by $0.5
million, or 72.4%, from $0.7 million in 1999 to $1.2 million in 2000. The
increase in interest expense is primarily due to the additional debt incurred to
finance acquisitions after September 30, 1999. Interest expense for the
Transportation Division includes an allocation of interest expense on the
outstanding debt under the Company's Credit Agreement.

         The net loss for the Transportation Division decreased by $6.3 million
for the three months ended March 31, 2000 from $6.9 million in 1999 to $0.6
million in 2000. Excluding the goodwill and asset write-downs of $7.6 million
recorded in the third quarter of 1999, the division's operating results declined
by $1.7 million during the third quarter of 2000. This deterioration is
primarily due to three reasons. The division's town car and limousine operations
in the tri-state New York market have not performed as well in 2000 due to price
competition and higher fuel costs. Secondly, the division did not benefit from
the Ford contract during 2000. Lastly, during the third quarter of 2000, the
division recorded $0.6 million in adjustments to revenue and operating expenses
for its town car and limousine operation based in N. Arlington, New Jersey. Such
adjustments relate to matters which became evident after the middle of the third
quarter of fiscal year 2000 and after a change in management at the operation.

         Net income for the nine months ended March 31, 2000 improved by $6.5
million, from a loss of $6.0 million in 1999 to net income of $0.5 million in
2000. Excluding the goodwill and asset write-downs of $7.6 million recorded
in the third quarter of 1999, the division's operating results declined by
$1.6 million during 2000. This deterioration is primarily due to two reasons.
The division's town car and limousine operations in the tri-state New York
market have not performed as well in 2000 due to price competition and higher
fuel costs. Secondly, the division did not benefit from the Ford contract
during 2000.

LIQUIDITY AND CAPITAL RESOURCES - CONTINUING OPERATIONS

         DEBT AND EQUITY FINANCING. Since October 1999, the Company has been at
or near its borrowing limit under its Credit Agreement. The Company's cash flow
from its operations, both continuing and discontinued, has been sufficient to
service the Company's debt and mandatory redeemable preferred stock and finance
its capital expenditures; however, the cash flow from its operations has not
been sufficient to lower the accounts payable financing provided by the
Company's vendors.

         Prior to October 1999, the Company's policy was to take advantage of
prompt payment discounts offered by the Company's vendors and pay vendors who
did not offer discounts within 30 to 45 days. Since October 1999, the Company
has, for the most part, not been able to take advantage of prompt pay discounts
and has been paying its vendors within 50 to 65 days. We estimate that on an
annual basis, we have lost approximately $1.5 million to $2.0 million in prompt
pay discounts due to a lack of adequate working capital, debt and equity
financing to support the operating needs of our operations. During the month of
April, we experienced a reduction in the monthly collections of accounts
receivable of approximately $2.0 million. We have recently added collections
personnel to improve the timeliness of the collection of accounts receivable
from our customers. If we are able to improve the collection of accounts
receivable, then we will be able to reduce the level of vendor financing which
is provided by accounts payable. Should the timeliness of the collections not
improve, we will not be able to reduce the level of vendor financing unless we
are able to raise additional cash through equity or debt financing transactions.

         Management of the Company believes that our current level of debt
financing and our expected cash flows from operations will be sufficient during
the next twelve to twenty four months to service our debt, meet capital
expenditure requirements and maintain adequate employee and vendor relations.
However, if we are not able to obtain additional equity or debt financing and we
are not able to improve the

                                      18
<PAGE>

timeliness of the collection of our trade accounts receivable, our relations
with our vendors could suffer somewhat and this could lead to reduced revenue
and operating income in the next twelve to twenty four months.

         In April 2000, we sold $2.0 million in convertible preferred stock to
The Shaar Fund Ltd. and used the net proceeds to pay vendors. The preferred
stock is convertible into Class A Common Stock at a rate of $4.00 or 85% of the
market price of the Class A Common Stock, defined as the average of the five
days closing price of the stock prior to the conversion. No conversion is
permitted for the first five months. In addition, we may redeem the preferred
stock at 120% of the face value during the first five months. We will pay a
quarterly dividend of 8% of the face value in cash or Class A Common Stock. As
part of the transaction, we issued warrants to purchase 125,000 shares of Class
A Common Stock at an exercise price of $2.50 per share. We also provided
registration rights to The Shaar Fund Ltd. for the shares of Class A Common
Stock which may be issued upon conversion and for the dividends to be paid.

         In April 2000, our Credit Agreement with our banking group was amended
to increase the amount available for borrowing to $42.3 million. To satisfy a
lender condition to this amendment, the Company's Chairman and controlling
shareholder guaranteed $2.3 million of bank debt, and we agreed to use our best
efforts to sell our Transportation Division or our Business Products Division
with the proceeds to be applied to our bank debt. If we sell the Transportation
Division for more than $17.5 million by October 24, 2000, the guaranty will be
removed. If the Transportation Division is not sold by October 24, 2000, the
banking group has the option to request the Company's Chairman to provide common
stock of Affiliated Computer Services, Inc. as collateral for the guaranty. If
such a request is made, then the Chairman has the right to request Precept to
provide the requested collateral. Since all of Precept's assets are pledged as
collateral to the banking group and other lenders, we would not be able to
provide the collateral. In consideration of the personal guaranty provided by
our Chairman, Precept has agreed to reimburse the Chairman for any amounts he
may have to pay under the guaranty and, if he is required by the bank to
collateralize the guaranty, Precept has agreed to deliver to him as a guaranty
fee securities equal to what he would have received if the guaranteed amount had
been invested in preferred Stock and warrants on the same terms as the recent
investment by the Shaar Fund described elsewhere in this report or, at his
election, consideration of reasonably equivalent value.

         As part of the amendment to the Credit Agreement, the banking group
changed the total debt to pro forma EBTIDA (earnings before interest, income
taxes, depreciation and amortization) ratio to 3.53 to 1. The mandatory
redeemable convertible preferred stock that was issued by the Company in April,
July and September of calendar year 1999 is included in the total debt amount
for the ratio.

         As of March 31, 2000, we did not comply with three of the financial
covenants in the Credit Agreement: specifically, the total debt to pro forma
EBITDA, the historical EBITDA to interest and the net worth financial
covenants. Our banking group has indicated in writing that they are willing
to amend or waive the applicable covenants as of March 31, 2000. As a result
of such written agreement, we have continued to present the outstanding debt
under the Credit Agreement as long-term debt.

         NET CASH FLOWS FROM OPERATING ACTIVITIES. In the first nine months of
fiscal year 2000, the Company generated $5.4 million of cash for operating
needs. During this period, the Company's net income, adjusted for non-cash
charges of $1.6 million, amounted to $2.0 million. We used an increase in
accounts payable vendor financing of $5.6 million to fund an increase in
inventory of $1.9 million and an increase in trade accounts receivable of $1.2
million. Overall, we reduced our investment in working capital by $3.4 million
during the nine months ended March 31, 2000. During the nine months ended March
31, 1999, we generated $9.1 million in cash from operations. Despite incurring a
loss of $2.0 million, excluding non-cash charges such as depreciation,
amortization and goodwill write-down, the Company significantly lowered its
investment in working capital during this period. We reduced the level of trade
accounts receivable by $1.5 million and lowered our carrying level of inventory
by $0.9 million. During the same period, we increased the level of vendor
financing in accounts payable and accrued expenses by $8.2 million.

                                      19
<PAGE>

         NET CASH FLOWS FROM INVESTING ACTIVITIES. During the first nine months
of fiscal year 2000, Precept used $5.9 million in cash for investing activities
as compared to a use of $8.1 million for investing activities in the first nine
months of fiscal year 1999. During 2000, the Company acquired two Business
Products distribution companies. During the first nine months of 1999, the
Company acquired four Business Products distribution businesses for a total of
$8.9 million, acquired $0.3 million of equipment and received $1.1 million in
proceeds from the sale of land, building and an investment in a restaurant
company.

         NET CASH FLOWS FROM FINANCING ACTIVITIES. In the first nine months of
fiscal year 2000, $7.6 million of cash was generated by financing activities as
compared to $7.5 million of cash generated by financing activities in the first
nine months of fiscal year 1999. During the first nine months of 2000, Precept
increased its outstanding revolving line of credit balance by approximately $9.6
million, primarily to finance acquisitions, service existing debt ($1.1
million), redeem preferred stock and pay preferred dividends ($0.8 million) and
provide cash to fund operating cash flow needs of the Transportation Division.
During the first nine months of 1999, the Company decreased its long-term debt
and capital lease obligations by $1.0 million and increased its outstanding
revolving line of credit balance by $8.5 million to fund acquisitions.

         NET CASH FLOWS FROM DISCONTINUED OPERATIONS. For the nine months ended
March 31, 2000, the Transportation Division used $0.1 million of cash to fund
its operating activities. Excluding non cash charges of $2.4 million during this
period for depreciation and amortization, $2.9 million was generated by
operating activities, before changes in working capital. This was used primarily
to reduce accounts payable and accrued expenses ($3.0 million).

         For the nine months ended March 31, 1999, the Transportation Division
used $2.2 million of cash to fund its operating activities. Excluding non cash
charges of $8.7 million during this period for depreciation, amortization and
goodwill write-down, $2.7 million was generated by operating activities, before
changes in working capital. During the same period, the Transportation Division
financed an increase in trade accounts receivable ($2.4 million) primarily from
its town car and limousine operations. In addition, the Transportation Division
reduced its accounts payable by $1.0 million and its accrued expenses by $1.4
million as it paid for liabilities assumed as part of its acquisitions. During
the nine months ended March 31, 1999, the Transportation repaid $1.0 million in
other debt, primarily vehicle notes and capitalized leases. The Transportation
Division's net use of $10.3 million in cash was funded by the continuing
operations of the Company and by advances under the Company's Credit Agreement.

OTHER

         INFLATION

         Certain of Precept's Business Products offerings, particularly paper
products, have been and are expected to continue to be subject to significant
price fluctuations due to inflationary and other market conditions. In the last
five to ten years, prices for commodity grades of paper have shown considerable
volatility. Precept generally is able to pass such increased costs on to its
customers through price increases, although it may not be able to adjust its
prices immediately. Significant increases in paper and other costs in the future
could materially affect Precept's profitability if these costs cannot be passed
on to customers. In addition, Precept Transportation Division's operating
results may be affected by increases in the prices of fuel if the division is
not able to pass along such increases to its customers on a timely basis. In
general, Precept does not believe that inflation has had a material effect on
its results of operations in recent years. However, there can be no assurance
that Precept's business will not be affected by inflation, the price of paper
and the price of fuel in the future.

         IMPACT OF YEAR 2000

         In prior years, the Company discussed the nature and progress of its
plans to become Year 2000 ready. In late 1999, the Company completed its
remediation and testing of systems. As a result of these planning and
implementation efforts, the Company experienced no significant disruptions in
mission

                                      20
<PAGE>

critical information technology and non-information technology systems and
believes those systems successfully responded to the Year 2000 date change.
The Company is not aware of any material problems resulting from Year 2000
issues, either with its services and products, its internal systems, or the
products and services of third parties. The Company will continue to monitor
its mission critical computer applications and those of its suppliers and
vendors throughout the Year 2000 to ensure that any latent Year 2000 matters
that may arise are addressed promptly.

         FINANCIAL ACCOUNTING STANDARDS

         The Financial Accounting Standards Board ("FASB") issued Statement of
Financial Accounting Standards No. 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS
AND HEDGING ACTIVITIES, that is effective for reporting periods beginning after
June 15, 2000. Precept is required to adopt this standard for its fiscal year
ending June 30, 2001. The Securities and Exchange Commission issued Staff
Accounting Bulletin No. 101, REVENUE RECOGNITION, that is required to be adopted
beginning with the quarterly reporting period ending June 30, 2000. Management
is in the process of evaluating the effects, if any, of adopting these two new
pronouncements.

FORWARD-LOOKING STATEMENTS

         The Company is including the following cautionary statement in this
Form 10-Q to make applicable and take advantage of the safe harbor provisions
of the Private Securities Litigation Reform Act of 1995 for any
forward-looking statements made by, or on behalf of, the Company. This
section should be read in conjunction with the "Risk Factors Affecting the
Company's Prospects" located in Item I of the Company's annual report on Form
10-K for the year ended June 30, 1999 and in the "Risk Factors" included in
the Company's Prospectus dated November 12, 1999. Forward-looking statements
include statements concerning plans, objectives, goals, strategies, future
events or performance, and underlying assumptions and other statements which
are other than statements of historical facts. From time to time, the Company
may publish or otherwise make available forward-looking statements of this
nature. All such subsequent forward-looking statements, whether written or
oral and whether made by or on behalf of the Company, are also expressly
qualified by these cautionary statements. Certain statements contained herein
are forward-looking statements and accordingly involve risks and
uncertainties that could cause actual results or outcomes to differ
materially from those expressed in the forward-looking statements. The
forward-looking statements contained herein are based on various assumptions,
many of which are based, in turn, upon further assumptions. The Company's
expectations, beliefs and projections are expressed in good faith and are
believed by the Company to have a reasonable basis, including without
limitation, management's examination of historical operating trends, data
contained in the Company's records and other data available from third
parties, but there can be no assurance that management's expectations,
beliefs or projections will result or be achieved or accomplished. In
addition to the other factors and matters discussed elsewhere herein, the
following are important factors that, in the view of the Company, could cause
actual results to differ materially from those discussed in the
forward-looking statements.

     1.  Changes in economic conditions, in particular those that affect the end
         users of business products and transportation services, primarily
         corporations.
     2.  Changes in the availability and/or price of paper, fuel and labor, in
         particular if increases in the costs of these resources are not passed
         along to the Company's customers.
     3.  Changes in executive and senior management or control of the Company.
     4.  Inability to obtain new customers or retain existing customers and
         contracts.
     5.  Significant changes in the composition of the Company's sales force.
     6.  Significant changes in competitive factors, including product-pricing
         conditions, affecting the company.
     7.  Governmental and regulatory actions and initiatives, including those
         affecting financing.
     8.  Significant changes from expectations in operating revenues and
         expenses.
     9.  Occurrences affecting the Company's ability to obtain funds from
         operations, debt, or equity to finance needed capital acquisitions and
         other investments, including the inability to formalize our oral
         agreement with our banking group discussed elsewhere in this report.
     10. Significant changes in rates of interest, inflation, or taxes.

                                      21
<PAGE>

     11. Significant changes in the Company's relationship with its employees
         and the potential adverse effects if labor disputes or grievances were
         to occur.
     12. Changes in accounting principles and/or the application of such
         principles to the Company.
     13. The ability of Precept to sell one or both of its divisions or raise
         additional capital.

         The foregoing factors could affect the Company's actual results and
could cause the Company's actual results during fiscal year 2000 and beyond to
be materially different from any anticipated results expressed in any
forward-looking statement made by or on behalf of the Company.

         The Company disclaims any obligation to update any forward-looking
statements to reflect events or other circumstances after the date of this
report on Form 10-Q.

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE FOR MARKET RISK

         The Company's revolving line of credit provides for interest to be
charged at the prime rate or at a LIBOR rate plus a margin of 3.75%. Based on
the Company's current level of outstanding revolving line of credit, a 1.0%
increase in interest rate would result in a $0.5 million annual change in
interest expense. The remainder of the Company's debt is at fixed interest
rates that are not subject to changes in interest rates. The Company currently
has outstanding $1.6 million in notes payable and $2.0 million in preferred
stock, all of which may be converted to Class A Common Stock at the prevailing
market prices for the Company's Class A Common Stock. Based on a market price
of $2.00 for a share of Class A Common Stock, the current shareholders would
be diluted approximately 18%. Based on a hypothetical market price of $1.00
for a share of Class A Common Stock, the current shareholders would be diluted
approximately 35%. The Company does not own, nor is the Company obligated
under, other significant debt or equity securities that would be affected by
fluctuations in market risk. The Company does not hold or issue derivative
financial instruments for speculation or trading purposes.


PART II - OTHER INFORMATION


ITEM 1   LEGAL PROCEEDINGS

         There have been no significant changes to ongoing litigation matters
during the quarter ended March 31, 2000.

ITEM 2   CHANGES IN SECURITIES AND USE OF PROCEEDS

         As of March 31, 2000, there were no changes in securities and use of
proceeds. As disclosed more fully in Note 7 to the consolidated condensed
financial statements and in Part I Item 2, Precept Business Services, Inc.
sold $2.0 million of convertible preferred stock on April 19, 2000 to The
Shaar Fund Ltd. and used the net proceeds of $1.8 million to pay vendors.

                                     22

<PAGE>

ITEM 3   DEFAULTS BY THE COMPANY ON ITS SENIOR SECURITIES

As of March 31, 2000 and subject to the oral agreement with our banking group
discussed under "Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and capital resources
- -continuing operations," the Company was not in default of any of its debt or
equity securities.

ITEM 4   RESULTS OF VOTES OF HOLDERS

         No matters were submitted to a vote of security holders during the
quarter ended March 31, 2000.

ITEM 6            EXHIBITS AND REPORTS ON FORM 8-K

ITEM 6(a)         EXHIBITS


<TABLE>
<CAPTION>

Exhibit No.       Description
- -----------       -----------

<S>      <C>      <C>
3.1               Securities Purchase Agreement, dated as of April 19, 2000, by
                  and between Precept Business Services, Inc. and The Shaar
                  Fund Ltd. (1)

3.2               Common Stock Warrant for The Shaar Fund Ltd. to purchase
                  125,000 shares of Class A Common Stock. (1)

3.3               Registration Rights Agreement, dated as of April 19, 2000, by
                  and between Precept Business Services, Inc. and The Shaar
                  Fund Ltd. (1)

5.1               Letter agreement dated April 25, 2000 among Precept Business
                  Services, Inc. and Darwin Deason, Chairman (1)

5.2               Amendment and Waiver No. 3 dated as of April 27, 2000 to
                  Credit Agreement dated as of March 22, 1999 and related
                  Limited Guaranty by Darwin Deason. (1)

27.1              Financial Data Schedule (1)

(1)      Included as an exhibit to this report.

ITEM 6(b)         REPORTS ON FORM 8-K FILED DURING THE PERIOD FROM JANUARY 1,
                  2000 THROUGH MAY 17, 2000


</TABLE>


         The Company has not filed any reports on Form 8-K for the period from
January 1, 2000 through May 17, 2000.


                                    SIGNATURE

                  Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized, as of May 17, 2000.

PRECEPT BUSINESS SERVICES, INC.



/s/ William W. Solomon, Jr.
- ---------------------------
William W. Solomon, Jr.
Executive Vice President and Chief Financial Officer

                                     23


<PAGE>

                          SECURITIES PURCHASE AGREEMENT

                  This Securities Purchase Agreement, dated as of April 19, 2000
(this "AGREEMENT"), by and between Precept Business Services, Inc., a Texas
corporation, with principal executive offices located at 1909 Woodall Rodgers
Freeway, Suite 500, Dallas, TX 75201 (the "COMPANY"), and The Shaar Fund Ltd.
("BUYER").

                  Whereas, Buyer desires to purchase from the Company, and the
Company desires to issue and sell to Buyer, upon the terms and subject to the
conditions of this Agreement, (i) 200,000 shares of the Company's Series A 8%
Convertible Preferred Stock, par value $1.00 per share (collectively, the
"PREFERRED SHARES"), and (ii) Common Stock Purchase Warrants in the form
attached hereto as Exhibit A to purchase 125,000 shares of Common Stock (as
defined below) (collectively, the "Warrants");

                  Whereas, upon the terms and subject to the designations,
preferences and rights set forth in the Company's Certificate of Designation of
Series A 8% Convertible Preferred Stock in the form attached hereto as Exhibit B
(the "CERTIFICATE OF DESIGNATION"), the Preferred Shares are convertible into
shares of the Company's class A common stock, par value $.01 per share (the
"COMMON STOCK"); and

                  Whereas, the Warrants, upon the terms and subject to the
conditions specified in the Warrants, will be exercisable for a period of three
years;

                  Now, Therefore, in consideration of the premises and the
mutual covenants contained herein, the parties hereto, intending to be legally
bound, hereby agree as follows:

              I. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS

                  A. TRANSACTION. Buyer hereby agrees to purchase from the
Company, and the Company has offered and hereby agrees to issue and sell to
Buyer in a transaction exempt from the registration and prospectus delivery
requirements of the Securities Act of 1933, as amended (the "SECURITIES ACT"),
the Preferred Shares and the Warrants.

                  B. PURCHASE PRICE; FORM OF PAYMENT. The purchase price for the
Preferred Shares and the Warrants to be purchased by Buyer hereunder shall be
$2,000,000 (the "PURCHASE PRICE"). Simultaneously with the execution of this
Agreement, Buyer shall pay the Purchase Price by wire transfer of immediately
available funds to the escrow agent (the "ESCROW AGENT") identified in those
certain Escrow Instructions of even date herewith, a copy of which is attached
hereto as Exhibit C (the "ESCROW INSTRUCTIONS"). Simultaneously with the
execution of this Agreement, the Company shall deliver one or more duly
authorized, issued and executed certificates (I/N/O Buyer or, if the Company
otherwise has been notified, I/N/O Buyer's nominee) evidencing the Preferred
Shares and the Warrants which Buyer is purchasing, to the

<PAGE>

Escrow Agent or its designated depository. By executing and delivering this
Agreement, Buyer and the Company each hereby agree to observe the terms and
conditions of the Escrow Instructions, all of which are incorporated herein by
reference as if fully set forth herein.

                  C. METHOD OF PAYMENT. Payment into escrow of the Purchase
Price shall be made as set forth in the Escrow Instructions.

                   II. BUYER'S REPRESENTATIONS AND WARRANTIES

                  Buyer represents and warrants to and covenants and agrees with
the Company as follows:

                  A. Buyer is purchasing the Preferred Shares, the Warrants, the
Common Stock issuable upon exercise of the Warrants (the "WARRANT SHARES"), the
Common Stock, if any, issuable in payment of dividends on the Preferred Shares
(the "DIVIDEND SHARES"), and the Common Stock issuable upon conversion or
redemption of the Preferred Shares (the "CONVERSION SHARES" and, collectively
with the Preferred Shares, the Warrants, the Warrant Shares and the Dividend
Shares, the "SECURITIES") for its own account, for investment purposes only and
not with a view towards or in connection with the public sale or distribution
thereof in violation of the Securities Act.

                  B. Buyer is (i) an "ACCREDITED INVESTOR" within the meaning of
Rule 501 of Regulation D under the Securities Act, (ii) experienced in making
investments of the kind contemplated by this Agreement, (iii) capable, by reason
of its business and financial experience, of evaluating the relative merits and
risks of an investment in the Securities, and (iv) able to afford the loss of
its investment in the Securities.

                  C. Buyer understands that the Securities are being offered and
sold by the Company in reliance on an exemption from the registration
requirements of the Securities Act and equivalent state securities and "blue
sky" laws, and that the Company is relying upon the accuracy of, and Buyer's
compliance with, Buyer's representations, warranties and covenants set forth in
this Agreement to determine the availability of such exemption and the
eligibility of Buyer to purchase the Securities;

                  D. Buyer understands that the Securities have not been
approved or disapproved by the Securities and Exchange Commission (the
"COMMISSION") or any state securities commission.

                  E. This Agreement has been duly and validly authorized,
executed and delivered by Buyer and is a valid and binding agreement of Buyer
enforceable against it in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally and except as
rights to indemnity and contribution may be limited by federal or state
securities laws or the public policy underlying such laws.

                  F. Neither Buyer nor its affiliates nor any person acting on
its or their behalf shall

<PAGE>

enter into, prior to the Closing or at any other time while any of the Preferred
Shares remain outstanding, any put option, short position or other similar
instrument or position with respect to the Common Stock and neither Buyer nor
any of its affiliates nor any person acting on its or their behalf will use at
any time shares of Common Stock acquired pursuant to this Agreement to settle
any put option, short position or other similar instrument or position that may
have been entered into prior to the execution of this Agreement; PROVIDED,
HOWEVER, that nothing in this Section II.F. shall operate to forbid Buyer or any
of its affiliates or any person acting on its or their behalf from selling, or
entering into any other transaction with respect to, the Common Stock
contemporaneously with or following such date and time as the person or persons
in whose name or names the Common Stock delivered at conversion of Preferred
Shares, as provided in the Certificate of Designation, shall be issuable shall
be deemed to have become the holder or holders of record of the Common Shares
represented thereby and all voting and other rights associated with the
beneficial ownership of such Common Shares shall have vested with such person or
persons.

                       III. THE COMPANY'S REPRESENTATIONS

                  The Company represents and warrants to Buyer that:

                  A.  CAPITALIZATION.

                           1. The authorized capital stock of the Company
         consists solely of: (x) 100,000,000 shares of class A common stock, of
         which 9,599,780 shares are issued and outstanding on the date hereof;
         (y) 10,500,000 shares of class B common stock, of which 592,142 shares
         are issued and outstanding on the date hereof; and (z) 3,000,000 shares
         of preferred stock, of which 3,224 shares are issued and outstanding on
         the date hereof. As of the date hereof, the Company has outstanding
         stock options to purchase 1,378,500 shares of Common Stock and has no
         warrants to purchase shares of Common Stock outstanding. The exercise
         price for each of such outstanding options and warrants is accurately
         set forth on Schedule III.A.1. hereto.

                           2. The Conversion Shares, the Dividend Shares and the
         Warrant Shares have been duly and validly authorized and reserved for
         issuance by the Company, and when issued by the Company upon conversion
         of, or in lieu of cash dividends on, the Preferred Shares and on
         exercise of the Warrants will be duly and validly issued, fully paid
         and nonassessable and will not subject the holder thereof to personal
         liability by reason of being such holder.

                           3. Except as disclosed on Schedule III.A.3. hereto,
         there are no preemptive, subscription, "call," right of first refusal
         or other similar rights to acquire any capital stock of the Company or
         any of its Subsidiaries or other voting securities of the Company that
         have been issued or granted by the Company to any person and no other
         obligations of the Company or any of its Subsidiaries to issue, grant,
         extend or enter into any security, option, warrant, "call," right,
         commitment, agreement, arrangement or undertaking with respect to any
         of their respective capital stock.

<PAGE>

                           4. Schedule III.A.4. hereto lists all the
         subsidiaries of the Company (the "SUBSIDIARIES"). Except as disclosed
         on Schedule III.A.4. hereto, the Company does not own or control,
         directly or indirectly, any interest in any other corporation,
         partnership, limited liability company, unincorporated business
         organization, association, trust or other business entity.

                           5. The Company has delivered to Buyer complete and
         correct copies of the Articles of Incorporation and the By-Laws of each
         of the Company and the Subsidiaries, in each case as amended to the
         date of this Agreement. Except as set forth on Schedule III.A.5., the
         Company has delivered to Buyer true and complete copies of all minutes
         of the Board of Directors of the Company (the "BOARD OF DIRECTORS")
         since April, 1997.

                  B.  ORGANIZATION; REPORTING COMPANY STATUS.

                           1. Each of the Company and the Subsidiaries is a
         corporation duly organized, validly existing and in good standing under
         the laws of the state or jurisdiction in which it is incorporated and
         is duly qualified as a foreign corporation in all jurisdictions in
         which the failure so to qualify would reasonably be expected to have a
         material adverse effect on the business, properties, condition
         (financial or otherwise) or results of operations of the Company and
         the Subsidiaries taken as a whole or on the consummation of any of the
         transactions contemplated by this Agreement (a "MATERIAL ADVERSE
         EFFECT").

                           2. The Company has registered the Common Stock
         pursuant to Section 12 of the Securities Exchange Act of 1934, as
         amended (the "EXCHANGE ACT"). The Common Stock is listed and traded on
         the Nasdaq SmallCap Market ("NASDAQ") and the Company has not received
         any notice regarding, and to its knowledge there is no threat of, the
         termination or discontinuance of the eligibility of the Common Stock
         for such listing.

                  C. AUTHORIZATION. The Company (i) has duly and validly
authorized and reserved for issuance 2,000,000 shares of Common Stock, which is
a number sufficient for the conversion of and the payment of dividends (in lieu
of cash payments) on the 200,000 Preferred Shares and the exercise of the
Warrants in full, and (ii) at all times from and after the date hereof shall
have a sufficient number of shares of Common Stock duly and validly authorized
and reserved for issuance to satisfy the conversion of Preferred Shares, the
payment of dividends (in lieu of cash payments) on the Preferred Shares and the
exercise of the Warrants in full. The Company understands and acknowledges the
potentially dilutive effect on the Common Stock of the issuance of the Preferred
Shares and of the Conversion Shares, the Dividend Shares and the Warrant Shares
upon the conversion of, and payment of dividends on, the Preferred Shares and
the exercise of the Warrants, respectively. The Company further acknowledges
that its obligation to issue Conversion Shares upon conversion of the Preferred
Shares and Warrant Shares upon exercise of the Warrants in accordance with this
Agreement, the Certificate of Designation and the Warrants is absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company and

<PAGE>

notwithstanding the commencement of any case under 11 U.S.C. Section 101 ET SEQ.
(the "BANKRUPTCY CODE"). In the event the Company is a debtor under the
Bankruptcy Code, the Company hereby waives to the fullest extent permitted any
rights to relief it may have under 11 U.S.C. Section 362 in respect of the
conversion of the Preferred Shares and the exercise of the Warrants. The Company
agrees, without cost or expense to Buyer, to take or consent to any and all
action necessary to effectuate relief under 11 U.S.C. Section 362. Schedule
III.C. hereto sets forth (i) all issuances and sales by the Company since June
30, 1999 of its capital stock, and other securities convertible into or
exercisable or exchangeable for capital stock of the Company, (ii) the amount of
such securities sold, including the amount of any underlying shares of capital
stock, (iii) the purchaser thereof, (iv) the amount paid therefor, and (v) the
material terms of all outstanding capital stock of the Company (other than the
Common Stock).

                  D. AUTHORITY; VALIDITY AND ENFORCEABILITY. The Company has the
requisite corporate power and authority to file, and perform its obligations
under, the Certificate of Designation and to enter into the Documents (as
hereinafter defined) and to perform all of its obligations hereunder and
thereunder (including the issuance, sale and delivery to Buyer of the
Securities). The execution, delivery and performance by the Company of the
Documents and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the filing of the Certificate
of Designation with the Texas Secretary of State's office, the issuance of the
Preferred Shares and the Warrants and the issuance and reservation for issuance
of the Conversion Shares, the Dividend Shares and the Warrant Shares) have been
duly and validly authorized by all necessary corporate action on the part of the
Company. Each of the Documents has been duly and validly executed and delivered
by the Company and the Certificate of Designation has been duly filed with the
Texas Secretary of State's office by the Company, and each Document constitutes
a valid and binding obligation of the Company enforceable against it in
accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and except as rights to indemnity and
contribution may be limited by federal or state securities laws or the public
policy underlying such laws. The Securities have been duly and validly
authorized for issuance by the Company and, when executed and delivered by the
Company, will be valid and binding obligations of the Company enforceable
against it in accordance with their terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally. For purposes of this
Agreement, the term "DOCUMENTS" means (i) this Agreement; (ii) the Registration
Rights Agreement of even date herewith between the Company and Buyer, a copy of
which is annexed hereto as Exhibit D (the "REGISTRATION RIGHTS AGREEMENT");
(iii) the Certificate of Designation; (iv) the Warrants; and (v) the Escrow
Instructions.

                  E. VALIDITY OF ISSUANCE OF THE SECURITIES. The Preferred
Shares and the Warrants as of the Closing Date, and the Conversion Shares, the
Dividend Shares and the Warrant Shares upon their issuance in accordance with
the Certificate of Designation and the Warrants, respectively, will be validly
issued and outstanding, fully paid and nonassessable, and not subject to any
preemptive rights, rights of first refusal, tag-along rights, drag-along rights
or other similar rights.

<PAGE>

                  F. NON-CONTRAVENTION. Except as set forth on Schedule III.F.,
the execution and delivery by the Company of the Documents, the issuance of the
Securities, and the consummation by the Company of the other transactions
contemplated hereby and thereby, including, without limitation, the filing of
the Certificate of Designation with the Texas Secretary of State's office, do
not, and compliance with the provisions of this Agreement and other Documents
will not, conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of a
material benefit under, or result in the creation of any Lien (as defined in
Section III.V.) upon any of the properties or assets of the Company or any of
its Subsidiaries under, or result in the termination of, or require that any
consent be obtained or any notice be given with respect to, (i) the Articles of
Incorporation or By-Laws of the Company or the comparable charter or
organizational documents of any of its Subsidiaries, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, lease, contract or other agreement,
instrument or permit applicable to the Company or any of its Subsidiaries or
their respective properties or assets, or (iii) any Law (as defined in Section
III.N.) applicable to, or any judgment, decree or order of any court or
government body having jurisdiction over, the Company or any of its Subsidiaries
or any of their respective properties or assets.

                  G. APPROVALS. No authorization, approval or consent of any
court or public or governmental authority is required to be obtained by the
Company for the issuance and sale of the Preferred Shares or the Warrants (or
the Conversion Shares, the Dividend Shares or Warrant Shares) to Buyer as
contemplated by this Agreement, except such authorizations, approvals and
consents as have been obtained by the Company prior to the date hereof.

                  H. COMMISSION FILINGS. The Company has properly and timely
filed with the Commission all reports, proxy statements, forms and other
documents required to be filed with the Commission under the Securities Act and
the Exchange Act since March, 1998 (the "COMMISSION FILINGS"). As of their
respective dates, (i) the Commission Filings complied in all material respects
with the requirements of the Securities Act or the Exchange Act, as the case may
be, and the rules and regulations of the Commission promulgated thereunder
applicable to such Commission Filings, and (ii) none of the Commission Filings
contained at the time of its filing any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. The financial statements of the Company included
in the Commission Filings, as of the dates of such documents, were true and
complete in all material respects and complied with applicable accounting
requirements and the published rules and regulations of the Commission with
respect thereto, were prepared in accordance with generally accepted accounting
principles in the United States ("GAAP") (except in the case of unaudited
statements permitted by Form 10-Q under the Exchange Act) applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto) and fairly presented the consolidated financial position of the
Company and its Subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit adjustments that
in the aggregate are not material and to any other adjustment described
therein).

<PAGE>

                  I. ABSENCE OF CERTAIN CHANGES. Since the Balance Sheet Date
(as defined in Section III.M.), there has not occurred any change, event or
development in the business, financial condition, prospects or results of
operations of the Company and the Subsidiaries, there has not existed any
condition having or reasonably likely to have a Material Adverse Effect, and the
Company and the Subsidiaries have conducted their respective businesses only in
the ordinary course.

                  J. FULL DISCLOSURE. There is no fact known to the Company
(other than general economic or industry conditions known to the public
generally) that has not been fully disclosed in writing to Buyer that (i)
reasonably could be expected to have a Material Adverse Effect or (ii)
reasonably could be expected to materially and adversely affect the ability of
the Company to perform its obligations pursuant to the Documents.

                  K. ABSENCE OF LITIGATION. Except as set forth on Schedule
III.K., there are (i) no material suits, actions or proceedings pending or, to
the knowledge of the Company, threatened against the Company or any of its
Subsidiaries, (ii) no material complaints, lawsuits, charges or other
proceedings pending or, to the knowledge of the Company, threatened in any forum
by or on behalf of any present or former employee of the Company or any of its
Subsidiaries, any applicant for employment or classes of the foregoing alleging
breach of any express or implied contract of employment, any applicable law
governing employment or the termination thereof or other discriminatory,
wrongful or tortious conduct in connection with the employment relationship, and
(iii) no material judgments, decrees, injunctions or orders of any court or
other governmental entity or arbitrator outstanding against the Company or any
Subsidiary.

                  L.  ABSENCE OF EVENTS OF DEFAULT.

                           1. No event of default under the Revolving Line of
         Credit Agreement between the Company and Bank One, Texas, N.A. ("CREDIT
         AGREEMENT EVENT OF DEFAULT") and no event which, with notice, lapse of
         time or both, would constitute a Credit Agreement Event of Default, has
         occurred and is continuing.

                           2. Except as set forth in Schedule III.L.2., no
         "EVENT OF DEFAULT" (as defined in any agreement or instrument to which
         the Company is a party) and no event which, with notice, lapse of time
         or both, would constitute an Event of Default (as so defined), has
         occurred and is continuing, except for those, individually or in the
         aggregate, which are not reasonably likely to result in a Material
         Adverse Effect.

                  M. FINANCIAL STATEMENTS; NO UNDISCLOSED LIABILITIES. The
Company has delivered to Buyer true and complete copies of the (i) audited
balance sheet of the Company and the Subsidiaries as at June 30, 1999, 1998 and
1997, respectively, and the related audited statements of income, changes in
stockholders' equity and cash flows for the three fiscal years ended June 30,
1999, 1998 and 1997 including the related notes and schedules thereto and (ii)
unaudited balance sheets of the Company and the Subsidiaries and the statements
of income, changes in stockholders' equity and cash flows as at the end of and
for each fiscal quarter ended since June 30, 1999 including the related notes
and schedules thereto, all certified by the chief financial

<PAGE>

officer of the Company (collectively, the "FINANCIAL STATEMENTS"), and all
management letters, if any, from the Company's independent auditors relating to
the dates and periods covered by the Financial Statements. Each of the Financial
Statements is complete and correct in all material respects, has been prepared
in accordance with GAAP (subject, in the case of the interim Financial
Statements, to normal year end adjustments and the absence of footnotes), and
fairly presents the financial position, results of operations and cash flows of
the Company as at the dates and for the periods indicated. For purposes hereof,
the audited balance sheet of the Company as at June 30, 1999 is hereinafter
referred to as the "BALANCE SHEET" and June 30, 1999 is hereinafter referred to
as the "BALANCE SHEET DATE". The Company has no indebtedness, obligations or
liabilities of any kind (whether accrued, absolute, contingent or otherwise, and
whether due or to become due), which is not fully reflected in, reserved against
or otherwise described in the Balance Sheet or the notes thereto or incurred in
the ordinary course of business consistent with the Company's past practices
since the Balance Sheet Date.

                  N. COMPLIANCE WITH LAWS; PERMITS. Each of the Company and its
Subsidiaries is in compliance with all material laws, rules, regulations, codes,
ordinances and statutes (collectively, "LAWS") applicable to IT or to the
conduct of its business. The Company possesses all material permits, approvals,
authorizations, licenses, certificates and consents from all public and
governmental authorities which are necessary to conduct its business.

                  O. RELATED PARTY TRANSACTIONS. Except as set forth on Schedule
III.O. hereto, neither the Company nor any of its officers, directors or
"AFFILIATES" (as such term is defined in Rule 12b-2 under the Exchange Act) nor
any family member of any officer, director or Affiliate of the Company has
borrowed any moneys from or has outstanding any indebtedness or other similar
obligations to the Company or any of the Subsidiaries. Except as set forth on
Schedule III.O. hereto, neither the Company nor any of its officers, directors
or Affiliates nor any family member of any officer, director or Affiliate of the
Company (i) owns any direct or indirect interest constituting more than a 1%
equity (or similar profit participation) interest in, or controls or is a
director, officer, partner, member or employee of, or consultant or lender to or
borrower from, or has the right to participate in the profits of, any person or
entity which is (x) a competitor, supplier, customer, landlord, tenant, creditor
or debtor of the Company or any Subsidiary, (y) engaged in a business related to
the business of the Company or any Subsidiary, or (z) a participant in any
transaction to which the Company or any Subsidiary is a party or (ii) is a party
to any contract, agreement, commitment or other arrangement with the Company or
any Subsidiary.

                  P. INSURANCE. Each of the Company and the Subsidiaries
maintains property and casualty, general liability, workers' compensation,
environmental hazard, personal injury and other similar types of insurance with
financially sound and reputable insurers that is consistent with industry
standards and the Company's historical claims experience. None of the Company or
the Subsidiaries has received notice from, and none of them has knowledge of any
threat by, any insurer (that has issued any insurance policy to the Company or
any Subsidiary) that such insurer intends to deny coverage under or cancel,
discontinue or not renew any insurance policy presently in force.

<PAGE>

                  Q. SECURITIES LAW MATTERS. Assuming the accuracy of the
representations and warranties of Buyer set forth in Article II hereof, the
offer and sale by the Company of the Securities is exempt from (i) the
registration and prospectus delivery requirements of the Securities Act and the
rules and regulations of the Commission thereunder and (ii) the registration
and/or qualification provisions of all applicable state securities and "blue
sky" laws. Other than pursuant to an effective registration statement under the
Securities Act, the Company has not issued, offered or sold the Preferred Shares
or any shares of Common Stock (including for this purpose any securities of the
same or a similar class as the Preferred Shares or Common Stock, or any
securities convertible into or exchangeable or exercisable for the Preferred
Shares or Common Stock or any such other securities) within the one-year period
next preceding the date hereof, except as disclosed on Schedule III.Q. hereto,
and the Company shall not directly or indirectly take, and shall not permit any
of its directors, officers or Affiliates directly or indirectly to take, any
action (including, without limitation, any offering or sale to any person or
entity of the Preferred Shares or shares of Common Stock) which will make
unavailable the exemption from Securities Act registration being relied upon by
the Company for the offer and sale to Buyer of the Preferred Shares and the
Warrants (and the Conversion Shares, the Dividend Shares and the Warrant Shares)
as contemplated by this Agreement. No form of general solicitation or
advertising has been used or authorized by the Company or any of its officers,
directors or Affiliates in connection with the offer or sale of the Preferred
Shares and the Warrants (and the Conversion Shares, the Dividend Shares and the
Warrant Shares) as contemplated by this Agreement or any other agreement to
which the Company is a party.

                  R.  ENVIRONMENTAL MATTERS.

                  Except as set forth on Schedule III.R. hereto:

                           1. The Company, the Subsidiaries and their respective
         operations are in compliance with all applicable Environmental Laws and
         all permits (including terms, conditions, and limitations therein)
         issued pursuant to Environmental Laws or otherwise;

                           2. Each of the Company and the Subsidiaries has all
         permits, licenses, waivers, exceptions, and exemptions required under
         all applicable Environmental Laws necessary to operate its business;

                           3. None of the Company or the Subsidiaries is the
         subject of any outstanding written order of or agreement with any
         governmental authority or person respecting (i) Environmental Laws or
         permits, (ii) Remedial Action or (iii) any Release or threatened
         Release of Hazardous Materials;

                           4. None of the Company or the Subsidiaries has
         received any written communication alleging that it may be in violation
         of any Environmental Law or any permit issued pursuant to any
         Environmental Law, or may have any liability under any Environmental
         Law;

                           5. None of the Company or the Subsidiaries has any
         liability, contingent or

<PAGE>

         otherwise, in connection with any presence, treatment, storage,
         disposal or Release of any Hazardous Materials whether on property
         owned or operated by the Company or any Subsidiary or property of third
         parties, and none of the Company or the Subsidiaries has transported,
         or arranged for transportation of, any Hazardous Materials for
         treatment or disposal on any property;

                           6. There are no investigations of the business,
         operations, or currently or previously owned, operated or leased
         property of the Company or any Subsidiary pending or threatened which
         could lead to the imposition of any case or liability pursuant to any
         Environmental Law;

                           7. There is not located at any of the properties
         owned or operated by the Company or any Subsidiary any (A) underground
         storage tanks, (B) asbestos-containing material or (C) equipment
         containing polychlorinated biphenyls;

                           8. Each of the Company and the Subsidiaries has
         provided to Buyer all environmentally related assessments, audits,
         studies, reports, analyses, and results of investigations that have
         been performed with respect to the currently or previously owned,
         leased or operated properties or activities of the Company and such
         Subsidiaries;

                           9. There are no liens arising under or pursuant to
         any Environmental Law on any real property owned, operated, or leased
         by the Company or any Subsidiary, and no action of any governmental
         authority has been taken or, to the knowledge of the Company, is in
         process of being taken which could subject any of such properties to
         such liens, and none of the Company or the Subsidiaries has been or is
         expected to be required to place any notice or restriction relating to
         the presence of Hazardous Material at any real property owned,
         operated, or leased by it in any deed to such property;

                           10. Neither the Company nor any of the Subsidiaries
         owns, operates, or leases any hazardous waste generation, treatment,
         storage, or disposal facility, as such terms are used pursuant to the
         RCRA and related or analogous state, local, or foreign law. None of the
         properties owned, operated, or leased by the Company, any of the
         Subsidiaries or any predecessor thereof are now, or were in the past,
         used in any part as a dump, landfill, or disposal site, and neither the
         Company, any of the Subsidiaries nor any predecessor of any of them has
         filled any wetlands;

                           11. The purchase that is the subject of this
         Agreement will not require any governmental approvals under
         Environmental Laws, including those that are triggered by sales or
         transfers of businesses or real property, including, as examples and
         without limitation, the New Jersey Industrial Site Recovery Act, N.J.
         Stat. 13:1K-7 ET SEQ., and the Connecticut Transfer of Establishments
         Act, Conn. Gen. Stat. Section 22a-134 ET SEQ.;

                           12. There is no currently existing requirement or
         requirement to be imposed in the future by any Environmental Law or
         Environmental Permit which could result in the incurrence of a cost
         that could be reasonably expected to have a Material Adverse Effect;
         and

<PAGE>

                           13. Each of the Company and each of the Subsidiaries
         has disclosed to Buyer all other acts or conditions that could result
         in any costs or liabilities under Environmental Laws.

                  For purposes of this Section III.R.:

                  "ENVIRONMENTAL LAW" means any foreign, federal, state or local
statute, regulation, ordinance, or common law as now or hereafter in effect in
any way relating to the protection of human health, safety or welfare or the
environment including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, the Hazardous Materials Transportation
Act, the Resource Conservation and Recovery Act ("RCRA"), the Clean Water Act,
the Clean Air Act, the Toxic Substances Control Act, the Federal Insecticide,
Fungicide, and Rodenticide Act and the Occupational Safety and Health Act, and
the regulations promulgated pursuant to any of them;

                  "HAZARDOUS MATERIAL" means any substance that is listed,
classified or regulated pursuant to any Environmental Law, including petroleum,
gasoline, and any other petroleum product, by-product, fraction or derivative,
asbestos or asbestos-containing material, lead-containing paint, water, or
plumbing, polychlorinated biphenyls, radioactive materials and radon;

                  "RELEASE" means any placement, release, spill, filtration,
emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal,
migration, or leaching to, through, or under the indoor or outdoor environment,
or into, through, under, or out of any property; and

                  "REMEDIAL ACTION" means any action to (x) clean up, remove,
remediate, treat or in any other way address any Hazardous Material; (y) prevent
or contain the Release of any Hazardous Material; or (z) perform studies and
investigations or post-remedial monitoring and care in relation to (x) or (y)
above.

                  S. LABOR MATTERS. Except as set forth in Schedule III.S.,
neither the Company nor any of the Subsidiaries is party to any labor or
collective bargaining agreement, and there are no labor or collective bargaining
agreements which pertain to any employees of the Company or any Subsidiary. No
employees of the Company or any of the Subsidiaries are represented by any labor
organization and none of such employees has made a pending demand for
recognition, and there are no representation proceedings or petitions seeking a
representation proceeding presently pending or, to the Company's knowledge,
threatened to be brought or filed, with the National Labor Relations Board or
other labor relations tribunal. There is no organizing activity involving the
Company or any Subsidiary pending or to the Company's knowledge, threatened by
any labor organization or group of employees of the Company or any of the
Subsidiaries. There are no (i) strikes, work stoppages, slowdowns, lockouts or
arbitrations or (ii) material grievances or other labor disputes pending or, to
the knowledge of the Company, threatened against or involving the Company or any
of the Subsidiaries. There are no unfair labor practice charges, grievances or
complaints pending or, to the knowledge of the Company, threatened by or on
behalf of any employee or group of employees of the Company or any of the
Subsidiaries.

<PAGE>

                  T. ERISA MATTERS. All Plans maintained by the Company or any
of its Subsidiaries and ERISA Affiliates are listed in Schedule III.T. and
copies of all documentation relating to such Plans (including, but not limited
to, copies of written Plans, written descriptions of oral Plans, summary plan
descriptions, trust agreements, the three most recent annual returns, employee
communications and IRS determination letters) have been delivered to or made
available for review by the Buyer. Each Plan has at all times been maintained
and administered in all material respects in accordance with its terms and the
requirements of applicable law, including ERISA and the Code, and each Plan
intended to qualify under section 401(a) of the Code has at all times since its
adoption been so qualified, and each trust which forms a part of any such plan
has at all times since its adoption been tax-exempt under section 501(a) of the
Code. The Company and each of its Subsidiaries and ERISA Affiliates are in
compliance in all material respects with all provisions of ERISA applicable to
it. No Reportable Event has occurred, been waived or exists as to which the
Company or any of its Subsidiaries and ERISA Affiliates was required to file a
report with the PBGC, and the present value of all liabilities under each
Pension Plan (based on those assumptions used to fund such Plans) listed in
Schedule III.T. did not, as of the most recent annual valuation date applicable
thereto, exceed the value of the assets of such Pension Plan. None of the
Company, its Subsidiaries and ERISA Affiliates has incurred, or reasonably
expects to incur, any Withdrawal Liability with respect to any Multi-employer
Plan that could result in a Material Adverse Effect. None of the Company, its
Subsidiaries and ERISA Affiliates has received any notification that any
Multi-employer Plan is in reorganization or has been terminated within the
meaning of Title IV of ERISA, and no Multi-employer Plan is reasonably expected
to be in reorganization or termination where such reorganization or termination
has resulted or could reasonably be expected to result in increases to the
contributions required to be made to such Plan or otherwise. No direct,
contingent or secondary liability has been incurred or is expected to be
incurred by the Company or any of its Subsidiaries under Title IV of ERISA to
any party with respect to any Plan, or with respect to any other Plan presently
or heretofore maintained or contributed to by any ERISA Affiliate. Neither the
Company nor any of its Subsidiaries and ERISA Affiliates has incurred any
liability for any tax imposed under sections 4971 through 4980B of the Code or
civil liability under section 502(i) or (l) of ERISA. No suit, action or other
litigation or any other claim which could reasonably be expected to result in a
material liability or expense to the Company or any of its Subsidiaries or ERISA
Affiliates (excluding claims for benefits incurred in the ordinary course of
plan activities) has been brought or, to the knowledge of the Company,
threatened against or with respect to any Plan and there are no facts or
circumstances known to the Company or any of its Subsidiaries or ERISA
Affiliates that could reasonably be expected to give rise to any such suit,
action or other litigation. All contributions to Plans that were required to be
made under such Plans have been made, and all benefits accrued under any
unfunded Plan have been paid, accrued or otherwise adequately reserved in
accordance with GAAP, all of which accruals under unfunded Plans are as
disclosed in Schedule III.T., and the Company, its Subsidiaries and ERISA
Affiliates have each performed all material obligations required to be performed
under all Plans. The execution, delivery and performance of this Agreement and
the other Documents and the consummation of the transactions contemplated hereby
and thereby (including, without limitation, the offer, issue and sale by the
Company, and the purchase by the Buyer, of the Preferred Shares, the Conversion
Shares, the Warrants, the Warrant Shares and Dividend Shares)

<PAGE>

will not involve any "prohibited transaction" within the meaning of ERISA or the
Code with respect to any Plan.

                  As used in this Agreement:

                  "CODE" means the Internal Revenue Code of 1986, as amended.

                  "ERISA" means the Employee Retirement Income Security Act of
1974, or any successor statute, together with the regulations thereunder, as the
same may be amended from time to time.

                  "ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that was, is or hereafter may become, a member of a group of which
the Company is a member and which is treated as a single employer under section
414 of the Code.

                  "MULTI-EMPLOYER PLAN" means a multi-employer plan as defined
in section 4001(a)(3) of ERISA to which the Company or any ERISA Affiliate
(other than one considered an ERISA Affiliate only pursuant to subsection (m) or
(o) of section 414 of the Code) is making or accruing an obligation to make
contributions, or has within any of the preceding six plan years made or accrued
an obligation to make contributions.

                  "PBGC" means the Pension Benefit Guaranty Corporation referred
to and defined in ERISA or any successor thereto.

                  "PENSION PLAN" means any pension plan (other than a
Multi-employer Plan) subject to the provision of Title IV of ERISA or section
412 of the Code that is maintained for employees of the Company or any of its
Subsidiaries, or any ERISA Affiliate.

                  "PLAN" means any bonus, incentive compensation, deferred
compensation, pension, profit sharing, retirement, stock purchase, stock option,
stock ownership, stock appreciation rights, phantom stock, leave of absence,
layoff, vacation, day or dependent care, legal services, cafeteria, life,
health, accident, disability, workmen's compensation or other insurance,
severance, separation or other employee benefit plan, practice, policy or
arrangement of any kind, whether written or oral, or whether for the benefit of
a single individual or more than one individual including, but not limited to,
any "employee benefit plan" within the meaning of section 3(3) of ERISA,
including any Pension Plan.

                  "REPORTABLE EVENT" means any reportable event as defined in
section 4043(b) of ERISA or the regulations issued thereunder with respect to a
Plan.

                  "WITHDRAWAL LIABILITY" means liability to a Multi-employer
Plan as a result of a complete or partial withdrawal from such Multi-employer
Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA.

                  U.  TAX MATTERS.

                           1. Except as set forth in Schedule III.U., the
         Company has filed all material

<PAGE>

         Tax Returns which it is required to file under applicable Laws; all
         such Tax Returns are true and accurate in all material respects and
         have been prepared in compliance with all applicable Laws; the Company
         has paid all Taxes due and owing by it (whether or not such Taxes are
         required to be shown on a Tax Return) and has withheld and paid over to
         the appropriate taxing authorities all Taxes which it is required to
         withhold from amounts paid or owing to any employee, stockholder,
         creditor or other third parties; and since the Balance Sheet Date, the
         charges, accruals and reserves for Taxes with respect to the Company
         (including any provisions for deferred income taxes) reflected on the
         books of the Company are adequate to cover any Tax liabilities of the
         Company if its current tax year were treated as ending on the date
         hereof.

                           2. No claim has been made by a taxing authority in a
         jurisdiction where the Company does not file tax returns that the
         Company is or may be subject to taxation by such jurisdiction. There
         are no foreign, federal, state or local tax audits or administrative or
         judicial proceedings pending or being conducted with respect to the
         Company; no information related to Tax matters has been requested by
         any foreign, federal, state or local taxing authority; and, except as
         disclosed above, no written notice indicating an intent to open an
         audit or other review has been received by the Company from any
         foreign, federal, state or local taxing authority. There are no
         material unresolved questions or claims concerning the Company's Tax
         liability. The Company (A) has not executed or entered into a closing
         agreement pursuant to section 7121 of the Code or any predecessor
         provision thereof or any similar provision of state, local or foreign
         law; or (B) has not agreed to or is required to make any adjustments
         pursuant to section 481(a) of the Code or any similar provision of
         state, local or foreign law by reason of a change in accounting method
         initiated by the Company or any of its subsidiaries or has any
         knowledge that the IRS has proposed any such adjustment or change in
         accounting method, or has any application pending with any taxing
         authority requesting permission for any changes in accounting methods
         that relate to the business or operations of the Company. The Company
         has not been a United States real property holding corporation within
         the meaning of section 897(c)(2) of the Code during the applicable
         period specified in section 897(c)(1)(A)(ii) of the Code.

                           3. The Company has not made an election under section
         341(f) of the Code. The Company is not liable for the Taxes of another
         person that is not a subsidiary of the Company under (A) Treas. Reg.
         Section 1.1502-6 (or comparable provisions of state, local or foreign
         law), (B) as a transferee or successor, (C) by contract or indemnity or
         (D) otherwise. The Company is not a party to any tax sharing agreement.
         The Company has not made any payments, is not obligated to make
         payments and is not a party to an agreement that could obligate it to
         make any payments that would not be deductible under section 280G of
         the Code.

                  As used in this Agreement:

                  "IRS" means the United States Internal Revenue Service.

<PAGE>

                  "TAX" or "TAXES" means federal, state, county, local, foreign,
or other income, gross receipts, ad valorem, franchise, profits, sales or use,
transfer, registration, excise, utility, environmental, communications, real or
personal property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.

                  "TAX RETURN" means any return, information report or filing
with respect to Taxes, including any schedules attached thereto and including
any amendment thereof.

                  V. PROPERTY. Except as set forth on Schedule III.V., each of
the Company and the Subsidiaries has good and valid title to all of its assets
and properties material to the conduct of its business, free and clear of any
liens, pledges, security interests, claims, encumbrances or other restrictions
of any kind (collectively, "LIENS"). With respect to any assets or properties it
leases, each of the Company and its Subsidiaries holds a valid and subsisting
leasehold interest therein, free and clear of any Liens, is in compliance, in
all material respects, with the terms of the applicable lease, and enjoys
peaceful and undisturbed possession under such lease. All of the assets and
properties of the Company and its Subsidiaries that are material to the conduct
of business as presently conducted or as proposed to be conducted by it are in
good operating condition and repair, ordinary wear and tear excepted. The
inventory of each of the Company and its Subsidiaries is in good and marketable
condition, does not include any material quantity of items which are obsolete,
damaged or slow moving, and is salable (or may be leased) in the normal course
of business as currently conducted by it.

                  W. INTELLECTUAL PROPERTY. The Company owns or possesses
adequate and enforceable rights to use all patents, patent applications,
trademarks, trademark applications, trade names, service marks, copyrights,
copyright applications, licenses, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures) and other similar rights and proprietary knowledge (collectively,
"INTANGIBLES") reasonably required for the conduct of its business as now being
conducted including, but not limited to, those described on Schedule III.W.
hereto. Except as set forth on Schedule III.W, the Company has all right, title
and interest in all of the Intangibles, free and clear of any and all Liens. To
its knowledge, the Company is not infringing upon or in conflict with any right
of any other person with respect to any Intangibles. Except as disclosed on
Schedule III.W. hereto, (i) no claims have been asserted by any individual,
partnership, corporation, unincorporated organization or association, limited
liability company, trust or other entity (collectively, a "PERSON") contesting
the validity, enforceability, use or ownership of any Intangibles, and the
Company has no knowledge of any basis for such claim, and (ii) neither the
Company nor the Subsidiaries has any knowledge of infringement or
misappropriation of the Intangibles by any third party.

                  X. CONTRACTS. All contracts, agreements, notes, instruments,
franchises, leases, licenses, commitments, arrangements or understandings,
written or oral (collectively,

<PAGE>

"CONTRACTS") which are material to the business and operations of the Company
and the Subsidiaries are in full force and effect and constitute legal, valid
and binding obligations of the Company and the Subsidiaries and, to the best
knowledge of the Company, the other parties thereto; the Company and the
Subsidiaries and, to the best knowledge of the Company, each other party
thereto, have performed in all material respects all obligations required to be
performed by them under the Contracts, and no material violation or default
exists in respect thereof, nor any event that with notice or lapse of time, or
both, would constitute a default thereof, on the part of the Company and the
Subsidiaries or, to the best knowledge of the Company, any other party thereto;
none of the Contracts is currently being renegotiated; and the validity,
effectiveness and continuation of all Contracts will not be materially adversely
affected by the transactions contemplated by this Agreement.

                  Y. REGISTRATION RIGHTS. Except as set forth on Schedule
III.Y., no Person has, and as of the Closing (as defined in Article VII), no
Person shall have, any demand, "piggy-back" or other rights to cause the Company
to file any registration statement under the Securities Act, relating to any of
its securities or to participate in any such registration statement.

                  Z. DIVIDENDS. Except as set forth on Schedule III.Z., the
timely payment of dividends on the Preferred Shares as specified in the
Certificate of Designation is not prohibited by the Articles of Incorporation or
By-Laws of the Company or any agreement, Contract, document or other undertaking
to which the Company or any of the Subsidiaries is a party.

                  AA. INVESTMENT COMPANY ACT. Neither the Company nor any of the
Subsidiaries is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended (the "INVESTMENT COMPANY ACT"), nor is the
Company nor any of the Subsidiaries directly or indirectly controlled by or
acting on behalf of any Person which is an "investment company" within the
meaning of the Investment Company Act.

                  AB. BUSINESS PLAN. Any business information of the Company
previously submitted to Buyer in any form, including the projections contained
therein, was prepared by the senior management of the Company in good faith and
is based on assumptions that the Company believed to be reasonable when
prepared. The Company is not aware of any fact or condition that could
reasonably be expected to result in the Company not achieving the results
described in such business plan.

                  AC. YEAR 2000 COMPLIANCE. The Company has reviewed its
products, business and operations that could be adversely affected by the risk
that computer applications used by the Company and the Subsidiaries may be
unable to recognize, and properly perform date-sensitive functions involving,
dates prior to and after December 31, 1999 (the "YEAR 2000 PROBLEM"). The
Company believes its internal information and business systems will be able to
perform properly date-sensitive functions for all dates before and after January
1, 2000. In addition, the Company has surveyed those vendors, suppliers and
other third parties (collectively, the "OUTSIDE PARTIES") with which the Company
or any of the Subsidiaries do business and whose failure to adequately address
the Year 2000 Problem could reasonably be expected to adversely affect the
business and operations of the Company or any of the Subsidiaries. Based upon
the

<PAGE>

aforementioned internal review and surveys of the Outside Parties as of the date
of this Agreement, the Year 2000 Problem has not resulted in, and is not
reasonably expected to have, a Material Adverse Effect.

                  AD. INTERNAL CONTROLS AND PROCEDURES. The Company maintains
accurate books and records and internal accounting controls that provide
reasonable assurance that (i) all transactions to which the Company or each of
the Subsidiaries is a party or by which its properties are bound are executed
with management's authorization; (ii) the reported accountability of the
Company's and the Subsidiaries' assets is compared with existing assets at
regular intervals; (iii) access to the Company's and the Subsidiaries' assets is
permitted only in accordance with management's authorization; and (iv) all
transactions to which any of the Company and the Subsidiaries is a party or by
which its properties are bound are recorded as necessary to permit preparation
of the financial statements of the Company in accordance with GAAP.

                  AE. PAYMENTS AND CONTRIBUTIONS. Neither the Company nor any of
its Subsidiaries nor any of their respective directors, officers or, to their
respective knowledge, other employees has (i) used any company funds for any
unlawful contribution, endorsement, gift, entertainment or other unlawful
expense relating to political activity; (ii) made any direct or indirect
unlawful payment of company funds to any foreign or domestic government official
or employee, (iii) violated or is in violation of any provision of the Foreign
Corrupt Practices Act of 1977, as amended; or (iv) made any bribe, rebate,
payoff, influence payment, kickback or other similar payment to any person with
respect to Company matters.

                  AF. NO MISREPRESENTATION. No representation or warranty of the
Company contained in this Agreement or any of the other Documents, any schedule,
annex or exhibit hereto or thereto or any agreement, instrument or certificate
furnished by the Company to Buyer pursuant to this Agreement contains any untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading.

                  AG. FINDER'S FEE. There is no finder's fee, brokerage
commission or like payment in connection with the transactions contemplated by
this Agreement for which Buyer is liable or responsible.

                    IV. CERTAIN COVENANTS AND ACKNOWLEDGMENTS

                  A. RESTRICTIVE LEGEND. Buyer acknowledges and agrees that,
upon issuance pursuant to this Agreement, the Securities (including any
Dividends Shares, Conversion Shares or the Warrant Shares) shall have endorsed
thereon a legend in substantially the following form (and a stop-transfer order
may be placed against transfer of the Preferred Shares, the Warrant Shares and
the Conversion Shares until such legend has been removed):

         "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
         1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
         STATE, AND ARE BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE
         REGISTRATION

<PAGE>

         REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THESE SECURITIES MAY
         NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
         STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
         EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR
         SUCH OTHER LAWS."

                  B. FILINGS. The Company shall make all necessary Commission
Filings and "blue sky" filings required to be made by the Company in connection
with the sale of the Securities to Buyer as required by all applicable Laws, and
shall provide a copy thereof to Buyer promptly after such filing.

                  C. REPORTING STATUS. So long as Buyer beneficially owns any of
the Securities, the Company shall timely file all reports required to be filed
by it with the Commission pursuant to Section 13 or 15(d) of the Exchange Act.

                  D. USE OF PROCEEDS. The Company shall use the proceeds from
the sale of the Securities (net of amounts paid by the Company for Buyer's
out-of-pocket costs and expenses, whether or not accounted for or incurred in
connection with the transactions contemplated by this Agreement (including the
fees and disbursements of Buyer's legal counsel), and finder's fees in
connection with such sale) solely for general corporate and working capital
purposes.

                  E. LISTING. Except to the extent the Company lists its Common
Stock on The New York Stock Exchange or The Nasdaq National Market, the Company
shall use its best efforts to maintain its listing of the Common Stock on
Nasdaq. If the Common Stock is delisted from Nasdaq, the Company will use its
best efforts to list the Common Stock on the most liquid national securities
exchange or quotation system that the Common Stock is qualified to be listed on.

                  F. RESERVED CONVERSION SHARES. The Company at all times from
and after the date hereof shall have such number of shares of Common Stock duly
and validly authorized and reserved for issuance as shall be sufficient for the
conversion in full of, and the payment of dividends on, the Preferred Shares and
the exercise in full of the Warrants.

                  G. RIGHT OF FIRST REFUSAL. If, during the period commencing on
the date hereof and ending three years after the Closing Date (the "RIGHT OF
FIRST REFUSAL PERIOD"), the Company should propose (the "PROPOSAL") to issue
Common Stock or securities convertible into Common Stock at a price less than
the Current Market Price (as defined in the Certificate of Designation), or debt
at less than par value or having an effective annual interest rate in excess of
9.9% (each a "RIGHT OF FIRST REFUSAL SECURITY" and collectively, the "RIGHT OF
FIRST REFUSAL SECURITIES"), in each case on the date of issuance the Company
shall be obligated to offer such Right of First Refusal Securities to Buyer on
the terms set forth in the Proposal (the "OFFER") and Buyer shall have the
right, but not the obligation, to accept such Offer on such terms. The Company
shall provide written notice to Buyer of any Proposal, setting forth in full the
terms and conditions thereof, and Buyer shall then have 10 business days to
accept or reject the Offer in writing. If the Company issues any Right of First
Refusal Securities during the Right of First Refusal Period

<PAGE>

but fails to: (i) notify Buyer of the Proposal, (ii) offer Buyer the opportunity
to complete the transaction as set forth in the Proposal, or (iii) enter into
and consummate an agreement to issue such Right of First Refusal Securities to
Buyer on the terms and conditions set forth in the Proposal, after Buyer has
accepted the Offer, then the Company shall pay to Buyer, as liquidated damages,
an amount equal to 10% of the amount paid to the Company for the Right of First
Refusal Securities. The foregoing Right of First Refusal is and shall be senior
in right to any other right of first refusal issued by the Company to any other
Person.

                  H. INFORMATION. Each of the parties hereto acknowledges and
agrees that, after the date hereof, Buyer shall not be provided with, nor be
given access to, any material non-public information relating to the Company or
any of the Subsidiaries.

                  I. EXEMPTION FROM INVESTMENT COMPANY ACT. The Company shall
conduct its business, and shall cause the Subsidiaries to conduct their
businesses, in such a manner that neither the Company nor any Subsidiary shall
become an "investment company" within the meaning of the Investment Company Act.

                  J. ACCOUNTING AND RESERVES. The Company shall maintain a
standard and uniform system of accounting and shall keep proper books and
records and accounts in which full, true and correct entries shall be made of
its transactions, all in accordance with GAAP applied on a consistent basis
through all periods, and shall set aside on such books for each fiscal year all
such reserves for depreciation, obsolescence, amortization, bad debts and other
purposes in connection with its operations as are required by such principles so
applied.

                  K. TRANSACTIONS WITH AFFILIATES. Neither the Company nor any
of its Subsidiaries shall, directly or indirectly, enter into any transaction or
agreement with any stockholder, officer, director or Affiliate of the Company or
family member of any officer, director or Affiliate of the Company, unless the
transaction or agreement is (i) annually reviewed by a majority of Disinterested
Directors (as defined below) and (ii) is reasonably believed by the Company to
be on terms no less favorable to the Company or the applicable Subsidiary than
those obtainable from a non-affiliated person. A "DISINTERESTED DIRECTOR" shall
mean a director of the Company who is not and has not been an officer or
employee of the Company and who is not a member of the family of, controlled by
or under common control with, any such officer or employee.

                  L. ISSUANCES OF ADDITIONAL CONVERTIBLE PREFERRED SHARES OR
CONVERTIBLE DEBENTURES. So long as Buyer beneficially owns any of the Preferred
Shares, the Company shall not issue any additional convertible preferred stock
or convertible debt securities, in each case, convertible into Common Stock at a
floating conversion price, without the prior written consent of Buyer.

                  M. CERTAIN RESTRICTIONS. So long as any Preferred Shares are
outstanding, no dividends shall be declared or paid or set apart for payment nor
shall any other distribution be declared or made upon Junior Securities (as
defined in the Certificate of Designation), nor shall any Junior Securities be
redeemed, purchased or otherwise acquired (other than a redemption, purchase or
other acquisition of shares of Common Stock made for purposes of an employee
incentive or benefit plan (including a stock option plan) of the Company or any
Subsidiary, for

<PAGE>

any consideration by the Company, directly or indirectly, nor shall any moneys
be paid to or made available for a sinking fund for the redemption of any shares
of any such stock.

                  N. TRANSFER AGENT. If reasonably requested by Buyer, the
Company shall replace the then Transfer Agent for the Common Stock with a
Transfer Agent designated by Buyer.

                         V. TRANSFER AGENT INSTRUCTIONS

                  A. The Company undertakes and agrees that no instruction other
than the instructions referred to in this Article V and customary stop transfer
instructions prior to the registration and sale of the Common Stock pursuant to
an effective Securities Act registration statement shall be given to its
transfer agent for the Common Stock and that the Conversion Shares, the Dividend
Shares and the Warrant Shares shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this
Agreement, the Registration Rights Agreement and applicable law. Nothing
contained in this Section V.A. shall affect in any way Buyer's obligations and
agreement to comply with all applicable securities laws upon resale of such
Common Stock. If, at any time, Buyer provides the Company with an opinion of
counsel reasonably satisfactory to the Company that registration of the resale
by Buyer of such Common Stock is not required under the Securities Act and that
the removal of restrictive legends is permitted under applicable law, the
Company shall permit the transfer of such Common Stock and promptly instruct the
Company's transfer agent to issue one or more certificates for Common Stock
without any restrictive legends endorsed thereon.

                  B. Buyer shall have the right to convert the Preferred Shares
by telecopying an executed and completed Notice of Conversion (as defined in the
Certificate of Designation) to the Company. Each date on which a Notice of
Conversion is telecopied to and received by the Company in accordance with the
provisions hereof shall be deemed a Conversion Date (as defined in the
Certificate of Designation). The Company shall transmit the certificates
evidencing the shares of Common Stock issuable upon conversion of any Preferred
Shares (together with certificates evidencing any Preferred Shares not being so
converted) to Buyer via express courier, by electronic transfer or otherwise,
within five business days after receipt by the Company of the Notice of
Conversion (the "DELIVERY DATE"). Within 30 days after Buyer delivers the Notice
of Conversion to the Company, Buyer shall deliver to the Company a certificate
or certificates evidencing the Preferred Shares being converted.

                  C. Buyer shall have the right to purchase shares of Common
Stock pursuant to exercise of the Warrants in accordance with its applicable
terms of the Warrants. The last date that the Company may deliver shares of
Common Stock issuable upon any exercise of Warrants is referred to herein as the
"WARRANT DELIVERY DATE."

                  D. The Company understands that a delay in the issuance of the
shares of Common Stock issuable in lieu of cash dividends on the Preferred
Shares or upon the conversion of the Preferred Shares or exercise of the
Warrants beyond the applicable Dividend Payment Due Date (as defined in the
Certificate of Designation), Delivery Date or Warrant Delivery Date could result
in economic loss to Buyer. As compensation to Buyer for such loss (and not as a
penalty),

<PAGE>

the Company agrees to pay to Buyer for late issuance of Common Stock issuable in
lieu of cash dividends on the Preferred Shares or upon conversion of the
Preferred Shares or exercise of the Warrants in accordance with the following
schedule (where "NO. BUSINESS DAYS" is defined as the number of business days
beyond five days from the Dividend Payment Due Date, the Delivery Date or the
Warrant Delivery Date, as applicable):

<TABLE>
<CAPTION>
                               COMPENSATION FOR EACH 10 SHARES
                              OF PREFERRED SHARES NOT CONVERTED
                               TIMELY OR 500 SHARES OF COMMON
                                STOCK ISSUABLE IN PAYMENT OF
                                DIVIDENDS OR UPON EXERCISE OF
     NO. BUSINESS DAYS           WARRANTS NOT ISSUED TIMELY
     <S>                    <C>

           1                               $   25
           2                                   50
           3                                   75
           4                                  100
           5                                  125
           6                                  150
           7                                  175
           8                                  200
           9                                  225
           10                                 250
       more than 10         $250 + $100 for each Business Day
                            Late beyond 10 days
</TABLE>

The Company shall pay to Buyer the compensation described above by the transfer
of immediately available funds upon Buyer's demand. Nothing herein shall limit
Buyer's right to pursue actual damages for the Company's failure to issue and
deliver Common Stock to Buyer. In addition to any other remedies which may be
available to Buyer, in the event the Company fails for any reason to deliver
such shares of Common Stock within five business days after the relevant
Dividend Payment Due Date, Delivery Date or Warrant Delivery Date, as
applicable, Buyer shall be entitled to rescind the relevant Notice of Conversion
or exercise of Warrants by delivering a notice to such effect to the Company
whereupon the Company and Buyer shall each be restored to their respective
original positions immediately prior to delivery of such Notice of Conversion on
delivery.

                            VI. DELIVERY INSTRUCTIONS

                  The Securities shall be delivered by the Company to the Escrow
Agent pursuant to Section I.B. hereof on a "delivery-against-payment basis" at
the Closing.

                                VII. CLOSING DATE

                  The date and time (the "CLOSING DATE") of the issuance and
sale of the Preferred Shares and the Warrants (the "CLOSING") shall be the date
hereof or such other date as shall be mutually agreed upon in writing. The
issuance and sale of the Securities shall occur on the Closing Date at the
offices of the Escrow Agent. Notwithstanding anything to the contrary

<PAGE>

contained herein, the Escrow Agent shall not be authorized to release to the
Company the Purchase Price or to Buyer the certificate(s) (I/N/O Buyer or I/N/O
Buyer's nominee) evidencing the Securities being purchased by Buyer unless the
conditions set forth in Sections VIII.C. and IX.H. hereof have been satisfied.

                  VIII. CONDITIONS TO THE COMPANY'S OBLIGATIONS

                  Buyer understands that the Company's obligation to sell the
Securities on the Closing Date to Buyer pursuant to this Agreement is
conditioned upon:

                  A. Delivery by Buyer to the Escrow Agent of the Purchase
Price;

                  B. The accuracy on the Closing Date of the representations and
warranties of Buyer contained in this Agreement as if made on the Closing Date
(except for representations and warranties which, by their express terms, speak
as of and relate to a specified date, in which case such accuracy shall be
measured as of such specified date) and the performance by Buyer in all material
respects on or before the Closing Date of all covenants and agreements of Buyer
required to be performed by it pursuant to this Agreement on or before the
Closing Date; and

                  C. There shall not be in effect any Law or order, ruling,
judgment or writ of any court or public or governmental authority restraining,
enjoining or otherwise prohibiting any of the transactions contemplated by this
Agreement.

                      IX. CONDITIONS TO BUYER'S OBLIGATIONS

                  The Company understands that Buyer's obligation to purchase
the Securities on the Closing Date pursuant to this Agreement is conditioned
upon:

                  A. Delivery by the Company to Buyer of evidence that the
Certificate of Designation has been filed and is effective;

                  B. Delivery by the Company to the Escrow Agent of one or more
certificates (I/N/O Buyer or I/N/O Buyer's nominee) evidencing the Securities to
be purchased by Buyer pursuant to this Agreement;

                  C. The accuracy on the Closing Date of the representations and
warranties of the Company contained in this Agreement as if made on the Closing
Date (except for representations and warranties which, by their express terms,
speak as of and relate to a specified date, in which case such accuracy shall be
measured as of such specified date) and the performance by the Company in all
respects on or before the Closing Date of all covenants and agreements of the
Company required to be performed by it pursuant to this Agreement on or before
the Closing Date, all of which shall be confirmed to Buyer by delivery of the
certificate of the chief executive officer of the Company to that effect;

                  D. Buyer having received an opinion of counsel for the
Company, dated the Closing Date, in form, scope and substance reasonably
satisfactory to Buyer as to the matters set forth in

<PAGE>

Annex A;

                  E. There not having occurred (i) any general suspension of
trading in, or limitation on prices listed for, the Common Stock on Nasdaq, (ii)
the declaration of a banking moratorium or any suspension of payments in respect
of banks in the United States, (iii) the commencement of a war, armed
hostilities or other international or national calamity directly or indirectly
involving the United States or any of its territories, protectorates or
possessions, or (iv) in the case of the foregoing existing at the date of this
Agreement, a material acceleration or worsening thereof;

                  F. There not having occurred any event or development, and
there being in existence no condition, having or which reasonably and
foreseeably could have a Material Adverse Effect;

                  G. The Company shall have delivered to Buyer (as provided in
the Escrow Instructions) reimbursement of Buyer's out-of-pocket costs and
expenses, whether or not accounted for or incurred in connection with the
transactions contemplated by this Agreement (including the fees and
disbursements of Buyer's legal counsel), of $50,000;

                  H. There shall not be in effect any Law, order, ruling,
judgment or writ of any court or public or governmental authority restraining,
enjoining or otherwise prohibiting any of the transactions contemplated by this
Agreement;

                  I. Delivery by the Company of irrevocable instructions to the
Company's transfer agent to reserve 2,000,000 shares of Common Stock for
issuance of the Conversion Shares and the Warrant Shares;

                  J. The Company shall have obtained all consents, approvals or
waivers from governmental authorities and third persons necessary for the
execution, delivery and performance of the Documents and the transactions
contemplated thereby, all without material cost to the Company; and

                  K. Buyer shall have received such additional documents,
certificates, payment, assignments, transfers and other delivers, as it or its
legal counsel may reasonably request and as are customary to effect a closing of
the matters herein contemplated.

                  L. Buyer shall have received a binding written commitment from
Mr. Doug Deason, in form, scope and substance satisfactory to Buyer, to
guarantee up to an additional $1,000,000 of obligations of the Company.

                                 X. TERMINATION

                  A. TERMINATION BY MUTUAL WRITTEN CONSENT. This Agreement may
be terminated and the transactions contemplated hereby may be abandoned, for any
reason and at any time prior to the Closing Date, by the mutual written consent
of the Company and Buyer.

                  B. TERMINATION BY THE COMPANY OR BUYER. This Agreement may be
terminated

<PAGE>

and the transactions contemplated hereby may be abandoned by action of the
Company or Buyer if (i) the Closing shall not have occurred at or prior to 5:00
p.m., New York City time, on April 24, 2000 (the "LATEST CLOSING DATE");
PROVIDED, HOWEVER, that the right to terminate this Agreement pursuant to this
Section X.B. shall not be available to any party whose failure to fulfill any of
its obligations under this Agreement has been the cause of or has resulted in
the failure of the Closing to occur at or before such time and date; PROVIDED,
FURTHER, HOWEVER, that if the Closing shall not have occurred on or prior to the
Latest Closing Date, the Closing may only occur after the Latest Closing Date
with the written consent of Buyer.

                  C. TERMINATION BY BUYER. This Agreement may be terminated and
the transactions contemplated hereby may be abandoned by Buyer at any time prior
to the Closing Date, if (i) the Company shall have failed to comply with any of
its covenants or agreements contained in this Agreement, (ii) there shall have
been a breach by the Company of any representation or warranty made by it in
this Agreement, (iii) there shall have occurred any event or development, or
there shall be in existence any condition, having or reasonably likely to have a
Material Adverse Effect or (iv) the Company shall have failed to satisfy the
conditions provided in Article IX hereof.

                  D. TERMINATION BY THE COMPANY. This Agreement may be
terminated and the transactions contemplated hereby may be abandoned by the
Company at any time prior to the Closing Date, if (i) Buyer shall have failed to
comply with any of its covenants or agreements contained in this Agreement or
(ii) there shall have been a breach by Buyer of any representation or warranty
made by it in this Agreement.

                  E. EFFECT OF TERMINATION. In the event of the termination of
this Agreement pursuant to this Article X, this Agreement shall thereafter
become void and have no effect, and no party hereto shall have any liability or
obligation to any other party hereto in respect of this Agreement, except that
the provisions of Article XI, this Section X.E and Section X.F shall survive any
such termination; PROVIDED, HOWEVER, that no party shall be released from any
liability hereunder if this Agreement is terminated and the transactions
contemplated hereby abandoned by reason of (i) willful failure of such party to
perform its obligations hereunder or (ii) any intentional, material
misrepresentation made by such party of any matter set forth herein.

                  F. FEES AND EXPENSES OF TERMINATION. If this Agreement is
terminated for any reason other than pursuant to Section X.D., the Company shall
promptly reimburse Buyer for all of Buyer's out-of-pocket costs and expenses
incurred in connection with the transactions contemplated by this Agreement and
the other Documents (including, without limitation, the fees and disbursements
of Buyer's legal counsel).

                          XI. SURVIVAL; INDEMNIFICATION

                  A. The representations, warranties and covenants made by each
of the Company and Buyer in this Agreement, the annexes, schedules and exhibits
hereto and in each instrument, agreement and certificate entered into and
delivered by them pursuant to this Agreement shall survive the Closing and the
consummation of the transactions contemplated hereby. In the event of a breach
or violation of any of such representations, warranties or covenants, the party
to

<PAGE>

whom such representations, warranties or covenants have been made shall have all
rights and remedies for such breach or violation available to it under the
provisions of this Agreement or otherwise, whether at law or in equity,
irrespective of any investigation made by or on behalf of such party on or prior
to the Closing Date.

                  B. The Company hereby agrees to indemnify and hold harmless
Buyer, its Affiliates and their respective officers, directors, partners and
members (collectively, the "BUYER INDEMNITEES") from and against any and all
losses, claims, damages, judgments, penalties, liabilities and deficiencies
(collectively, "LOSSES") and agrees to reimburse Buyer Indemnitees for all out
of-pocket expenses (including the fees and expenses of legal counsel), in each
case promptly as incurred by Buyer Indemnitees and to the extent arising out of
or in connection with:

                           1. any misrepresentation, omission of fact or breach
         of any of the Company's representations or warranties contained in this
         Agreement or the other Documents, or the annexes, schedules or exhibits
         hereto or thereto or any instrument, agreement or certificate entered
         into or delivered by the Company pursuant to this Agreement or the
         other Documents;

                           2. any failure by the Company to perform in any
         material respect any of its covenants, agreements, undertakings or
         obligations set forth in this Agreement or the other Documents or any
         instrument, certificate or agreement entered into or delivered by the
         Company pursuant to this Agreement or the other Documents;

                           3. the purchase of the Preferred Shares and the
         Warrants, the conversion of the Preferred Shares and the exercise of
         the Warrants and the consummation of the transactions contemplated by
         this Agreement and the other Documents, the use of any of the proceeds
         of the Purchase Price by the Company, the purchase or ownership of any
         or all of the Securities, the performance by the parties hereto of
         their respective obligations hereunder and under the Documents or any
         claim, litigation, investigation, proceedings or governmental action
         relating to any of the foregoing, whether or not Buyer is a party
         thereto; or

                           4. resales of the Common Shares by Buyer in the
         manner and as contemplated by this Agreement and the Registration
         Rights Agreement.

                  C. Buyer hereby agrees to indemnify and hold harmless the
Company, its Affiliates and their respective officers, directors, partners and
members (collectively, the "COMPANY INDEMNITEES") from and against any and all
Losses, and agrees to reimburse the Company Indemnitees for all out-of-pocket
expenses (including the fees and expenses of legal counsel) in each case
promptly as incurred by the Company Indemnitees and to the extent arising out of
or in connection with:

                           1. any misrepresentation, omission of fact or breach
         of any of Buyer's representations or warranties contained in this
         Agreement or the other Documents, or the annexes, schedules or exhibits
         hereto or thereto or any instrument, agreement or certificate entered
         into or delivered by Buyer pursuant to this Agreement or the other

<PAGE>

         Documents; or

                           2. any failure by Buyer to perform in any material
         respect any of its covenants, agreements, undertakings or obligations
         set forth in this Agreement or the other Documents or any instrument,
         certificate or agreement entered into or delivered by Buyer pursuant to
         this Agreement or the other Documents.

                  D. Promptly after receipt by either party hereto seeking
indemnification pursuant to this Article XI (an "INDEMNIFIED PARTY") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "CLAIM"), the Indemnified Party
promptly shall notify the party against whom indemnification pursuant to this
Article XI is being sought (the "INDEMNIFYING PARTY") of the commencement
thereof; but the omission so to notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party except
to the extent that the Indemnifying Party is materially prejudiced and forfeits
substantive rights or defenses by reason of such failure. In connection with any
Claim as to which both the Indemnifying Party and the Indemnified Party are
parties, the Indemnifying Party shall be entitled to assume the defense thereof.
Notwithstanding the assumption of the defense of any Claim by the Indemnifying
Party, the Indemnified Party shall have the right to employ separate legal
counsel and to participate in the defense of such Claim, and the Indemnifying
Party shall bear the reasonable fees, out-of-pocket costs and expenses of such
separate legal counsel to the Indemnified Party if (and only if): (x) the
Indemnifying Party shall have agreed to pay such fees, out-of-pocket costs and
expenses, (y) the Indemnified Party and the Indemnifying Party reasonably shall
have concluded that representation of the Indemnified Party and the Indemnifying
Party by the same legal counsel would not be appropriate due to actual or, as
reasonably determined by legal counsel to the Indemnified Party, potentially
differing interests between such parties in the conduct of the defense of such
Claim, or if there may be legal defenses available to the Indemnified Party that
are in addition to or disparate from those available to the Indemnifying Party,
or (z) the Indemnifying Party shall have failed to employ legal counsel
reasonably satisfactory to the Indemnified Party within a reasonable period of
time after notice of the commencement of such Claim. If the Indemnified Party
employs separate legal counsel in circumstances other than as described in
clauses (x), (y) or (z) above, the fees, costs and expenses of such legal
counsel shall be borne exclusively by the Indemnified Party. Except as provided
above, the Indemnifying Party shall not, in connection with any Claim in the
same jurisdiction, be liable for the fees and expenses of more than one firm of
legal counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnifying Party shall not, without the prior written consent of
the Indemnified Party (which consent shall not unreasonably be withheld), settle
or compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment.

                  E. In the event one party hereunder should have a claim for
indemnification that does not involve a claim or demand being asserted by a
third party, the Indemnified Party promptly shall deliver notice of such claim
to the Indemnifying Party. If the Indemnified Party disputes the claim, such
dispute shall be resolved by mutual agreement of the Indemnified Party and the

<PAGE>

Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association. Judgment upon any
award rendered by any arbitrators may be entered in any court having competent
jurisdiction thereof.

                  F. Notwithstanding any provisions of this Agreement to the
contrary, the representations and warranties made in or pursuant to this
Agreement by the Company will survive the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby for a
period of eighteen (18) months after the Closing Date and the right to
indemnification with respect thereto shall expire on such date (unless there is
a claim pending on such date, in which case the indemnification obligations
hereunder shall continue until final resolution of such claim). The Company
shall have no indemnification obligations hereunder with respect to breaches of
representations, warranties, or covenants unless and until the Losses incurred
by the Buyer Indemnitees exceeds $50,000; provided that Buyer Indemnitees shall
then be entitled to indemnification only to the extent the Losses exceed
$50,000. The maximum amount of Losses for which Buyer Indemnitees shall be
entitled to indemnification hereunder shall be an amount equal to $5,000,000.

                               XII. GOVERNING LAW

                  This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York, without regard to the
conflicts of law principles of such state.

                        XIII. SUBMISSION TO JURISDICTION

                  Each of the parties hereto consents to the exclusive
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
the other Documents. Each party hereto hereby irrevocably and unconditionally
waives, to the fullest extent it may effectively do so, any defense of an
inconvenient forum or improper venue to the maintenance of such action or
proceeding in any such court and any right of jurisdiction on account of its
place of residence or domicile. Each party hereto irrevocably and
unconditionally consents to the service of any and all process in any such
action or proceeding in such courts by the mailing of copies of such process by
certified or registered airmail at its address specified in Article XIX. Each
party hereto agrees that a final judgment in any such action or proceeding shall
be conclusive and may be enforced in other jurisdictions by suit on the judgment
or in any other manner provided by law.

                            XIV. WAIVER OF JURY TRIAL

                  TO THE FULLEST EXTENT PERMITTED BY LAW, EACH OF THE PARTIES
HERETO HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ITS RESPECTIVE
RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT
OF THIS AGREEMENT OR ANY OTHER DOCUMENT OR ANY DEALINGS BETWEEN

<PAGE>

THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT AND OTHER DOCUMENTS. EACH
PARTY HERETO (i) CERTIFIES THAT NEITHER OF THEIR RESPECTIVE REPRESENTATIVES,
AGENTS OR ATTORNEYS HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH PARTY
WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND
(ii) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY,
AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS HEREIN.

                           XV. COUNTERPARTS; EXECUTION

                  This Agreement may be executed in any number of counterparts
and by the different parties hereto on separate counterparts, each of which when
so executed and delivered shall be an original, but all the counterparts shall
together constitute one and the same instrument. A facsimile transmission of
this signed Agreement shall be legal and binding on all parties hereto.

                                  XVI. HEADINGS

                  The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.

                               XVII. SEVERABILITY

                  In the event any one or more of the provisions contained in
this Agreement or in the other Documents should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein or therein shall not in any way be
affected or impaired thereby. The parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.

            XVIII. ENTIRE AGREEMENT; REMEDIES, AMENDMENTS AND WAIVERS

                  This Agreement and the Documents constitute the entire
agreement among the parties pertaining to the subject matter hereof and
supersede all prior agreements, understandings, negotiations and discussions,
whether oral or written, of the parties. No supplement, modification or waiver
of this Agreement shall be binding unless executed in writing by all parties. No
waiver of any of the provisions of this Agreement shall be deemed or shall
constitute a waiver of any other provision hereof (whether or not similar), nor
shall such waiver constitute a continuing waiver unless otherwise expressly
provided.

                                  XIX. NOTICES

                  Except as may be otherwise provided herein, any notice or
other communication

<PAGE>

or delivery required or permitted hereunder shall be in writing and shall be
delivered personally or sent by certified mail, postage prepaid, or by a
nationally recognized overnight courier service, and shall be deemed given when
so delivered personally or by overnight courier service, or, if mailed, three
(3) days after the date of deposit in the United States mails, as follows:

                  A.                  if to the Company, to:

                                      Precept Business Services, Inc.
                           1909 Woodall Rodgers Freeway, Suite 500
                           Dallas, TX  75201
                           Attention:  President
                           (214) 754-6600
                           (214) 220-1082  (Fax)

                                      with a copy to:

                                      Precept Business Services, Inc.
                           1909 Woodall Rodgers Freeway, Suite 500
                           Dallas, TX  75201
                           Attention:  General Counsel
                           (214) 754-6600
                           (214) 754-6909 (Fax)

                  B.                  if to Buyer, to:

                                      The Shaar Fund Ltd.
                           c/o Levinson Capital Management
                           2 World Trade Center, Suite 1820
                           New York, NY 10048
                           Attention:  Samuel Levinson
                           (212) 432-7711
                           (212) 432-7771 (Fax)

                                      with a copy to:

                                      Cadwalader, Wickersham & Taft
                           100 Maiden Lane
                           New York, NY 10038
                           Attention:  Dennis J. Block, Esq.
                           (212) 504-5555
                           (212) 504-5557 (Fax)

                  C.                  if to the Escrow Agent, to:

                                      Cadwalader, Wickersham & Taft
                           100 Maiden Lane

<PAGE>

                           New York, NY 10038
                           Attention:  Dennis J. Block, Esq.
                           (212) 504-5555
                           (212) 504-5557 (Fax)

The Company, Buyer or the Escrow Agent may change the foregoing address by
notice given pursuant to this Article XIX.

                               XX. CONFIDENTIALITY

                  Each of the Company and Buyer agrees to keep confidential and
not to disclose to or use for the benefit of any third party the terms of this
Agreement or any other information which at any time is communicated by the
other party as being confidential without the prior written approval of the
other party; PROVIDED, HOWEVER, that this provision shall not apply to
information which, at the time of disclosure, is already part of the public
domain (except by breach of this Agreement) and information which is required to
be disclosed by law (including, without limitation, pursuant to Item 601(b)(10)
of Regulation S-K under the Securities Act and the Exchange Act).

                                 XXI. ASSIGNMENT

                  This Agreement shall not be assignable by either of the
parties hereto prior to the Closing without the prior written consent of the
other party, and any attempted assignment contrary to the provisions hereby
shall be null and void; PROVIDED, HOWEVER, that Buyer may assign its rights and
obligations hereunder, in whole or in part, to any Affiliate of Buyer.

                            [SIGNATURE PAGE FOLLOWS.]

<PAGE>

                  In Witness Whereof, the parties hereto have duly executed and
delivered this Agreement on the date first above written.

                                         Precept Business Services, Inc.

                                         By:
                                              Name:
                                              Title:

                                         The Shaar Fund Ltd.

                                         By:  Intercaribbean Services


                                                              By:
                                                      Name:
                                                      Title:

<PAGE>

                                                                       EXHIBIT A

                         COMMON STOCK PURCHASE WARRANTS

<PAGE>

                                                                       EXHIBIT B

                           CERTIFICATE OF DESIGNATION


<PAGE>

                                                                       EXHIBIT C

                               ESCROW INSTRUCTIONS

<PAGE>

                                                                       EXHIBIT D

                          REGISTRATION RIGHTS AGREEMENT

<PAGE>

                                                               SCHEDULE III.A.1.

                     EXERCISE PRICES OF OPTIONS AND WARRANTS

<PAGE>

                                                               SCHEDULE III.A.3.

   PREEMPTIVE, SUBSCRIPTION, "CALL," RIGHT OF FIRST REFUSAL OR SIMILAR RIGHTS


<PAGE>

                                                               SCHEDULE III.A.4.

                                  SUBSIDIARIES

<PAGE>

                                                               SCHEDULE III.A.5.

                                     MINUTES

<PAGE>

                                                                 SCHEDULE III.C.

                        ISSUANCES AND SALES OF SECURITIES


<PAGE>

                                                                 SCHEDULE III.F.

                                  CONTRAVENTION

<PAGE>

                                                                 SCHEDULE III.K.

                                   LITIGATION

<PAGE>

                                                               SCHEDULE III.L.2.

                                EVENTS OF DEFAULT

<PAGE>

                                                                 SCHEDULE III.O.

                           RELATED PARTY TRANSACTIONS

<PAGE>

                                                                 SCHEDULE III.Q.

                             SECURITIES LAW MATTERS

<PAGE>

                                                                 SCHEDULE III.R.

                              ENVIRONMENTAL MATTERS

<PAGE>

                                                                 SCHEDULE III.S.

                                  LABOR MATTERS

<PAGE>

                                                                 SCHEDULE III.T.

                                  ERISA MATTERS

<PAGE>

                                                                 SCHEDULE III.U.

                                   TAX MATTERS

<PAGE>

                                                                 SCHEDULE III.V.

                                    PROPERTY

<PAGE>

                                                                 SCHEDULE III.W.

                              INTELLECTUAL PROPERTY

<PAGE>

                                                                 SCHEDULE III.Y.

                               REGISTRATION RIGHTS

<PAGE>

                                                                 SCHEDULE III.Z.

                                    DIVIDENDS

<PAGE>

                                                                         ANNEX A

                        FORM OF OPINION (OUTSIDE COUNSEL)

                  1. The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of Texas
and has all requisite corporate power and authority to own its properties and
conduct its business as described in the Commission Filings.

                  2. The authorized capital stock of the Company consists of (i)
100,000,000 shares of Class A Common Stock, par value $0.01 per share (the
"CLASS A COMMON STOCK"), (ii) 10,500,000 shares of Class B Common Stock, par
value $0.01 per share (the "CLASS B COMMON STOCK") and (iii) 3,000,000 shares of
Preferred Stock, par value $1.00 per share.

                  3. When delivered to you or upon your order against payment of
the agreed consideration therefor in accordance with the provisions of the
Documents, the Securities will be duly authorized and validly issued, fully paid
and nonassessable.

                  4. The Company has the requisite corporate power and authority
to enter into the Documents and to sell and deliver the Securities as described
in the Documents; each of the Documents has been duly and validly authorized by
all necessary corporate action by the Company; each of the Documents has been
duly and validly executed and delivered by and on behalf of the Company, and is
valid and binding agreement of the Company, enforceable in accordance with its
terms, except as enforceability may be limited by general equitable principles,
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
other laws affecting creditors rights generally.

                  5. Except as set forth on the Schedules to the Securities
Purchase Agreement, the execution and delivery by the Company of the Documents,
the issuance of the Securities, and the consummation by the Company of the other
transactions contemplated thereby, including, without limitation, the filing of
the Certificate of Designation with the Texas Secretary of State's office, do
not, and compliance with the provisions of the Documents will not, conflict
with, or result in any violation of, or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a material benefit under, or result in
the creation of any Lien upon any of the properties or assets of the Company or
any of its Subsidiaries under, or result in the termination of, or require that
any consent be obtained or any notice be given with respect to, (i) the Articles
of Incorporation or By-Laws of the Company, (ii) any loan or credit agreement,
note, bond, mortgage, indenture, lease, contract or other agreement, instrument
or permit known to us and applicable to the Company or its properties or assets,
or (iii) any Law applicable to, or, to the best of our knowledge, any judgment,
decree or order of any court or government body having jurisdiction over, the
Company or any of its Subsidiaries or any of their respective properties or
assets. Except as set forth in the Securities Purchase Agreement, to our
knowledge, no consent, approval, authorization, order, registration, filing,
qualification, license or permit of or with any court or any public,
governmental or regulatory agency or body having jurisdiction over the Company
or any of its properties or assets is required for the execution, delivery and

<PAGE>

performance by the Company of the Documents or the consummation by the Company
of the transactions contemplated thereby.

                  6. When issued, the Preferred Shares and the Warrants shall be
free and clear of all encumbrances and restrictions, except for restrictions on
transfer imposed by applicable securities laws or those created by, through, or
under Buyer. The Conversion Shares and Warrant Shares issuable upon conversion
or exercise, respectively, of the Preferred Shares and the Warrants,
respectively, will be free and clear of all encumbrances and restrictions,
except for restrictions on transfer imposed by applicable securities laws or
those created by, through, or under Buyer.

                  7. Based on Buyer's representations contained in this
Agreement, the offer and sale of the Preferred Shares and the Warrants are
exempt from the registration requirements of the Securities Act.

                  8. To our knowledge, there is no action, suit, claim, inquiry
or investigation pending or threatened by or before any court or public or
governmental authority which, if determined adversely to the Company, would have
a Material Adverse Effect.

                  9. The Company is not, and, after the consummation of the
transactions contemplated by this Agreement and the other Documents and the use
of the proceeds from the sale of the Securities, will not be an "investment
company" or an entity "controlled" by an "investment company," as such terms are
defined in the Investment Company Act of 1940, as amended.

<PAGE>

                        FORM OF OPINION (INSIDE COUNSEL)

                  1. The Company is duly qualified to do business as a foreign
corporation and is in good standing in all jurisdictions where the Company owns
or leases properties or conducts business, except for jurisdictions in which the
failure to so qualify would not have a Material Adverse Effect.

                  2. Except as set forth on the Schedules to the Securities
Purchase Agreement, the execution and delivery by the Company of the Documents,
the issuance of the Securities, and the consummation by the Company of the other
transactions contemplated thereby, including, without limitation, the filing of
the Certificate of Designation with the Texas Secretary of State's office, do
not, and compliance with the provisions of the Documents will not, conflict
with, or result in any violation of, or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a material benefit under, or result in
the creation of any Lien upon any of the properties or assets of the Company or
any of its Subsidiaries under, or result in the termination of, or require that
any consent be obtained or any notice be given with respect to, (i) the Articles
of Incorporation or By-Laws or the comparable charter or organizational
documents of any Subsidiary of the Company or (ii) any loan or credit agreement,
note, bond, mortgage, indenture, lease, contract or other agreement, instrument
or permit known to us and applicable to any Subsidiary of the Company or its
properties or assets.

                  3. To the best of our knowledge, other than as described in
the Commission Filings, there are no outstanding options, warrants or other
securities exercisable or convertible into Common Stock of the Company.

                  4. Each Subsidiary of the Company is not and, after the
consummation of the transactions contemplated by this Agreement and the other
Documents and the use of the proceeds from the sale of the Securities, will not
be an "investment company" or an entity "controlled" by an "investment company,"
as such terms are defined in the Investment Company Act of 1940, as amended.

<PAGE>

THIS COMMON STOCK PURCHASE WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND REGULATIONS THEREUNDER OR
THE PROVISIONS OF THIS COMMON STOCK PURCHASE WARRANT.

                    Number of Shares of Common Stock: 125,000
                              Warrant No. W-A-[__]

                          COMMON STOCK PURCHASE WARRANT

                       To Purchase Class A Common Stock of

                         Precept Business Services, Inc.

                  THIS IS TO CERTIFY THAT The Shaar Fund Ltd., or registered
assigns, is entitled, at any time from the Closing Date (as hereinafter defined)
to the Expiration Date (as hereinafter defined), to purchase from Precept
Business Services, Inc., a Texas corporation (the "COMPANY"), 125,000 shares of
Common Stock (as hereinafter defined and subject to adjustment as provided
herein), in whole or in part, including fractional parts, at a purchase price
per share equal to 110% of the Market Price, subject to adjustment as provided
herein, all on the terms and conditions and pursuant to the provisions
hereinafter set forth.

                  1.       DEFINITIONS

                  As used in this Common Stock Purchase Warrant (this
"WARRANT"), the following terms shall have the respective meanings set forth
below:

                  "ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares of
Common Stock issued by the Company after the Closing Date, other than Warrant
Stock.

                  "BOOK VALUE" shall mean, in respect of any share of Common
Stock on any date herein specified, the consolidated book value of the Company
as of the last day of any month immediately preceding such date, divided by the
number of Fully Diluted Outstanding shares of Common Stock as determined in
accordance with GAAP (assuming the payment of the exercise prices for such
shares) by Ernst & Young LLP or any other firm of independent certified public
accountants of recognized national standing selected by the Company and
reasonably acceptable to the Holder.

                  "BUSINESS DAY" shall mean any day that is not a Saturday or
Sunday or a day on which banks are required or permitted to be closed in the
State of New York.

<PAGE>

                  "CLOSING DATE" shall have the meaning set forth in the
Securities Purchase Agreement.

                  "COMMISSION" shall mean the Securities and Exchange Commission
or any other federal agency then administering the Securities Act and other
federal securities laws.

                  "COMMON STOCK" shall mean (except where the context otherwise
indicates) the class A common stock, par value $.01 per share, of the Company as
constituted on the Closing Date, and any capital stock into which such Common
Stock may thereafter be changed, and shall also include (i) capital stock of the
Company of any other class (regardless of how denominated) issued to the holders
of shares of Common Stock upon any reclassification thereof which is also not
preferred as to dividends or assets over any other class of stock of the Company
and which is not subject to redemption and (ii) shares of common stock of any
successor or acquiring corporation received by or distributed to the holders of
Common Stock of the Company in the circumstances contemplated by Section 4.4.

                  "CONVERTIBLE SECURITIES" shall mean evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable,
with or without payment of additional consideration in cash or property, for
shares of Common Stock, either immediately or upon the occurrence of a specified
date or a specified event.

                  "CURRENT MARKET PRICE" shall mean on any date of determination
the closing bid price of a Common Share on such day as reported on Nasdaq;
PROVIDED, if such security bid is not listed or admitted to trading on Nasdaq,
as reported on the principal national security exchange or quotation system on
which such security is quoted or listed or admitted to trading, or, if not
quoted or listed or admitted to trading on any national securities exchange or
quotation system, the closing bid price of such security on the over-the-counter
market on the day in question as reported by Bloomberg LP, or a similar
generally accepted reporting service, as the case may be.

                  "CURRENT WARRANT PRICE" shall mean, in respect of a share of
Common Stock at any date herein specified, the price at which a share of Common
Stock may be purchased pursuant to this Warrant on such date, as set forth in
the first paragraph hereof.

                  "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended, or any successor federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect from time to time.

                  "EXERCISE PERIOD" shall mean the period during which this
Warrant is exercisable pursuant to Section 2.1.

                  "EXPIRATION DATE" shall mean April 19, 2003.

                  "FULLY DILUTED OUTSTANDING" shall mean, when used with
reference to Common Stock, at any date as of which the number of shares thereof
is to be determined, all shares of

<PAGE>

Common Stock Outstanding at such date and all shares of Common Stock issuable in
respect of this Warrant, outstanding on such date, and other options or warrants
to purchase, or securities convertible into, shares of Common Stock outstanding
on such date which would be deemed outstanding in accordance with GAAP for
purposes of determining Book Value or net income per share.

                  "FUNDAMENTAL CORPORATE CHANGE" shall have the meaning set
forth in Section 4.4.

                  "GAAP" shall mean generally accepted accounting principles in
the United States of America as from time to time in effect.

                  "HOLDER" shall mean the Person in whose name the Warrant or
Warrant Stock set forth herein is registered on the books of the Company
maintained for such purpose.

                  "MARKET PRICE" per Common Share means the average of the
closing bid prices of the Common Shares as reported on the Nasdaq SmallCap
Market ("NASDAQ") for the five trading days immediately preceding the Closing
Date.

                  "OTHER PROPERTY" shall have the meaning set forth in Section
4.4.

                  "OUTSTANDING" shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be determined,
all issued shares of Common Stock, except shares then owned or held by or for
the account of the Company or any subsidiary thereof, and shall include all
shares issuable in respect of outstanding scrip or any certificates representing
fractional interests in shares of Common Stock.

                  "PERSON" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, incorporated organization, association,
corporation, institution, public benefit corporation, entity or government
(whether federal, state, county, city, municipal or otherwise, including,
without limitation, any instrumentality, division, agency, body or department
thereof).

                  "REGISTRATION RIGHTS AGREEMENT" shall mean the Registration
Rights Agreement dated as of a date even herewith between the Company and The
Shaar Fund Ltd., as it may be amended from time to time.

                  "RESTRICTED COMMON STOCK" shall mean shares of Common Stock
which are, or which upon their issuance on their exercise of this Warrant would
be, evidenced by a certificate bearing the restrictive legend set forth in
Section 9.1(a).

                  "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.

                  "SECURITIES PURCHASE AGREEMENT" shall mean the Securities
Purchase Agreement dated as of a date even herewith between the Company and The
Shaar Fund Ltd., as it may be

<PAGE>

amended from time to time.

                  "TRANSFER" shall mean any disposition of any Warrant or
Warrant Stock or of any interest in either thereof, which would constitute a
sale thereof within the meaning of the Securities Act.

                  "TRANSFER NOTICE" shall have the meaning set forth in Section
9.2.

                  "WARRANT PRICE" shall mean an amount equal to (i) the number
of shares of Common Stock being purchased upon exercise of this Warrant pursuant
to Section 2.1, multiplied by (ii) the Current Warrant Price as of the date of
such exercise.

                  "WARRANT STOCK" shall mean the shares of Common Stock
purchased by the holders of the Warrants upon the exercise thereof.

                  "WARRANTS" shall mean this Warrant and all warrants issued
upon transfer, division or combination of, or in substitution for, any thereof.
All Warrants shall at all times be identical as to terms and conditions and
date, except as to the number of shares of Common Stock for which they may be
exercised.

                  2.       EXERCISE OF WARRANT

                  2.1      MANNER OF EXERCISE

                  From and after 90 days after the Closing Date (the "Special
Date") and until 5:00 p.m., New York time, on the Expiration Date, Holder may
exercise this Warrant, on any Business Day, for all or any part of the number of
shares of Common Stock purchasable hereunder. In the event that the Company
consolidates or merges with or into another Person (where the Company is not the
survivor or where there is a change in or distribution with respect to the
Common Stock of the Company), sells, conveys, transfers or otherwise dispose of
all or substantially all its property, assets or business to another Person, or
effectuates a transaction or series of related transactions in which more than
50% of the voting power of the Company is disposed of on or prior to the Special
Date, this Warrant shall expire.

                  In order to exercise this Warrant, in whole or in part, Holder
shall deliver to the Company at its principal office at 1909 Woodall Rodgers
Freeway, Suite 500, Dallas, TX 75201, or at the office or agency designated by
the Company pursuant to Section 12, (i) a written notice of Holder's election to
exercise this Warrant, which notice shall specify the number of shares of Common
Stock to be purchased, (ii) to the extent such exercise is not being effected
through a Cashless Exercise, payment of the Warrant Price in cash or wire
transfer or cashier's check drawn on a United States bank and (iii) this
Warrant. Such notice shall be substantially in the form of the subscription form
appearing at the end of this Warrant as Exhibit A, duly executed by Holder or
its agent or attorney. Upon receipt of the items referred to in clauses (i),
(ii) and (iii) above, the Company shall, as promptly as practicable, and in any
event within five Business Days thereafter, execute or cause to be executed and
deliver or cause to be delivered to Holder a certificate or certificates
representing the aggregate number of full shares of Common Stock

<PAGE>

issuable upon such exercise, together with cash in lieu of any fraction of a
share, as hereinafter provided. The stock certificate or certificates so
delivered shall be, to the extent possible, in such denomination or
denominations as Holder shall request in the notice and shall be registered in
the name of Holder or, subject to Section 9, such other name as shall be
designated in the notice. This Warrant shall be deemed to have been exercised
and such certificate or certificates shall be deemed to have been issued, and
Holder or any other Person so designated to be named therein shall be deemed to
have become a holder of record of such shares for all purposes, as of the date
the notice, together with the cash or check or checks and this Warrant, is
received by the Company as described above and all taxes required to be paid by
Holder, if any, pursuant to Section 2.2 prior to the issuance of such shares
have been paid. If this Warrant shall have been exercised in part, the Company
shall, at the time of delivery of the certificate or certificates representing
Warrant Stock, deliver to Holder a new Warrant evidencing the rights of Holder
to purchase the unpurchased shares of Common Stock called for by this Warrant,
which new Warrant shall in all other respects be identical with this Warrant,
or, at the request of Holder, appropriate notation may be made on this Warrant
and the same returned to Holder. Notwithstanding any provision herein to the
contrary, the Company shall not be required to register shares in the name of
any Person who acquired this Warrant (or part hereof) or any Warrant Stock
otherwise than in accordance with this Warrant.

                  Simultaneously with the exercise of this Warrant, payment in
full of the Warrant Price shall be made, at the option of the Holder, (i) by
payment of the Warrant Price in cash or by wire transfer or cashier's check
drawn on a United States bank, (ii) through a net exercise without payment of
the Warrant Price in cash by providing notice to the Company of the Holder's
election to receive a number of shares of Common Stock in a Cashless Exercise
equal to the product of (1) the number of shares for which such Warrant is
exercisable with payment in cash of the Warrant Price as of the date of exercise
and (2) the Cashless Exercise Ratio or (iii) by any combination of clauses (i)
and (ii). For purposes of this Agreement, the "CASHLESS EXERCISE RATIO" shall
equal a fraction, the numerator of which is the excess of the Current Market
Price per share of the Common Stock on the date of exercise over the Current
Warrant Price as of the date of exercise, and the denominator of which is the
Current Market Price per share of the Common Stock on the date of exercise. An
exercise of a Warrant in accordance with clause (ii) above is herein called a
"CASHLESS EXERCISE." Following a Cashless Exercise, this Warrant shall be
canceled in all respects with regard to (a) the number of shares of Common Stock
issued in accordance with the Cashless Exercise PLUS (b) the number of shares
used as consideration for the Cashless Exercise.

                  2.2      PAYMENT OF TAXES AND CHARGES

                  All shares of Common Stock issuable upon the exercise of this
Warrant pursuant to the terms hereof shall be validly issued, fully paid and
nonassessable, freely tradable and without any preemptive rights. The Company
shall pay all expenses in connection with, and all taxes and other governmental
charges that may be imposed with respect to, the issuance or delivery thereof,
unless such tax or charge is imposed by law upon Holder, in which case such
taxes or charges shall be paid by Holder. The Company shall not be required,
however, to pay any tax or other charge imposed in connection with any transfer
involved in the issuance of any

<PAGE>

certificate for shares of Common Stock issuable upon exercise of this Warrant in
any name other than that of Holder, and in such case the Company shall not be
required to issue or deliver any stock certificate until such tax or other
charge has been paid or it has been established to the satisfaction of the
Company that no such tax or other charge is due.

                  2.3      FRACTIONAL SHARES

                  The Company shall not be required to issue a fractional share
of Common Stock upon exercise of any Warrant. As to any fraction of a share
which Holder would otherwise be entitled to purchase upon such exercise, the
Company shall pay a cash adjustment in respect of such final fraction in an
amount equal to the same fraction of the Market Price per share of Common Stock
as of the Closing Date.

                  2.4      CONTINUED VALIDITY

                  A holder of shares of Common Stock issued upon the exercise of
this Warrant, in whole or in part (other than a holder who acquires such shares
after the same have been publicly sold pursuant to a Registration Statement
under the Securities Act or sold pursuant to Rule 144 thereunder) shall continue
to be entitled with respect to such shares to all rights to which it would have
been entitled as Holder under Sections 9, 10 and 14 of this Warrant. The Company
will, at the time of exercise of this Warrant, in whole or in part, upon the
request of Holder, acknowledge in writing, in form reasonably satisfactory to
Holder, its continuing obligation to afford Holder all such rights; PROVIDED,
HOWEVER, that if Holder shall fail to make any such request, such failure shall
not affect the continuing obligation of the Company to afford to Holder all such
rights.

                  3.       TRANSFER, DIVISION AND COMBINATION

                  3.1      TRANSFER

                  Subject to compliance with Section 9, transfer of this Warrant
and all rights hereunder, in whole or in part, shall be registered on the books
of the Company to be maintained for such purpose, upon surrender of this Warrant
at the principal office of the Company referred to in Section 2.1 or the office
or agency designated by the Company pursuant to Section 12, together with a
written assignment of this Warrant substantially in the form of Exhibit B hereto
duly executed by Holder or its agent or attorney and funds sufficient to pay any
transfer taxes payable upon the making of such transfer. Upon such surrender
and, if required, such payment, the Company shall, subject to Section 9, execute
and deliver a new Warrant or Warrants in the name of the assignee or assignees
and in the denomination specified in such instrument of assignment, and shall
issue to the assignor a new Warrant evidencing the portion of this Warrant not
so assigned, and this Warrant shall promptly be canceled. A Warrant, if properly
assigned in compliance with Section 9, may be exercised by a new Holder for the
purchase of shares of Common Stock without having a new warrant issued.

                  3.2      DIVISION AND COMBINATION

                  Subject to Section 9, this Warrant may be divided or combined
with other

<PAGE>

Warrants upon presentation hereof at the aforesaid office or agency of the
Company, together with a written notice specifying the names and denominations
in which new Warrants are to be issued, signed by Holder or its agent or
attorney. Subject to compliance with Sections 3.1 and 9, as to any transfer
which may be involved in such division or combination, the Company shall execute
and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to
be divided or combined in accordance with such notice.

                  3.3      EXPENSES

                  The Company shall prepare, issue and deliver at its own
expense (other than transfer taxes) the new Warrants or Warrants under this
Section 3.

                  3.4      MAINTENANCE OF BOOKS

                  The Company agrees to maintain, at its aforesaid office or
agency, books for the registration and the registration of transfer of the
Warrants.

                  4.       ADJUSTMENTS

                  The number of shares of Common Stock for which this Warrant is
exercisable, or the price at which such shares may be purchased upon exercise of
this Warrant, shall be subject to adjustment from time to time as set forth in
this Section 4. The Company shall give Holder notice of any event described
below which requires an adjustment pursuant to this Section 4 at the time of
such event.

                  4.1      STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS

                  If at any time the Company shall:

                  (a) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, Additional Shares of Common Stock;

                  (b) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock; or

                  (c) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock;

then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Current Warrant Price
shall be adjusted to equal (A) the Current Warrant Price multiplied by the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the adjustment divided by (B) the number of shares for
which this Warrant is exercisable immediately after such

<PAGE>

adjustment.

                  4.2      CERTAIN OTHER DISTRIBUTIONS

                  If at any time the Company shall take a record of the holders
of its Common Stock for the purpose of entitling them to receive any dividend or
other distribution of:

                  (a) cash;

                  (b) any evidences of its indebtedness, any shares of its stock
or any other securities or property of any nature whatsoever (other than cash,
Convertible Securities or Additional Shares of Common Stock); or

                  (c) any warrants or other rights to subscribe for or purchase
any evidences of its indebtedness, any shares of its stock or any other
securities or property of any nature whatsoever (other than cash, Convertible
Securities or Additional Shares of Common Stock);

then Holder shall be entitled to receive such dividend or distribution as if
Holder had exercised the Warrant. A reclassification of the Common Stock (other
than a change in par value, or from par value to no par value or from no par
value to par value) into shares of Common Stock and shares of any other class of
stock shall be deemed a distribution by the Company to the holders of its Common
Stock of such shares of such other class of stock within the meaning of this
Section 4.2 and, if the outstanding shares of Common Stock shall be changed into
a larger or smaller number of shares of Common Stock as a part of such
reclassification, such change shall be deemed a subdivision or combination, as
the case may be, of the outstanding shares of Common Stock within the meaning of
Section 4.1.

                  4.3      OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS
                           SECTION

                  The following provisions shall be applicable to the making of
adjustments of the number of shares of Common Stock for which this Warrant is
exercisable and the Current Warrant Price provided for in this Section 4:

                  (a) WHEN ADJUSTMENTS TO BE MADE. The adjustments required by
this Section 4 shall be made whenever and as often as any specified event
requiring an adjustment shall occur. For the purpose of any adjustment, any
specified event shall be deemed to have occurred at the close of business on the
date of its occurrence.

                  (b) FRACTIONAL INTERESTS. In computing adjustments under this
Section 4, fractional interests in Common Stock shall be taken into account to
the nearest 1/10th of a share.

                  (c) WHEN ADJUSTMENT NOT REQUIRED. If the Company shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive a dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders thereof, legally abandon
its plan to pay or deliver such dividend, distribution, subscription or purchase
rights, then thereafter no adjustment shall be required by reason of the

<PAGE>

taking of such record and any such adjustment previously made in respect thereof
shall be rescinded and annulled.

                  (d) CHALLENGE TO GOOD FAITH DETERMINATION. Whenever the Board
of Directors of the Company shall be required to make a determination in good
faith of the fair value of any item under this Section 4, such determination may
be challenged in good faith by the Holder, and any dispute shall be resolved by
an investment banking firm of recognized national standing (or otherwise
competent to make the determination) selected by the Company and reasonably
acceptable to Holder.

                  4.4      REORGANIZATION, RECLASSIFICATION, MERGER,
                           CONSOLIDATION OR DISPOSITION OF ASSETS

                  In case the Company shall reorganize its capital, reclassify
its capital stock, consolidate or merge with or into another Person (where the
Company is not the survivor or where there is a change in or distribution with
respect to the Common Stock of the Company), or sell, convey, transfer or
otherwise dispose of all or substantially all its property, assets or business
to another Person, or effectuate a transaction or series of related transactions
in which more than 50% of the voting power of the Company is disposed of (each,
a "FUNDAMENTAL CORPORATE CHANGE") and, pursuant to the terms of such Fundamental
Corporate Change, shares of common stock of the successor or acquiring
corporation, or any cash, shares of stock or other securities or property of any
nature whatsoever (including warrants or other subscription or purchase rights)
in addition to or in lieu of common stock of the successor or acquiring
corporation ("OTHER PROPERTY"), are to be received by or distributed to the
holders of Common Stock of the Company, then Holder shall have the right
thereafter to receive, upon exercise of the Warrant, such number of shares of
common stock of the successor or acquiring corporation or of the Company, if it
is the surviving corporation, and Other Property as is receivable upon or as a
result of such Fundamental Corporate Change by a holder of the number of shares
of Common Stock for which this Warrant is exercisable immediately prior to such
Fundamental Corporate Change. In case of any such Fundamental Corporate Change,
the successor or acquiring corporation (if other than the Company) shall
expressly assume the due and punctual observance and performance of each and
every covenant and condition of this Warrant to be performed and observed by the
Company and all the obligations and liabilities hereunder, subject to such
modifications as may be deemed appropriate (as determined by resolution of the
Board of Directors of the Company) in order to provide for adjustments of shares
of Common Stock for which this Warrant is exercisable which shall be as nearly
equivalent as practicable to the adjustments provided for in this Section 4. For
purposes of this Section 4.4, "COMMON STOCK OF THE SUCCESSOR OR ACQUIRING
CORPORATION" shall include stock of such corporation of any class which is not
preferred as to dividends or assets over any other class of stock of such
corporation and which is not subject to redemption and shall also include any
evidences of indebtedness, shares of stock or other securities which are
convertible into or exchangeable for any such stock, either immediately or upon
the arrival of a specified date or the happening of a specified event and any
warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 4.4 shall similarly apply to successive
Fundamental Corporate Change.

<PAGE>

                  4.5      OTHER ACTION AFFECTING COMMON STOCK

                  In case at any time or from time to time the Company shall
take any action in respect of its Common Stock, other than any action described
in this Section 4, which would have a materially adverse effect upon the rights
of Holder, the number of shares of Common Stock and/or the purchase price
thereof shall be adjusted in such manner as may be equitable in the
circumstances, as determined in good faith by the Board of Directors of the
Company.

                  4.6      CERTAIN LIMITATIONS

                  Notwithstanding anything herein to the contrary, the Company
agrees not to enter into any transaction which, by reason of any adjustment
hereunder, would cause the Current Warrant Price to be less than the par value
per share of Common Stock.

                  5.       NOTICES TO HOLDER

                  5.1      NOTICE OF ADJUSTMENTS

                  Whenever the number of shares of Common Stock for which this
Warrant is exercisable, or whenever the price at which a share of such Common
Stock may be purchased upon exercise of the Warrants, shall be adjusted pursuant
to Section 4, the Company shall forthwith prepare a certificate to be executed
by the chief financial officer of the Company setting forth, in reasonable
detail, the event requiring the adjustment and the method by which such
adjustment was calculated (including a description of the basis on which the
Board of Directors of the Company determined the fair value of any evidences of
indebtedness, shares of stock, other securities or property or warrants or other
subscription or purchase rights referred to in Section 4.2), specifying the
number of shares of Common Stock for which this Warrant is exercisable and (if
such adjustment was made pursuant to Section 4.4 or 4.5) describing the number
and kind of any other shares of stock or Other Property for which this Warrant
is exercisable, and any change in the purchase price or prices thereof, after
giving effect to such adjustment or change. The Company shall promptly cause a
signed copy of such certificate to be delivered to the Holder in accordance with
Section 14.2. The Company shall keep at its office or agency designated pursuant
to Section 12 copies of all such certificates and cause the same to be available
for inspection at said office during normal business hours by the Holder or any
prospective purchaser of a Warrant designated by Holder.

                  5.2      NOTICE OF CORPORATE ACTION

                  If at any time:

                  (a) the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities or
property, or to receive any other right; or

<PAGE>

                  (b) there shall be any capital reorganization of the Company,
any reclassification or recapitalization of the capital stock of the Company or
any consolidation or merger of the Company with, or any sale, transfer or other
disposition of all or substantially all the property, assets or business of the
Company to, another corporation; or

                  (c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;

then, in any one or more of such cases, the Company shall give to Holder (i) at
least 20 days' prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, and (ii) in the case of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, at least 20 days' prior written notice of the date when the same shall take
place. Such notice in accordance with the foregoing clause also shall specify
(i) the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, the date on which the holders of Common Stock
shall be entitled to any such dividend, distribution or right, and the amount
and character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up. Each such written notice shall be sufficiently given if addressed to Holder
at the last address of Holder appearing on the books of the Company and
delivered in accordance with Section 14.2.

                  6.       NO IMPAIRMENT

                  The Company shall not by any action, including, without
limitation, amending its articles of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issuance
or sale of securities or other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of Holder against impairment. Without limiting the generality of the
foregoing, the Company will (a) not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the amount
payable therefor upon such exercise immediately prior to such increase in par
value, (b) take all such action as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant, and (c) use its best efforts to
obtain all such authorizations, exemptions or consents from any public
regulatory body having jurisdiction thereof as may be necessary to enable the
Company to perform its obligations under this Warrant.

<PAGE>

                  Upon the request of Holder, the Company will at any time
during the period this Warrant is outstanding acknowledge in writing, in form
satisfactory to Holder, the continuing validity of this Warrant and the
obligations of the Company hereunder.

                  7.       RESERVATION AND AUTHORIZATION OF COMMON STOCK

                  From and after the Closing Date, the Company shall at all
times reserve and keep available for issuance upon the exercise of Warrants such
number of its authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of all outstanding Warrants. All
shares of Common Stock which shall be so issuable, when issued upon exercise of
any Warrant and payment therefor in accordance with the terms of such Warrant,
shall be duly and validly issued and fully paid and nonassessable and not
subject to preemptive rights.

                  Before taking any action which would cause an adjustment
reducing the Current Warrant Price below the then par value, if any, of the
shares of Common Stock issuable upon exercise of the Warrants, the Company shall
take any corporate action which may be necessary in order that the Company may
validly and legally issue fully paid and nonassessable shares of such Common
Stock at such adjusted Current Warrant Price.

                  Before taking any action which would result in an adjustment
in the number of shares of Common Stock for which this Warrant is exercisable or
in the Current Warrant Price, the Company shall obtain all such authorizations
or exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.

                  8.       TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS

                  In the case of all dividends or other distributions by the
Company to the holders of its Common Stock with respect to which any provision
of Section 4 refers to the taking of record of such holders, the Company will in
each case take such a record and will take such record as of the close of
business on a Business Day. The Company will not at any time, except upon
dissolution, liquidation or winding up of the Company, close its stock transfer
books or Warrant transfer books so as to result in preventing or delaying the
exercise or transfer of any Warrant.

                  9.       RESTRICTIONS ON TRANSFERABILITY

                  The Warrants and the Warrant Stock shall not be transferred,
hypothecated or assigned before satisfaction of the conditions specified in this
Section 9, which conditions are intended to ensure compliance with the
provisions of the Securities Act with respect to the Transfer of any Warrant or
any Warrant Stock. Holder, by acceptance of this Warrant, agrees to be bound by
the provisions of this Section 9.

                  9.1      RESTRICTIVE LEGEND

                  (a) Holder, by accepting this Warrant and any Warrant Stock
agrees that this Warrant

<PAGE>

and the Warrant Stock issuable upon exercise hereof may not be assigned or
otherwise transferred unless and until (i) the Company has received an opinion
of counsel for Holder (reasonably satisfactory to the Company) that such
securities may be sold pursuant to an exemption from registration under the
Securities Act or (ii) a registration statement relating to such securities has
been filed by the Company and declared effective by the Commission.

                  Each certificate for Warrant Stock issuable hereunder shall
bear a legend as follows until such securities have been sold pursuant to an
effective registration statement under the Securities Act:

                  "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
                  SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
                  THE SECURITIES LAWS OF ANY STATE, AND ARE BEING OFFERED AND
                  SOLD PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
                  REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THESE
                  SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO
                  AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
                  OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL THAT
                  THESE SECURITIES MAY BE SOLD PURSUANT TO AN AVAILABLE
                  EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES
                  ACT OR SUCH OTHER LAWS."

                  (b) Except as otherwise provided in this Section 9, the
Warrant shall be stamped or otherwise imprinted with a legend in substantially
the following form:

                  "THIS COMMON STOCK PURCHASE WARRANT AND THE SECURITIES
                  REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
                  SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED
                  IN VIOLATION OF SUCH ACT, THE RULES AND REGULATIONS THEREUNDER
                  OR THE PROVISIONS OF THIS COMMON STOCK PURCHASE WARRANT."

                  9.2      NOTICE OF PROPOSED TRANSFERS

                  Prior to any Transfer or attempted Transfer of any Warrants or
any shares of Restricted Common Stock, the Holder shall give ten days' prior
written notice (a "TRANSFER NOTICE") to the Company of Holder's intention to
effect such Transfer, describing the manner and circumstances of the proposed
Transfer, and obtain from counsel to Holder who shall be reasonably satisfactory
to the Company, an opinion that the proposed Transfer of such Warrants or such
Restricted Common Stock may be effected without registration under the
Securities Act. After receipt of the Transfer Notice and opinion, the Company
shall, within five days thereof,

<PAGE>

notify the Holder as to whether such opinion is reasonably satisfactory and, if
so, such holder shall thereupon be entitled to Transfer such Warrants or such
Restricted Common Stock, in accordance with the terms of the Transfer Notice.
Each certificate, if any, evidencing such shares of Restricted Common Stock
issued upon such Transfer shall bear the restrictive legend set forth in Section
9.1(a), and the Warrant issued upon such Transfer shall bear the restrictive
legend set forth in Section 9.1(b), unless in the opinion of such counsel such
legend is not required in order to ensure compliance with the Securities Act.
Holder shall not be entitled to Transfer such Warrants or such Restricted Common
Stock until receipt of notice from the Company under this Section 9.2 that such
opinion is reasonably satisfactory.

                  9.3      REQUIRED REGISTRATION

                  Pursuant to the terms and conditions set forth in Registration
Rights Agreement, the Company shall prepare and file with the Commission not
later than the 90th day after the Closing Date, a Registration Statement
relating to the offer and sale of the Common Stock issuable upon exercise of the
Warrants and shall use commercially reasonable efforts to cause the Commission
to declare such Registration Statement effective under the Securities Act as
promptly as practicable but no later than 150 days after the Closing Date.

                  9.4      TERMINATION OF RESTRICTIONS

                  Notwithstanding the foregoing provisions of Section 9, the
restrictions imposed by this Section upon the transferability of the Warrants,
the Warrant Stock and the Restricted Common Stock (or Common Stock issuable upon
the exercise of the Warrants) and the legend requirements of Section 9.1 shall
terminate as to any particular Warrant or share of Warrant Stock or Restricted
Common Stock (or Common Stock issuable upon the exercise of the Warrants) (i)
when and so long as such security shall have been effectively registered under
the Securities Act and disposed of pursuant thereto or (ii) when the Company
shall have received an opinion of counsel reasonably satisfactory to it that
such shares may be transferred without registration thereof under the Securities
Act. Whenever the restrictions imposed by Section 9 shall terminate as to this
Warrant, as hereinabove provided, the Holder hereof shall be entitled to receive
from the Company upon written request of the Holder, at the expense of the
Company, a new Warrant bearing the following legend in place of the restrictive
legend set forth hereon:

                  "THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN WARRANT
                  CONTAINED IN SECTION 9 HEREOF TERMINATED ON __________, _____,
                  AND ARE OF NO FURTHER FORCE AND EFFECT."

All Warrants issued upon registration of transfer, division or combination of,
or in substitution for, any Warrant or Warrants entitled to bear such legend
shall have a similar legend endorsed thereon. Whenever the restrictions imposed
by this Section shall terminate as to any share of Restricted Common Stock, as
hereinabove provided, the holder thereof shall be entitled to receive from the
Company, at the Company's expense, a new certificate representing such Common
Stock not bearing the restrictive legend set forth in Section 9.1(a).

<PAGE>

                  9.5      LISTING ON SECURITIES EXCHANGE

                  If the Company shall list any shares of Common Stock on any
securities exchange or quotation system, it will, at its expense, list thereon,
maintain and, when necessary, increase such listing of, all shares of Common
Stock issued or, to the extent permissible under the applicable securities
exchange rules, issuable upon the exercise of this Warrant so long as any shares
of Common Stock shall be so listed during any such Exercise Period.

                  10.      SUPPLYING INFORMATION

                  The Company shall cooperate with Holder in supplying such
information as may be reasonably necessary for Holder to complete and file any
information reporting forms presently or hereafter required by the Commission as
a condition to the availability of an exemption from the Securities Act for the
sale of any Warrant or Restricted Common Stock.

                  11.      LOSS OR MUTILATION

                  Upon receipt by the Company from Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and indemnity reasonably satisfactory to it (it being
understood that the written agreement of the Holder shall be sufficient
indemnity), and in case of mutilation upon surrender and cancellation hereof,
the Company will execute and deliver in lieu hereof a new Warrant of like tenor
to Holder at Holder's sole cost and expense; PROVIDED, in the case of mutilation
no indemnity shall be required if this Warrant in identifiable form is
surrendered to the Company for cancellation.

                  12.      OFFICE OF THE COMPANY

                  As long as any of the Warrants remain outstanding, the Company
shall maintain an office or agency (which may be the principal executive offices
of the Company) where the Warrants may be presented for exercise, registration
of transfer, division or combination as provided in this Warrant.

                  13.      LIMITATION OF LIABILITY

                  No provision hereof, in the absence of affirmative action by
Holder to purchase shares of Common Stock, and no enumeration herein of the
rights or privileges of Holder hereof, shall give rise to any liability of
Holder for the purchase price of any Common Stock or as a stockholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.

                  14.      NO RIGHTS AS SHAREHOLDER

                  Except as otherwise provided in the Securities Purchase
Agreement and in the

<PAGE>

provisions of this Warrant, solely as a result of this Warrant, Holder shall not
be considered a holder of Common Stock and shall not be entitled to the rights
given to holders of Common Stock unless and until Holder exercises any portion
of this Warrant.

                  15.      MISCELLANEOUS

                  15.1     NONWAIVER AND EXPENSES

                  No course of dealing or any delay or failure to exercise any
right hereunder on the part of Holder shall operate as a waiver of such right or
otherwise prejudice Holder's rights, powers or remedies. If the Company fails to
make, when due, any payments provided for hereunder, or fails to comply with any
other provision of this Warrant, the Company shall pay to Holder such amounts as
shall be sufficient to cover any costs and expenses including, without
limitation, reasonable attorneys' fees, including those of appellate
proceedings, incurred by Holder in collecting any amounts due pursuant hereto or
in otherwise enforcing any of its rights, powers or remedies hereunder.

                  15.2     NOTICE GENERALLY

                  Except as may be otherwise provided herein, any notice or
other communication or delivery required or permitted hereunder shall be in
writing and shall be delivered personally or sent by certified mail, postage
prepaid, or by a nationally recognized overnight courier service, and shall be
deemed given when so delivered personally or by overnight courier service, or,
if mailed, three days after the date of deposit in the United States mails, as
follows:

                  (a)      if to the Company, to:

                           Precept Business Services, Inc.
                           1909 Woodall Rodgers Freeway, Suite 500
                           Dallas, TX  75201
                           Attention:  President
                           (214) 754-6600
                           (214) 220-1082 (Fax)

                           with a copy to:

                           Precept Business Services, Inc.
                           1909 Woodall Rodgers Freeway, Suite 500
                           Dallas, TX  75201
                           Attention:  General Counsel
                           (214) 754-6600
                           (214) 754-6909 (Fax)

                  (b)      if to the Holder, to:

                           The Shaar Fund Ltd.,

<PAGE>

                           c/o Levinson Capital Management
                           2 World Trade Center, Suite 1820
                           New York, NY 10048
                           Attention:  Samuel Levinson
                           (212) 432-7711
                           (212) 432-7771 (Fax)

                           with a copy to:

                           Cadwalader, Wickersham & Taft
                           100 Maiden Lane
                           New York, NY 10038
                           Attention:  Dennis J. Block, Esq.
                           (212) 504-5555
                           (212) 504-5557 (Fax)

The Company or the Holder may change the foregoing address by notice given
pursuant to this Section 14.2.

                  15.3     INDEMNIFICATION

                  The Company agrees to indemnify and hold harmless Holder from
and against any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, attorneys' fees, expenses and disbursements of
any kind which may be imposed upon, incurred by or asserted against Holder in
any manner relating to or arising out of any failure by the Company to perform
or observe in any material respect any of its covenants, agreements,
undertakings or obligations set forth in this Warrant; PROVIDED, HOWEVER, that
the Company will not be liable hereunder to the extent that any liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, attorneys' fees, expenses or disbursements are found in a final
nonappealable judgment by a court to have resulted from Holder's gross
negligence, bad faith or willful misconduct in its capacity as a stockholder or
warrantholder of the Company.

                  15.4     REMEDIES

                  Holder in addition to being entitled to exercise all rights
granted by law, including recovery of damages, will be entitled to specific
performance of its rights under Section 9 of this Warrant. The Company agrees
that monetary damages would not be adequate compensation for any loss incurred
by reason of a breach by it of the provisions of Section 9 of this Warrant and
hereby agrees to waive the defense in any action for specific performance that a
remedy at law would be adequate.

                  15.5     SUCCESSORS AND ASSIGNS

                  Subject to the provisions of Sections 3.1 and 9, this Warrant
and the rights evidenced hereby shall inure to the benefit of and be binding
upon the successors of the Company and the successors and assigns of Holder. The
provisions of this Warrant are intended

<PAGE>

to be for the benefit of all Holders from time to time of this Warrant and, with
respect to Section 9 hereof, holders of Warrant Stock, and shall be enforceable
by any such Holder or holder of Warrant Stock.

                  15.6     AMENDMENT

                  This Warrant and all other Warrants may be modified or amended
or the provisions hereof waived with the written consent of the Company and
Holder.

                  15.7     SEVERABILITY

                  Wherever possible, each provision of this Warrant shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Warrant shall be prohibited by or invalid under
applicable law, such provision shall only be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Warrant.

                  15.8     HEADINGS

                  The headings used in this Warrant are for the convenience of
reference only and shall not, for any purpose, be deemed a part of this Warrant.

                  15.9     GOVERNING LAW

                  This Warrant shall be governed by the laws of the State of New
York, without regard to the provisions thereof relating to conflicts of law.

                            [SIGNATURE PAGE FOLLOWS.]

<PAGE>

                  In Witness Whereof, the Company has caused this Warrant to be
duly executed and its corporate seal to be impressed hereon and attested by its
Secretary or an Assistant Secretary.

Dated: April 19, 2000

                                              Precept Business Services, Inc.

                                              By:
                                                  Name:

                                                  Title:


<PAGE>

                                                                       EXHIBIT A

                                SUBSCRIPTION FORM

                 [To be executed only upon exercise of Warrant]

                  The undersigned registered owner of this Warrant irrevocably
exercises this Warrant for the purchase of __________ shares of Common Stock of
Precept Business Services, Inc. and herewith makes payment therefor, all at the
price and on the terms and conditions specified in this Warrant and requests
that certificates for the shares of Common Stock hereby purchased (and any
securities or other property issuable upon such exercise) be issued in the name
of and delivered to

whose address is



and, if such shares of Common Stock shall not include all of the shares of
Common Stock issuable as provided in this Warrant, that a new Warrant of like
tenor and date for the balance of the shares of Common Stock issuable hereunder
be delivered to the undersigned.


                                           (Name of Registered Owner)


                                        (Signature of Registered Owner)


                                               (Street Address)


                                 (City)            (State)            (Zip Code)

                                    NOTICE: The signature on this subscription
                                    must correspond with the name as written
                                    upon the face of the within Warrant in every
                                    particular,

<PAGE>

                                    without alteration or enlargement or any
                                    change whatsoever.


<PAGE>

                                                                       EXHIBIT B

                                 ASSIGNMENT FORM

                  FOR VALUE RECEIVED the undersigned registered owner of this
Warrant hereby sells, assigns and transfers unto the Assignee named below all of
the rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:

                                                              No. of Shares of
Name and Address of Assignee                                    Common Stock
- ----------------------------                                    ------------

and does hereby irrevocably constitute and appoint



attorney-in-fact to register such transfer on the books of Precept Business
Services, Inc. maintained for the purpose, with full power of substitution in
the premises.

Dated:


                                                 (Print Name)


                                                  (Signature)


                                            (Print Name of Witness)


                                             (Witness's Signature)

                                    NOTICE: The signature on this assignment
                                    must correspond with the name as written
                                    upon the face of the within Warrant in every
                                    particular, without alteration or
                                    enlargement or any change whatsoever.

<PAGE>

                          REGISTRATION RIGHTS AGREEMENT

                  This Registration Rights Agreement, dated as of April 19, 2000
(this "AGREEMENT"), by and between Precept Business Services, Inc., a Texas
corporation, with principal executive offices located at 1909 Woodall Rodgers
Freeway, Suite 500, Dallas, TX 75201 (the "COMPANY"), and The Shaar Fund Ltd.
(the "INITIAL INVESTOR").

                  Whereas, upon the terms and subject to the conditions of the
Securities Purchase Agreement dated as of April 19, 2000, by and between the
Initial Investor and the Company (the "SECURITIES PURCHASE AGREEMENT"), the
Company has agreed to issue and sell to the Initial Investor (i) 200,000 shares
of Series A 8% Convertible Preferred Stock, par value $1.00 per share (the
"PREFERRED SHARES") which, upon the terms of and subject to the conditions of
the Company's Certificate of Designation of Series A 8% Convertible Preferred
Stock (the "CERTIFICATE OF DESIGNATION"), are convertible into shares of the
Company's class A common stock, par value $.01 per share (the "COMMON STOCK")
and (ii) Common Stock Purchase Warrants (the "WARRANTS") to purchase 125,000
shares of Common Stock; and

                  Whereas, to induce the Initial Investor to execute and deliver
the Securities Purchase Agreement, the Company has agreed to provide with
respect to the Common Stock issued or issuable in lieu of cash dividend payments
on the Preferred Shares, upon conversion of the Preferred Shares and exercise of
the Warrants certain registration rights under the Securities Act;

                  Now, Therefore, in consideration of the premises and the
mutual covenants contained herein, the parties hereto, intending to be legally
bound, hereby agree as follows:

                  1.  DEFINITIONS

                  (a) As used in this Agreement, the following terms shall have
the meanings:

                           (i) "AFFILIATE," of any specified Person means any
         other Person who directly, or indirectly through one or more
         intermediaries, is in control of, is controlled by, or is under common
         control with, such specified Person. For purposes of this definition,
         control of a Person means the power, directly or indirectly, to direct
         or cause the direction of the management and policies of such Person
         whether by contract, securities, ownership or otherwise; and the terms
         "CONTROLLING" and "CONTROLLED" have the respective meanings correlative
         to the foregoing.

                           (ii) "CLOSING DATE" means the date and time of the
         issuance and sale of the Preferred Shares and the Warrants.

                           (iii) "COMMISSION" means the Securities and Exchange
         Commission.

                           (iv) "CURRENT MARKET PRICE" on any date of
         determination means the closing bid price of a share of the Common
         Stock on such day as reported on the Nasdaq

<PAGE>

         SmallCap Market ("NASDAQ"); PROVIDED, if such security is not listed or
         admitted to trading on the Nasdaq, as reported on the principal
         national security exchange or quotation system on which such security
         is quoted or listed or admitted to trading, or, if not quoted or listed
         or admitted to trading on any national securities exchange or quotation
         system, the closing bid price of such security on the over-the-counter
         market on the day in question as reported by Bloomberg LP, or a similar
         generally accepted reporting service, as the case may be.

                           (v) "EXCHANGE ACT" means the Securities Exchange Act
         of 1934, as amended, and the rules and regulations of the Commission
         thereunder, or any similar successor statute.

                           (vi) "INVESTOR" means each of the Initial Investor
         and any transferee or assignee of Registrable Securities which agrees
         to become bound by all of the terms and provisions of this Agreement in
         accordance with Section 8 hereof.

                           (vii) "PERSON" means any individual, partnership,
         corporation, limited liability company, joint stock company,
         association, trust, unincorporated organization, or a government or
         agency or political subdivision thereof.

                           (viii) "PROSPECTUS" means the prospectus (including,
         without limitation, any preliminary prospectus and any final prospectus
         filed pursuant to Rule 424(b) under the Securities Act, including any
         prospectus that discloses information previously omitted from a
         prospectus filed as part of an effective registration statement in
         reliance on Rule 430A under the Securities Act) included in the
         Registration Statement, as amended or supplemented by any prospectus
         supplement with respect to the terms of the offering of any portion of
         the Registrable Securities covered by the Registration Statement and by
         all other amendments and supplements to such prospectus, including all
         material incorporated by reference in such prospectus and all documents
         filed after the date of such prospectus by the Company under the
         Exchange Act and incorporated by reference therein.

                           (ix) "PUBLIC OFFERING" means an offer registered with
         the Commission and the appropriate state securities commissions by the
         Company of its Common Stock and made pursuant to the Securities Act.

                           (x) "REGISTRABLE SECURITIES" means the Common Stock
         issued or issuable (i) in lieu of cash dividend payments on the
         Preferred Shares, (ii) upon conversion or redemption of the Preferred
         Shares or (iii) upon exercise of the Warrants; provided, however, a
         share of Common Stock shall cease to be a Registrable Security for
         purposes of this Agreement when it no longer is a Restricted Security.

                           (xi) "REGISTRATION STATEMENT" means a registration
         statement of the Company filed on an appropriate form under the
         Securities Act providing for the registration of, and the sale on a
         continuous or delayed basis by the holders of, all of the Registrable
         Securities pursuant to Rule 415 under the Securities Act, including the

<PAGE>

         Prospectus contained therein and forming a part thereof, any amendments
         to such registration statement and supplements to such Prospectus, and
         all exhibits to and other material incorporated by reference in such
         registration statement and Prospectus.

                           (xii) "RESTRICTED SECURITY" means any share of Common
         Stock issued or issuable in lieu of cash dividend payments on the
         Preferred Shares, upon conversion or redemption of the Preferred Shares
         or exercise of the Warrants except any such share that (i) has been
         registered pursuant to an effective registration statement under the
         Securities Act and sold in a manner contemplated by the prospectus
         included in such registration statement, (ii) has been transferred in
         compliance with the resale provisions of Rule 144 under the Securities
         Act (or any successor provision thereto) or is transferable pursuant to
         paragraph (k) of Rule 144 under the Securities Act (or any successor
         provision thereto), or (iii) otherwise has been transferred and a new
         share of Common Stock not subject to transfer restrictions under the
         Securities Act has been delivered by or on behalf of the Company.

                           (xiii) "SECURITIES ACT" means the Securities Act of
         1933, as amended, and the rules and regulations of the Commission
         thereunder, or any similar successor statute.

                  (b) All capitalized terms used and not defined herein have the
respective meaning assigned to them in the Securities Purchase Agreement.

                  2.  REGISTRATION

                  (a) FILING AND EFFECTIVENESS OF REGISTRATION STATEMENT. The
Company shall prepare and file with the Commission not later than 90 days after
the Closing Date, a Registration Statement relating to the offer and sale of the
Registrable Securities and shall use commercially reasonable efforts to cause
the Commission to declare such Registration Statement effective under the
Securities Act as promptly as practicable but in no event later than 150 days
after the Closing Date, assuming for purposes hereof a Conversion Price under
the Certificate of Designation of $1.00 per share. The Company shall promptly
(and, in any event, no more than 24 hours after it receives comments from the
Commission), notify the Buyer when and if it receives any comments from the
Commission on the Registration Statement and promptly forward a copy of such
comments, if they are in writing, to the Buyer. At such time after the filing of
the Registration Statement pursuant to this Section 2(a) as the Commission
indicates, either orally or in writing, that it has no further comments with
respect to such Registration Statement or that it is willing to entertain
appropriate requests for acceleration of effectiveness of such Registration
Statement, the Company shall promptly, and in no event later than two business
days after receipt of such indication from the Commission, request that the
effectiveness of such Registration Statement be accelerated within 48 hours of
the Commission's receipt of such request. The Company shall not include any
other securities in the Registration Statement relating to the offer and sale of
the Registrable Securities. The Company shall notify the Initial Investor by
written notice that such Registration Statement has been declared effective by
the Commission within 24 hours of such declaration by the Commission.

                  (b) REGISTRATION DEFAULT. If the Registration Statement
covering the Registrable

<PAGE>

Securities required to be filed by the Company pursuant to Section 2(a), is not
(i) filed with the Commission within 90 days after the Closing Date for any
reason whatsoever or (ii) declared effective by the Commission within 150 days
after the Closing Date for any reason whatsoever (either of which, without
duplication, an "INITIAL DATE"), then the Company shall make the payments to the
Initial Investor as provided in the next sentence as liquidated damages and not
as a penalty. The amount to be paid by the Company to the Initial Investor shall
be determined as of each Computation Date (as defined below), and such amount
shall be equal to 2% (the "LIQUIDATED DAMAGE RATE") of the Purchase Price (as
defined in the Securities Purchase Agreement) from the Initial Date to the first
Computation Date and for each Computation Date thereafter, calculated on a pro
rata basis to the date on which the Registration Statement is filed with (in the
event of an Initial Date pursuant to clause (i) above) or declared effective by
(in the event of an Initial Date pursuant to clause (ii) above) the Commission
(the "PERIODIC AMOUNT") PROVIDED, HOWEVER, that in no event shall the liquidated
damages be less than $25,000; PROVIDED, FURTHER, HOWEVER, that if the
Registration Statement is not declared effective by the Commission within 210
days after the Initial Date set forth in clause (ii) above, then the Liquidated
Damage Rate shall increase to 4%; PROVIDED, FURTHER, HOWEVER, that the
Liquidated Damage Rate shall increase by 1% for each 30 day period after the
210th day after the Initial Date set forth in clause (ii) above that the
Registration Statement is not declared effective by the Commission. The full
Periodic Amount shall be paid by the Company to the Initial Investor by wire
transfer of immediately available funds within three days after each Computation
Date.

                  As used in this Section 2(b), "COMPUTATION DATE" means the
date which is 30 days after the Initial Date and, if the Registration Statement
required to be filed by the Company pursuant to Section 2(a) has not theretofore
been declared effective by the Commission, each date which is 30 days after the
previous Computation Date until such Registration Statement is so declared
effective.

                  (c) ELIGIBILITY FOR USE OF FORM S-3. The Company agrees that
at such time as it meets all the requirements for the use of Securities Act
Registration Statement on Form S-3 it shall file all reports and information
required to be filed by it with the Commission in a timely manner and take all
such other action so as to maintain such eligibility for the use of such form.

                  (d) ADDITIONAL REGISTRATION STATEMENT. In the event the
Current Market Price declines to $1.25 per share or less and each time
thereafter that the Current Market Price declines by 10% (each such date, a
"DECLINE DATE"), the Company shall, to the extent required by the Securities Act
(because the additional shares were not covered by the Registration Statement
filed pursuant to Section 2(a)), as reasonably determined by the Initial
Investor, file an additional Registration Statement with the Commission for such
additional number of Registrable Securities as would be issuable upon conversion
of the Preferred Shares and exercise of the Warrants (the "ADDITIONAL
REGISTRABLE SECURITIES") in addition to those previously registered, assuming
(x) with respect to the first Additional Registration Statement, a Conversion
Price of $0.50 per share and (y) with respect to each succeeding Additional
Registration Statement, a Conversion Price of 10% less than the Conversion Price
assumed with respect to the immediately preceding Additional Registration
Statement. The Company shall, to the extent required by the Securities Act, as
reasonably determined by the Initial Investor, prepare and file with the

<PAGE>

Commission not later than the 30th day thereafter, a Registration Statement
relating to the offer and sale of such Additional Registrable Securities and
shall use commercially reasonable efforts to cause the Commission to declare
such Registration Statement effective under the Securities Act as promptly as
practicable but not later than 60 days thereafter. The Company shall not include
any other securities in the Registration Statement relating to the offer and
sale of such Additional Registrable Securities.

                  If the Additional Registration Statement is not (i) filed with
the Commission within 30 days after the Decline Date for any reason whatsoever
or (ii) declared effective by the Commission within 90 days after the Decline
Date for any reason whatsoever (either of which, without duplication, an
"ADDITIONAL REGISTRATION DATE"), then the Company shall make the payments to the
Initial Investor at the Liquidated Damage Rate from the Additional Registration
Date to the first Additional Computation Date and for each Additional
Computation Date thereafter, calculated on a pro rata basis to the date on which
the Additional Registration Statement is filed with (in the event of an
Additional Registration Date pursuant to clause (i) above) or declared effective
by (in the event of an Additional Registration Date pursuant to clause (ii)
above) the Commission (the "ADDITIONAL PERIODIC AMOUNT") PROVIDED, HOWEVER, that
in no event shall the liquidated damages be less than $25,000; PROVIDED,
FURTHER, HOWEVER, that if the Additional Registration Statement is not declared
effective by the Commission within 120 days after the Additional Registration
Date set forth in clause (ii) above, then the Liquidated Damage Rate shall
increase to 4%; PROVIDED, FURTHER, HOWEVER, that the Liquidated Damage Rate
shall increase by 1% for each 30 day period after the 120th day after the
Additional Registration Date set forth in clause (ii) above that the Additional
Registration Statement is not declared effective by the Commission. The full
Additional Periodic Amount shall be paid by the Company to the Initial Investor
by wire transfer of immediately available funds within three days after each
Additional Computation Date.

                  As used in this Section 2(d), "ADDITIONAL COMPUTATION DATE"
means the date which is 30 days after the Additional Registration Date and, if
the Additional Registration Statement required to be filed by the Company
pursuant to this Section 2(d) has not theretofore been declared effective by the
Commission, each date which is 30 days after the previous Additional Computation
Date until such Additional Registration Statement is so declared effective.

                  (e) (i) If the Company proposes to register any of its
warrants, Common Stock or any other shares of common stock of the Company under
the Securities Act (other than a registration (A) on Form S-8 or S-4 or any
successor or similar forms, (B) relating to Common Stock or any other shares of
common stock of the Company issuable upon exercise of employee share options or
in connection with any employee benefit or similar plan of the Company or (C) in
connection with a direct or indirect acquisition by the Company of another
Person or any transaction with respect to which Rule 145 (or any successor
provision) under the Securities Act applies), whether or not for sale for its
own account, it will each such time, give prompt written notice at least 10 days
prior to the anticipated filing date of the registration statement relating to
such registration to each Investor, which notice shall set forth such Investor's
rights under this Section 2(e) and shall offer such Investor the opportunity to
include in such registration

<PAGE>

statement such number of Registrable Securities as such Investor may request.
Upon the written request of any Investor made within 5 days after the receipt of
notice from the Company (which request shall specify the number of Registrable
Securities intended to be disposed of by such Investor), the Company will use
commercially reasonable efforts to effect the registration under the Securities
Act of all Registrable Securities that the Company has been so requested to
register by each Investor, to the extent requisite to permit the disposition of
the Registrable Securities so to be registered; provided, however, that (A) if
such registration involves a Public Offering, each Investor must sell its
Registrable Securities to any underwriters selected by the Company with the
consent of such Investor on the same terms and conditions as apply to the
Company and (B) if, at any time after giving written notice of its intention to
register any Registrable Securities pursuant to this Section 2 and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register such
Registrable Securities, the Company shall give written notice to each Investor
and, thereupon, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration. The Company's obligations under
this Section 2(e) shall terminate on the date that the registration statement to
be filed in accordance with Section 2(a) is declared effective by the
Commission.

                           (ii) If a registration pursuant to this Section 2(e)
         involves a Public Offering and the managing underwriter thereof advises
         the Company that, in its view, the number of shares of Common Stock,
         Warrants or other shares of Common Stock that the Company and the
         Investors intend to include in such registration exceeds the largest
         number of shares of Common Stock or Warrants (including any other
         shares of Common Stock or Warrants of the Company) that can be sold
         without having an adverse effect on such Public Offering (the "MAXIMUM
         OFFERING SIZE"), the Company will include in such registration only
         such number of shares of Common Stock or Warrants, as applicable, as
         does not exceed the Maximum Offering Size, and the number of shares in
         the Maximum Offering Size shall be allocated among the Company, the
         Investors and any other sellers of Common Stock or Warrants in such
         Public Offering ("THIRD-PARTY SELLERS"), FIRST, to the Company, SECOND,
         pro rata among the Investors until all the shares of Common Stock or
         Warrants originally proposed to be offered for sale by the Investors
         have been allocated, and THIRD, pro rata among any Third-Party Sellers,
         in each case on the basis of the relative number of shares of Common
         Stock or Warrants originally proposed to be offered for sale under such
         registration by each of the Company, the Investors and the Third-Party
         Sellers, as the case may be. If as a result of the proration provisions
         of this Section 2(e)(ii), any Investor is not entitled to include all
         such Registrable Securities in such registration, such Investor may
         elect to withdraw its request to include any Registrable Securities in
         such registration. With respect to registrations pursuant to this
         Section 2(e), the number of securities required to satisfy any
         underwriters' over-allotment option shall be allocated among the
         Company, the Investors and any Third Party Seller pro rata on the basis
         of the relative number of securities offered for sale under such
         registration by each of the Company, the Investors and any such Third
         Party Sellers before the exercise of such over-allotment option.

                  3.  OBLIGATIONS OF THE COMPANY

<PAGE>

                  In connection with the registration of the Registrable
Securities, the Company shall:

                  (a) Promptly (i) prepare and file with the Commission such
amendments (including post-effective amendments) to the Registration Statement
and supplements to the Prospectus as may be necessary to keep the Registration
Statement continuously effective and in compliance with the provisions of the
Securities Act applicable thereto so as to permit the Prospectus forming part
thereof to be current and useable by Investors for resales of the Registrable
Securities for a period of five years from the date on which the Registration
Statement is first declared effective by the Commission (the "EFFECTIVE TIME")
or such shorter period that will terminate when all the Registrable Securities
covered by the Registration Statement have been sold pursuant thereto in
accordance with the plan of distribution provided in the Prospectus, transferred
pursuant to Rule 144 under the Securities Act or otherwise transferred in a
manner that results in the delivery of new securities not subject to transfer
restrictions under the Securities Act (the "REGISTRATION PERIOD") and (ii) take
all lawful action such that each of (A) the Registration Statement and any
amendment thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, not misleading and
(B) the Prospectus forming part of the Registration Statement, and any amendment
or supplement thereto, does not at any time during the Registration Period
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.

                  (b) During the Registration Period, comply with the provisions
of the Securities Act with respect to the Registrable Securities of the Company
covered by the Registration Statement until such time as all of such Registrable
Securities have been disposed of in accordance with the intended methods of
disposition by the Investors as set forth in the Prospectus forming part of the
Registration Statement;

                  (c) (i) Prior to the filing with the Commission of any
Registration Statement (including any amendments thereto) and the distribution
or delivery of any Prospectus (including any supplements thereto), provide (A)
draft copies thereof to the Investors and reflect in such documents all such
comments as the Investors (and their counsel) reasonably may propose and (B) to
the Investors a copy of the accountant's consent letter to be included in the
filing and (ii) furnish to each Investor whose Registrable Securities are
included in the Registration Statement and its legal counsel identified to the
Company, (A) promptly after the same is prepared and publicly distributed, filed
with the Commission, or received by the Company, one copy of the Registration
Statement, each Prospectus, and each amendment or supplement thereto, and (B)
such number of copies of the Prospectus and all amendments and supplements
thereto and such other documents, as such Investor may reasonably request in
order to facilitate the disposition of the Registrable Securities owned by such
Investor;

                  (d) (i) Register or qualify the Registrable Securities covered
by the Registration Statement under such securities or "blue sky" laws of such
jurisdictions as the Investors who

<PAGE>

hold a majority-in-interest of the Registrable Securities being offered
reasonably request, (ii) prepare and file in such jurisdictions such amendments
(including post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof at all
times during the Registration Period, (iii) take all such other lawful actions
as may be necessary to maintain such registrations and qualifications in effect
at all times during the Registration Period, and (iv) take all such other lawful
actions reasonably necessary or advisable to qualify the Registrable Securities
for sale in such jurisdictions; PROVIDED, HOWEVER, that the Company shall not be
required in connection therewith or as a condition thereto to (A) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 3(d), (B) subject itself to general taxation in any such
jurisdiction or (C) file a general consent to service of process in any such
jurisdiction;

                  (e) As promptly as practicable after becoming aware of such
event, notify each Investor of the occurrence of any event, as a result of which
the Prospectus included in the Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, and
promptly prepare an amendment to the Registration Statement and supplement to
the Prospectus to correct such untrue statement or omission, and deliver a
number of copies of such supplement and amendment to each Investor as such
Investor may reasonably request;

                  (f) As promptly as practicable after becoming aware of such
event, notify each Investor who holds Registrable Securities being sold (or, in
the event of an underwritten offering, the managing underwriters) of the
issuance by the Commission of any stop order or other suspension of the
effectiveness of the Registration Statement at the earliest possible time and
take all lawful action to effect the withdrawal, recession or removal of such
stop order or other suspension;

                  (g) Cause all the Registrable Securities covered by the
Registration Statement to be listed on the principal national securities
exchange, and included in an inter-dealer quotation system of a registered
national securities association, on or in which securities of the same class or
series issued by the Company are then listed or included;

                  (h) Maintain a transfer agent and registrar, which may be a
single entity, for the Registrable Securities not later than the effective date
of the Registration Statement;

                  (i) Cooperate with the Investors who hold Registrable
Securities being offered to facilitate the timely preparation and delivery of
certificates for the Registrable Securities to be offered pursuant to the
registration statement and enable such certificates for the Registrable
Securities to be in such denominations or amounts, as the case may be, as the
Investors reasonably may request and registered in such names as the Investor
may request; and, within three business days after a registration statement
which includes Registrable Securities is declared effective by the Commission,
deliver and cause legal counsel selected by the Company to deliver to the
transfer agent for the Registrable Securities (with copies to the Investors
whose Registrable Securities are included in such registration statement) an
appropriate instruction and,

<PAGE>

to the extent necessary, an opinion of such counsel;

                  (j) Take all such other lawful actions reasonably necessary to
expedite and facilitate the disposition by the Investors of their Registrable
Securities in accordance with the intended methods therefor provided in the
Prospectus which are customary under the circumstances;

                  (k) Make generally available to its security holders as soon
as practicable, but in any event not later than three (3) months after (i) the
effective date (as defined in Rule 158(c) under the Securities Act) of the
Registration Statement, and (ii) the effective date of each post-effective
amendment to the Registration Statement, as the case may be, an earnings
statement of the Company and its subsidiaries complying with Section 11(a) of
the Securities Act and the rules and regulations of the Commission thereunder
(including, at the option of the Company, Rule 158);

                  (l) In the event of an underwritten offering, promptly include
or incorporate in a Prospectus supplement or post-effective amendment to the
Registration Statement such information as the managers reasonably agree should
be included therein and to which the Company does not reasonably object and make
all required filings of such Prospectus supplement or post-effective amendment
as soon as practicable after it is notified of the matters to be included or
incorporated in such Prospectus supplement or post-effective amendment;

                  (m) (i) Make reasonably available for inspection by Investors,
any underwriter participating in any disposition pursuant to the Registration
Statement, and any attorney, accountant or other agent retained by such
Investors or any such underwriter all relevant financial and other records,
pertinent corporate documents and properties of the Company and its
subsidiaries, and (ii) cause the Company's officers, directors and employees to
supply all information reasonably requested by such Investors or any such
underwriter, attorney, accountant or agent in connection with the Registration
Statement, in each case, as is customary for similar due diligence examinations;
PROVIDED, HOWEVER, that all records, information and documents that are
designated in writing by the Company, in good faith, as confidential,
proprietary or containing any material nonpublic information shall be kept
confidential by such Investors and any such underwriter, attorney, accountant or
agent (pursuant to an appropriate confidentiality agreement in the case of any
such holder or agent), unless such disclosure is made pursuant to judicial
process in a court proceeding (after first giving the Company an opportunity
promptly to seek a protective order or otherwise limit the scope of the
information sought to be disclosed) or is required by law, or such records,
information or documents become available to the public generally or through a
third party not in violation of an accompanying obligation of confidentiality;
and PROVIDED, FURTHER, that, if the foregoing inspection and information
gathering would otherwise disrupt the Company's conduct of its business, such
inspection and information gathering shall, to the maximum extent possible, be
coordinated on behalf of the Investors and the other parties entitled thereto by
one firm of counsel designed by and on behalf of the majority in interest of
Investors and other parties;

                  (n) In connection with any underwritten offering, make such
representations and warranties to the Investors participating in such
underwritten offering and to the managers, in

<PAGE>

form, substance and scope as are customarily made by the Company to underwriters
in secondary underwritten offerings;

                  (o) In connection with any underwritten offering, obtain
opinions of counsel to the Company (which counsel and opinions (in form, scope
and substance) shall be reasonably satisfactory to the managers) addressed to
the underwriters, covering such matters as are customarily covered in opinions
requested in secondary underwritten offerings (it being agreed that the matters
to be covered by such opinions shall include, without limitation, as of the date
of the opinion and as of the Effective Time of the Registration Statement or
most recent post-effective amendment thereto, as the case may be, the absence
from the Registration Statement and the Prospectus, including any documents
incorporated by reference therein, of an untrue statement of a material fact or
the omission of a material fact required to be stated therein or necessary to
make the statements therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading, subject to customary
qualifications, assumptions and limitations);

                  (p) In connection with any underwritten offering, obtain "cold
comfort" letters and updates thereof from the independent public accountants of
the Company (and, if necessary, from the independent public accountants of any
subsidiary of the Company or of any business acquired by the Company, in each
case for which financial statements and financial data are, or are required to
be, included in the Registration Statement), addressed to each underwriter
participating in such underwritten offering (if such underwriter has provided
such letter, representations or documentation, if any, required for such cold
comfort letter to be so addressed), in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection with
secondary underwritten offerings;

                  (q) In connection with any underwritten offering, deliver such
documents and certificates as may be reasonably required by the managers, if
any; and

                  (r) In the event that any broker-dealer registered under the
Exchange Act shall be an "AFFILIATE" (as defined in Rule 2729(b)(1) of the rules
and regulations of the National Association of Securities Dealers, Inc. (the
"NASD RULES") (or any successor provision thereto)) of the Company or has a
"CONFLICT OF INTEREST" (as defined in Rule 2720(b)(7) of the NASD Rules (or any
successor provision thereto)) and such broker-dealer shall underwrite,
participate as a member of an underwriting syndicate or selling group or assist
in the distribution of any Registrable Securities covered by the Registration
Statement, whether as a holder of such Registrable Securities or as an
underwriter, a placement or sales agent or a broker or dealer in respect
thereof, or otherwise, the Company shall assist such broker-dealer in complying
with the requirements of the NASD Rules, including, without limitation, by (A)
engaging a "QUALIFIED INDEPENDENT UNDERWRITER" (as defined in Rule 2720(b)(15)
of the NASD Rules (or any successor provision thereto)) to participate in the
preparation of the Registration Statement relating to such Registrable
Securities, to exercise usual standards of due diligence in respect thereof and
to recommend the public offering price of such Registrable Securities, (B)
indemnifying such qualified independent underwriter to the extent of the
indemnification of underwriters provided in Section 6 hereof, and (C) providing
such information to such broker-

<PAGE>

dealer as may be required in order for such broker-dealer to comply with the
requirements of the NASD Rules.

                  4.  OBLIGATIONS OF THE INVESTORS

                  In connection with the registration of the Registrable
Securities, the Investors shall have the following obligations:

                  (a) It shall be a condition precedent to the obligations of
the Company to complete the registration pursuant to this Agreement with respect
to the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. As least seven
days prior to the first anticipated filing date of the Registration Statement,
the Company shall notify each Investor of the information the Company requires
from each such Investor (the "REQUESTED INFORMATION") if such Investor elects to
have any of its Registrable Securities included in the Registration Statement.
If at least two business days prior to the anticipated filing date the Company
has not received the Requested Information from an Investor (a "NON-RESPONSIVE
INVESTOR"), then the Company may file the Registration Statement without
including Registrable Securities of such Non-Responsive Investor and have no
further obligations to the Non-Responsive Investor;

                  (b) Each Investor by its acceptance of the Registrable
Securities agrees to cooperate with the Company in connection with the
preparation and filing of the Registration Statement hereunder, unless such
Investor has notified the Company in writing of its election to exclude all of
its Registrable Securities from the Registration Statement; and

                  (c) Each Investor agrees that, upon receipt of any notice from
the Company of the occurrence of any event of the kind described in Section 3(e)
or 3(f), it shall immediately discontinue its disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 3(e) and, if so directed by the
Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the Prospectus covering such
Registrable Securities current at the time of receipt of such notice.

                  5.  EXPENSES OF REGISTRATION

                  All expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Section 3, but including, without limitation, all
registration, listing, and qualifications fees, printing and engraving fees,
accounting fees, and the fees and disbursements of counsel for the Company, and
the reasonable fees of one firm of counsel to the holders of a majority in
interest of the Registrable Securities shall be borne by the Company; PROVIDED,
HOWEVER, that in no event shall the Company be

<PAGE>

responsible for expenses greater than $20,000.

                  6.  INDEMNIFICATION AND CONTRIBUTION

                  (a) The Company shall indemnify and hold harmless each
Investor and each underwriter, if any, which facilitates the disposition of
Registrable Securities, and each of their respective officers and directors and
each person who controls such Investor or underwriter within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act (each such
person being sometimes hereinafter referred to as an "INDEMNIFIED PERSON") from
and against any losses, claims, damages or liabilities, joint or several, to
which such Indemnified Person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement or
an omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, not misleading, or
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in any Prospectus or an omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and the Company hereby agrees to
reimburse such Indemnified Person for all reasonable legal and other expenses
incurred by them in connection with investigating or defending any such action
or claim as and when such expenses are incurred; PROVIDED, HOWEVER, that the
Company shall not be liable to any such Indemnified Person in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon (i) an untrue statement or alleged untrue statement made in, or an
omission or alleged omission from, such Registration Statement or Prospectus in
reliance upon and in conformity with written information furnished to the
Company by such Indemnified Person expressly for use therein or (ii) in the case
of the occurrence of an event of the type specified in Section 3(e), the use by
the Indemnified Person of an outdated or defective Prospectus after the Company
has provided to such Indemnified Person an updated Prospectus correcting the
untrue statement or alleged untrue statement or omission or alleged omission
giving rise to such loss, claim, damage or liability.

                  (b) INDEMNIFICATION BY THE INVESTORS AND UNDERWRITERS. Each
Investor agrees, as a consequence of the inclusion of any of its Registrable
Securities in a Registration Statement, and each underwriter, if any, which
facilitates the disposition of Registrable Securities shall agree, as a
consequence of facilitating such disposition of Registrable Securities,
severally and not jointly, to (i) indemnify and hold harmless the Company, its
directors (including any person who, with his or her consent, is named in the
Registration Statement as a director nominee of the Company), its officers who
sign any Registration Statement and each person, if any, who controls the
Company within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act, against any losses, claims, damages or liabilities to
which the Company or such other persons may become subject, under the Securities
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in such Registration
Statement or Prospectus or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements

<PAGE>

therein (in light of the circumstances under which they were made, in the case
of the Prospectus), not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by such holder or underwriter expressly for
use therein; PROVIDED, HOWEVER, that no Investor or underwriter shall be liable
under this Section 6(b) for any amount in excess of the net proceeds paid to
such Investor or underwriter in respect of shares sold by it, and (ii) reimburse
the Company for any legal or other expenses incurred by the Company in
connection with investigating or defending any such action or claim as such
expenses are incurred.

                  (c) NOTICE OF CLAIMS, ETC. Promptly after receipt by a party
seeking indemnification pursuant to this Section 6 (an "INDEMNIFIED PARTY") of
written notice of any investigation, claim, proceeding or other action in
respect of which indemnification is being sought (each, a "CLAIM"), the
Indemnified Party promptly shall notify the party against whom indemnification
pursuant to this Section 6 is being sought (the "INDEMNIFYING PARTY") of the
commencement thereof; but the omission to so notify the Indemnifying Party shall
not relieve it from any liability that it otherwise may have to the Indemnified
Party, except to the extent that the Indemnifying Party is materially prejudiced
and forfeits substantive rights and defenses by reason of such failure. In
connection with any Claim as to which both the Indemnifying Party and the
Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees, costs
and expenses, (y) the Indemnified Party and the Indemnifying Party shall
reasonably have concluded that representation of the Indemnified Party by the
Indemnifying Party by the same legal counsel would not be appropriate due to
actual or, as reasonably determined by legal counsel to the Indemnified Party,
potentially differing interests between such parties in the conduct of the
defense of such Claim, or if there may be legal defenses available to the
Indemnified Party that are in addition to or disparate from those available to
the Indemnifying Party, or (z) the Indemnifying Party shall have failed to
employ legal counsel reasonably satisfactory to the Indemnified Party within a
reasonable period of time after notice of the commencement of such Claim. If the
Indemnified Party employs separate legal counsel in circumstances other than as
described in clauses (x), (y) or (z) above, the fees, costs and expenses of such
legal counsel shall be borne exclusively by the Indemnified Party. Except as
provided above, the Indemnifying Party shall not, in connection with any Claim
in the same jurisdiction, be liable for the fees and expenses of more than one
firm of counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnified Party shall not, without the prior written consent of
the Indemnifying Party (which consent shall not unreasonably be withheld),
settle or compromise any Claim or consent to the entry of any judgment that does
not include an unconditional release of the Indemnifying Party from all
liabilities with respect to such Claim or judgment.

                  (d) CONTRIBUTION. If the indemnification provided for in this
Section 6 is unavailable to or insufficient to hold harmless an Indemnified
Person under subsection (a) or (b) above in

<PAGE>

respect of any losses, claims, damages or liabilities (or actions in respect
thereof) referred to therein, then each Indemnifying Party shall contribute to
the amount paid or payable by such Indemnified Party as a result of such losses,
claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and the Indemnified Party in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities (or actions in
respect thereof), as well as any other relevant equitable considerations. The
relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by such Indemnifying Party or by
such Indemnified Party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 6(d) were determined by pro rata allocation (even if
the Investors or any underwriters were treated as one entity for such purpose)
or by any other method of allocation which does not take account of the
equitable considerations referred to in this Section 6(d). The amount paid or
payable by an Indemnified Party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above shall be deemed to
include any legal or other fees or expenses reasonably incurred by such
Indemnified Party in connection with investigating or defending any such action
or claim. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. The
obligations of the Investors and any underwriters in this Section 6(d) to
contribute shall be several in proportion to the percentage of Registrable
Securities registered or underwritten, as the case may be, by them and not
joint.

                  (e) Notwithstanding any other provision of this Section 6, in
no event shall any (i) Investor be required to undertake liability to any person
under this Section 6 for any amounts in excess of the dollar amount of the
proceeds to be received by such Investor from the sale of such Investor's
Registrable Securities (after deducting any fees, discounts and commissions
applicable thereto) pursuant to any Registration Statement under which such
Registrable Securities are to be registered under the Securities Act and (ii)
underwriter be required to undertake liability to any Person hereunder for any
amounts in excess of the aggregate discount, commission or other compensation
payable to such underwriter with respect to the Registrable Securities
underwritten by it and distributed pursuant to the Registration Statement.

                  (f) The obligations of the Company under this Section 6 shall
be in addition to any liability which the Company may otherwise have to any
Indemnified Person and the obligations of any Indemnified Person under this
Section 6 shall be in addition to any liability which such Indemnified Person
may otherwise have to the Company. The remedies provided in this Section 6 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to an indemnified party at law or in equity.

                  7.  RULE 144

                  With a view to making available to the Investors the benefits
of Rule 144 under

<PAGE>

the Securities Act or any other similar rule or regulation of the Commission
that may at any time permit the Investors to sell securities of the Company to
the public without registration ("RULE 144"), the Company agrees to use its best
efforts to:

                  (a) comply with the provisions of paragraph (c) (1) of Rule
144; and

                  (b) file with the Commission in a timely manner all reports
and other documents required to be filed by the Company pursuant to Section 13
or 15(d) under the Exchange Act; and, if at any time it is not required to file
such reports but in the past had been required to or did file such reports, it
will, upon the request of any Investor, make available other information as
required by, and so long as necessary to permit sales of, its Registrable
Securities pursuant to Rule 144.

                  8.  ASSIGNMENT

                  The rights to have the Company register Registrable Securities
pursuant to this Agreement shall be automatically assigned by the Investors to
any permitted transferee of all or any portion of such Registrable Securities
(or all or any portion of any Preferred Shares or Warrant of the Company which
is convertible into such securities) only if: (a) the Investor agrees in writing
with the transferee or assignee to assign such rights, and a copy of such
agreement is furnished to the Company within a reasonable time after such
assignment, (b) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (i) the name and address of such
transferee or assignee and (ii) the securities with respect to which such
registration rights are being transferred or assigned, (c) immediately following
such transfer or assignment, the securities so transferred or assigned to the
transferee or assignee constitute Restricted Securities, and (d) at or before
the time the Company received the written notice contemplated by clause (b) of
this sentence the transferee or assignee agrees in writing with the Company to
be bound by all of the provisions contained herein.

                  9.  AMENDMENT AND WAIVER

                  Any provision of this Agreement may be amended and the
observance thereof may be waived (either generally or in a particular instance
and either retroactively or prospectively), only with the written consent of the
Company and Investors who hold a majority-in-interest of the Registrable
Securities. Any amendment or waiver effected in accordance with this Section 9
shall be binding upon each Investor and the Company.

                  10. CHANGES IN COMMON STOCK

                  If, and as often as, there are any changes in the Common Stock
by way of stock split, stock dividend, reverse split, combination or
reclassification, or through merger, consolidation, reorganization or
recapitalization, or by any other means, appropriate adjustment shall be made in
the provisions hereof, as may be required, so that the rights and privileges
granted hereby shall continue with respect to the Common Stock as so changed.

                  11. MISCELLANEOUS

<PAGE>

                  (a) A person or entity shall be deemed to be a holder of
Registrable Securities whenever such person or entity owns of record such
Registrable Securities. If the Company receives conflicting instructions,
notices or elections from two or more persons or entities with respect to the
same Registrable Securities, the Company shall act upon the basis of
instructions, notice or election received from the registered owner of such
Registrable Securities.

                  (b) If, after the date hereof and prior to the Commission
declaring the Registration Statement to be filed pursuant to Section 2(a)
effective under the Securities Act, the Company grants to any Person any
registration rights with respect to any Company securities which are more
favorable to such other Person than those provided in this Agreement, then the
Company forthwith shall grant (by means of an amendment to this Agreement or
otherwise) identical registration rights to all Investors hereunder.

                  (c) Except as may be otherwise provided herein, any notice or
other communication or delivery required or permitted hereunder shall be in
writing and shall be delivered personally or sent by certified mail, postage
prepaid, or by a nationally recognized overnight courier service, and shall be
deemed given when so delivered personally or by overnight courier service, or,
if mailed, three days after the date of deposit in the United States mails, as
follows:

                  (i)      if to the Company, to:

                           Precept Business Services, Inc.
                           1909 Woodall Rodgers Freeway, Suite 500
                           Dallas, TX  75201
                           Attention:  President
                           (214) 754-6600
                           (214) 220-1082 (Fax)

                           with a copy to:

                           Precept Business Services, Inc.
                           1909 Woodall Rodgers Freeway, Suite 500
                           Dallas, TX  75201
                           Attention:  General Counsel
                           (214) 754-6600
                           (214) 754-6909 (Fax)

                  (ii)     if to the Initial Investor, to:

                           The Shaar Fund Ltd.,
                           c/o Levinson Capital Management
                           2 World Trade Center, Suite 1820
                           New York, NY  10048
                           Attention:  Samuel Levinson
                           (212) 432-7711

<PAGE>

                           (212) 432-7771 (Fax)

                           with a copy to:

                           Cadwalader, Wickersham & Taft
                           100 Maiden Lane
                           New York, NY 10038
                           Attention:  Dennis J. Block, Esq.
                           (212) 504-5555
                           (212) 504-5557 (Fax)

                           (iii) if to any other Investor, at such address as
         such Investor shall have provided in writing to the Company.

The Company, the Initial Investor or any Investor may change the foregoing
address by notice given pursuant to this Section 11(c).

                  (d) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.

                  (e) This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York. Each of the parties consents
to the jurisdiction of the federal courts whose districts encompass any part of
the City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection including
any objection based on forum non conveniens, to the bringing of any such
proceeding in such jurisdictions.

                  (f) The remedies provided in this Agreement are cumulative and
not exclusive of any remedies provided by law. If any term, provision, covenant
or restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, illegal, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their best efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.

                  (g) The Company shall not enter into any agreement with
respect to its securities that is inconsistent with the rights granted to the
holders of Registrable Securities in this Agreement or otherwise conflicts with
the provisions hereof. The Company is not currently a party to any agreement
granting any registration rights with respect to any of its securities to any
person which conflicts with the Company's obligations hereunder or gives any
other party the right to include any securities in any Registration Statement
filed pursuant hereto, except for such rights

<PAGE>

and conflicts as have been irrevocably waived. Without limiting the generality
of the foregoing, without the written consent of the holders of a majority in
interest of the Registrable Securities, the Company shall not grant to any
person the right to request it to register any of its securities under the
Securities Act unless the rights so granted are subject in all respect to the
prior rights of the holders of Registrable Securities set forth herein, and are
not otherwise in conflict or inconsistent with the provisions of this Agreement.
The restrictions on the Company's rights to grant registration rights under this
paragraph shall terminate on the date the Registration Statement to be filed
pursuant to Section 2(a) is declared effective by the Commission.

                  (h) This Agreement, the Securities Purchase Agreement, the
Escrow Instructions, dated as of a date even herewith (the "ESCROW
INSTRUCTIONS"), between the Company, the Initial Investor and Cadwalader,
Wickersham & Taft, the Preferred Shares and the Warrants constitute the entire
agreement among the parties hereto with respect to the subject matter hereof.
There are no restrictions, promises, warranties or undertakings, other than
those set forth or referred to herein. This Agreement, the Securities Purchase
Agreement, the Escrow Instructions, the Certificate of Designation and the
Warrants supersede all prior agreements and undertakings among the parties
hereto with respect to the subject matter hereof.

                  (i) Subject to the requirements of Section 8 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.

                  (j) All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.

                  (k) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning thereof.

                  (l) The Company acknowledges that any failure by the Company
to perform its obligations under Section 3, or any delay in such performance
could result in direct damages to the Investors and the Company agrees that, in
addition to any other liability the Company may have by reason of any such
failure or delay, the Company shall be liable for all direct damages caused by
such failure or delay.

                  (m) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. A facsimile transmission of this signed
Agreement shall be legal and binding on all parties hereto.

                            [SIGNATURE PAGE FOLLOWS.]

<PAGE>

                  In Witness Whereof, the parties have caused this Agreement to
be duly executed and delivered as of the date first above written.

                                       Precept Business Services, Inc.

                                       By:
                                           Name:
                                           Title:

                                       The Shaar Fund Ltd.

                                       By:  Intercaribbean Services

                                          By:

                                               Name:
                                               Title:

<PAGE>

                                 April 25, 2000

Mr. Darwin Deason
c/o Affiliated Computer Services, Inc.
2828 North Haskell Avenue
10th Floor
Dallas, Texas 75201

Re:      CREDIT AGREEMENT (THE "CREDIT AGREEMENT") DATED MARCH 22, 1999, BY AND
         AMONG PRECEPT BUSINESS SERVICES, INC. ("PRECEPT"), BANK ONE, TEXAS,
         N.A. AS CONTRACTUAL REPRESENTATIVE ("AGENT") FOR ITSELF AND THE OTHER
         LENDERS (COLLECTIVELY, THE "LENDERS"), AS HERETOFORE AMENDED AND AS
         AMENDED BY THAT CERTAIN AMENDMENT AND WAIVER NO. 3 (THE "AMENDMENT")
         DATED AS OF APRIL 27, 2000, AMONG PRECEPT, AGENT AND THE LENDERS
         (CAPITALIZED TERMS USED BUT NOT OTHERWISE DEFINED SHALL HAVE THE
         MEANING GIVEN TO SUCH TERMS IN THE CREDIT AGREEMENT AND THE AMENDMENT)

Dear Mr. Deason:

         As a condition to the Amendment and the extension of additional credit
to Precept, Lenders have requested that you guarantee payment when due of all
"Secured Obligations" (as defined in the Credit Agreement) up to the principal
amount of $2,266,000, plus interest and expenses of enforcement, pursuant to
that certain Limited Guaranty dated as of April 27, 2000 to be executed by you
and accepted by Agent on behalf of the Lenders (the "Additional Guaranty"). In
consideration of your executing and delivering the Additional Guaranty, Precept
agrees as follows:

         (1)      In the event demand is made upon you to pay any amounts under
the Additional Guaranty (the "Payment Obligation"), Precept shall pay such
amount to Bank One for the benefit of the Lenders. If Precept does not pay such
amount directly and you are required to make any payment under the Additional
Guaranty, Precept agrees to reimburse you on demand for the amount of such
payment, together with interest from the date of payment at the Default Rate
(which amount Precept hereby promises to pay). In the event demand is made upon
you to provide collateral security for the Additional Indebtedness as provided
in Section 2(b) of the Additional Guaranty (the "Collateral Obligation"),
Precept shall provide such collateral security (or other collateral security
acceptable to Lenders) to Agent for the benefit of the Lenders. If Precept does
not provide such collateral security and you are required to provide it as
therein


                                                                         Page 1
<PAGE>

required, Precept agrees to reimburse you on demand for the value of such
collateral security, together with interest from the date that such security is
provided at the Default Rate (which amount Precept hereby promises to pay). IN
ADDITION TO THE AFOREMENTIONED REIMBURSEMENT OBLIGATIONS, PRECEPT AGREES TO PAY
AND INDEMNIFY YOU AND HOLD YOU FREE AND HARMLESS FROM AND AGAINST (A) ANY LOSS,
COST, LIABILITY OR EXPENSE (INCLUDING ATTORNEYS' FEES AND EXPENSES) INCURRED IN
CONNECTION WITH ANY OF THE FOREGOING, INCLUDING, WITHOUT LIMITATION, THE DEFENSE
OF THE ADDITIONAL GUARANTY, PERFORMANCE OF THE PAYMENT OBLIGATION, PERFORMANCE
OF THE COLLATERAL OBLIGATION, ENFORCEMENT OF THE AGREEMENTS HEREIN CONTAINED, OR
OTHERWISE, AND (B) ALL EXPENSES (INCLUDING ATTORNEYS' FEES AND EXPENSES)
INCURRED IN CONNECTION WITH THE MAKING OR PERFORMANCE OF THE ADDITIONAL GUARANTY
OR THIS AGREEMENT.

         (2)      Furthermore, if the Guaranteed Amount (as determined pursuant
to Section 3 of the Additional Guaranty) (the "Guaranteed Amount") is not paid
in full in cash and the Letters of Credit issued under the Credit Agreement are
not terminated or expired, or a Release Event (as defined in the Additional
Guaranty) has not occurred, by October 22, 2000, Precept agrees to pay or
deliver to you at your option either (A) a number of shares of Precept's Series
A Convertible Preferred Stock, par value $1.00 per share ("Preferred Shares"),
and Common Stock Purchase Warrants in the form attached as Exhibit A (the
"Warrants") to the Securities Purchase Agreement dated as of or about April 19,
2000 between Precept and the Shaar Fund Ltd. ("Shaar" and the "Shaar Agreement")
equal to the number of Preferred Shares and Warrants that would have been issued
if the Guaranteed Amount then outstanding had been applied to the purchase of
Preferred Shares and Warrants for the same price and otherwise on the same terms
and conditions specified in the Shaar Agreement, such Preferred Shares and
Warrants to be entitled to the benefit of all representations, warranties,
covenants, rights and other benefits provided to Shaar under the Shaar Agreement
and all related undertakings and agreements or (B) such mutually acceptable
consideration to you having a value equivalent to the instruments you would have
received pursuant to (A) above; PROVIDED you shall exercise your rights
hereunder in a manner that does not contravene NASD Rule 4310(c)(25)(G).

         (3)      The term of this Agreement shall commence as of the date
hereof and continue in effect until all Guaranteed Obligations (as defined in
the Additional Guaranty) are terminated or extinguished (but not by reason of
the payment of the obligations by you).

         (4)      Precept represents and warrants to you that the making and
performance of this Agreement (a) have been duly approved by the Board of
Directors of Precept and any other necessary corporate action on the part of
Precept and (b) do not, and will not, subject to the terms of the Credit
Agreement, conflict with any agreement, order or obligation to which Precept is
a party or is otherwise bound. You acknowledge that your enforcement of the
terms of paragraph 1 above are subject to the terms of the Additional Guaranty.
Until the Secured Obligations have been indefeasibly paid in full in cash, you
have no right to enforce any of the reimbursement or


                                                                         Page 2
<PAGE>

indemnification obligations of Precept set forth in paragraph 1 above. Should
you have the right, notwithstanding the foregoing, to exercise any such rights
in paragraph 1 or to receive consideration other than securities pursuant to
paragraph 2, you hereby expressly and irrevocably (a) subordinate any and all
such rights at law or in equity that you may have to the indefeasible payment in
full in cash of the Secured Obligations, and (b) agree to turn over to the Agent
for application to the Secured Obligations any and all amounts, or payments
(other than the securities received pursuant to paragraph 2 above or
reimbursement of attorneys fees pursuant to paragraph 1(B) above) received by
you in connection with this Agreement until the Secured Obligations are
indefeasibly paid in full in cash. You acknowledge and agree that the provisions
of this paragraph are intended to benefit the Agent and the "Holders of Secured
Obligations" (as defined in the Credit Agreement) and that the Agent, the
Holders of Secured Obligations and their respective successors and assigns are
intended third party beneficiaries of the provisions set forth in this
paragraph.

         (5)      This Agreement constitutes the entire agreement of the parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements and understandings, both written and verbal, between the parties
hereto with respect to the subject matter hereof.

         (6)      This Agreement shall be construed in accordance with and
governed by the laws of the State of Texas, without regard to choice of law
principles of such laws.

         (7)      The parties hereto may execute this Agreement in multiple
counterparts, all of which taken together shall constitute one and the same
instrument and each of which shall be deemed to be an original instrument as
against any party who as signed it.

         IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.

                                       PRECEPT:

                                       PRECEPT BUSINESS SERVICES, INC.

                                       By:
                                          --------------------------------------
                                       Printed Name:
                                                    ----------------------------
                                       Title:
                                             -----------------------------------



ACCEPTED as of this _____ day
of ____________________, 2000:



- ---------------------------


                                                                         Page 3
<PAGE>

DARWIN DEASON


                                                                         Page 4

<PAGE>

                                                                  EXECUTION COPY

                           AMENDMENT AND WAIVER NO. 3

                           DATED AS OF APRIL 27, 2000

                                       TO

                                CREDIT AGREEMENT

                           DATED AS OF MARCH 22, 1999

                  THIS AMENDMENT AND WAIVER NO. 3 TO CREDIT AGREEMENT
("AMENDMENT") is made as of the 27th day of April, 2000 by and among PRECEPT
BUSINESS SERVICES, INC. (the "BORROWER"), the financial institutions parties
thereto as lenders (the "LENDERS"), BANK ONE, TEXAS, NA, as Agent (the "AGENT")
under that certain Credit Agreement dated as of March 22, 1999 by and among the
Borrower, the Lenders and the Agent, as previously amended by Amendment and
Waiver No. 1 thereto dated as of May 14, 1999 and Amendment and Waiver No. 2
thereto dated as of November 12, 1999 (as so amended and as further amended,
modified, supplements and or restated from time to time, the "CREDIT
AGREEMENT"). Capitalized terms used herein and not otherwise defined herein
shall have the meaning given to them in the Credit Agreement.

                                   WITNESSETH

                  WHEREAS, the Borrower, the Lenders and the Agent are parties
to the Credit Agreement; and

                  WHEREAS, the Borrower has requested certain amendments to the
Credit Agreement;

                  WHEREAS, the Borrower has further requested that the Agent and
the Lenders waive the "Specified Default" (as defined below) under the Credit
Agreement;

                  WHEREAS, the Borrower, the Lenders and the Agent have agreed
to enter into this Amendment on the terms and conditions set forth herein.

                  NOW, THEREFORE, in consideration of the premises set forth
above, the terms and conditions contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Borrower, the Lenders and the Agent have agreed to the following amendments to
the Credit Agreement.

                  1.       AMENDMENT TO CREDIT AGREEMENT. Effective as of the
date hereof, and subject to the satisfaction of the conditions precedent set
forth in Section 3 below, the Credit Agreement is hereby amended as follows:

                  1.1.     SECTION 1.1 OF THE CREDIT AGREEMENT IS AMENDED TO ADD
         THE FOLLOWING

<PAGE>

         DEFINITIONS IN THE APPLICABLE ALPHABETICAL LOCATIONS:

                           "LIMITED GUARANTY AGREEMENT" MEANS THAT CERTAIN
                  LIMITED GUARANTY DATED AS OF APRIL 27, 2000 ENTERED INTO BY
                  DARWIN DEASON IN FAVOR OF THE AGENT, AS THE SAME MAY FROM TIME
                  TO TIME BE AMENDED, MODIFIED, SUPPLEMENTED AND/OR RESTATED.

                  1.2.     SECTION 1.1 OF THE CREDIT AGREEMENT IS FURTHER
         AMENDED TO DELETE THE DEFINITIONS OF "CONTINGENT LIMITED GUARANTY" AND
         "PROVISIONAL LOAN COMMITMENT" IN THEIR ENTIRETY AND TO SUBSTITUTE, IF
         APPLICABLE, THE FOLLOWING THEREFOR:

                           "PROVISIONAL LOAN COMMITMENT" MEANS (a) FOR BANK ONE,
                  $1,416,250 AND (b) FOR WELLS FARGO BANK (TEXAS), NATIONAL
                  ASSOCIATION, $849,750.

                  1.3.     THE CREDIT AGREEMENT IS FURTHER AMENDED TO DELETE
         SECTION 2.1A IN ITS ENTIRETY AND TO SUBSTITUTE THE FOLLOWING THEREFOR:

                           2.1A PROVISIONAL LOAN. UPON THE SATISFACTION OF THE
                  CONDITIONS TO EFFECTIVENESS SET FORTH IN SECTION 3 OF
                  AMENDMENT AND WAIVER NO. 3 TO THIS AGREEMENT, FROM AND
                  INCLUDING SUCH DATE UNTIL OCTOBER 27, 2000, EACH LENDER
                  SEVERALLY AND NOT JOINTLY AGREES, ON THE TERMS AND CONDITIONS
                  SET FORTH IN THIS AGREEMENT, TO MAKE A LOAN HEREUNDER (THE
                  "PROVISIONAL LOAN") TO THE BORROWER FROM TIME TO TIME, IN
                  DOLLARS, IN AN AMOUNT NOT TO EXCEED SUCH LENDER'S PRO RATA
                  SHARE (DETERMINED BY REFERENCE TO THE PROVISIONAL LOAN
                  COMMITMENTS OF THE LENDERS) OF $2,266,000. THE PROVISIONAL
                  LOAN SHALL BE IN ADDITION TO AND NOT PART OF THE REVOLVING
                  LOAN FACILITY, BUT OTHERWISE SHALL NOT BE AVAILABLE UNLESS THE
                  OTHER CONDITIONS PRECEDENT TO THE MAKING OF A REVOLVING LOAN
                  HAVE BEEN SATISFIED. THE PROVISIONAL LOAN SHALL BE SUBJECT TO
                  THE GENERAL PROVISIONS APPLICABLE TO REVOLVING LOANS
                  GENERALLY; PROVIDED, HOWEVER, THE PROVISIONAL LOAN SHALL BE
                  REPAID IN FULL ON OR PRIOR TO THE EARLIEST TO OCCUR OF (x)
                  OCTOBER 27, 2000, (y) THE TERMINATION DATE AND (z) THE
                  OCCURRENCE OF ANY SALE EVENT. THE PROVISIONAL LOAN UNDER THIS
                  SECTION 2.1A SHALL CONSIST OF LOANS MADE BY EACH LENDER
                  RATABLY IN PROPORTION TO SUCH LENDER'S RESPECTIVE PRO RATA
                  SHARE DETERMINED SOLELY BY REFERENCE TO SUCH LENDER'S
                  PROVISIONAL LOAN COMMITMENT. EACH LENDER WITH A PROVISIONAL
                  LOAN COMMITMENT SHALL MAINTAIN IN ACCORDANCE WITH ITS USUAL
                  PRACTICE AN ACCOUNT OR ACCOUNTS EVIDENCING THE INDEBTEDNESS OF
                  THE BORROWER TO SUCH LENDER OWING TO SUCH LENDER FROM TIME TO
                  TIME UNDER THIS SECTION 2.1A, INCLUDING THE AMOUNTS OF
                  PRINCIPAL AND INTEREST PAYABLE AND PAID TO SUCH LENDER FROM
                  TIME TO TIME HEREUNDER. ANY LENDER MAY REQUEST THAT THE
                  PROVISIONAL LOANS MADE BY IT EACH BE EVIDENCED BY A PROMISSORY
                  NOTE. IN SUCH EVENT, THE BORROWER SHALL PREPARE, EXECUTE AND
                  DELIVER TO SUCH LENDER A PROMISSORY NOTE FOR SUCH LOANS
                  PAYABLE TO THE ORDER OF SUCH LENDER AND IN A FORM APPROVED BY
                  THE AGENT AND CONSISTENT WITH THE TERMS OF THIS AGREEMENT.
                  THEREAFTER, THE LOANS EVIDENCED BY SUCH PROMISSORY NOTE AND
                  INTEREST THEREON SHALL AT ALL TIMES (INCLUDING AFTER

<PAGE>

                  ASSIGNMENT PURSUANT TO SECTION 13.3) BE REPRESENTED BY ONE OR
                  MORE PROMISSORY NOTES IN SUCH FORM PAYABLE TO THE ORDER OF THE
                  PAYEE NAMED THEREIN.

                  1.4.     SECTION 7.2(J) OF THE CREDIT AGREEMENT IS AMENDED TO
         DELETE THE FINAL SENTENCE THEREOF IN ITS ENTIRETY.

                  1.5.     THE CREDIT AGREEMENT IS AMENDED TO DELETE CLAUSE (P)
         THEREOF IN ITS ENTIRETY AND TO SUBSTITUTE ADD THE FOLLOWING AT THE END
         OF SECTION 7.3:

                           (P) SALE COVENANTS. THE BORROWER SHALL AND SHALL
                  CONTINUE TO USE ITS BEST EFFORTS TO EFFECT A SALE OF EITHER OR
                  BOTH OF THE BORROWER'S AND ITS SUBSIDIARIES' TRANSPORTATION
                  BUSINESS OR BUSINESS FORMS BUSINESS (WHETHER THROUGH A SALE OF
                  SUBSTANTIALLY ALL OF THE ASSETS OF SUCH BUSINESS OR A SALE,
                  DIRECTLY OR INDIRECTLY, OF THE EQUITY CONTROL OF THE
                  SUBSIDIARIES ENGAGED IN SUCH BUSINESS) IN A TRANSACTION WHERE
                  THE NET CASH PROCEEDS ARE IN AN AMOUNT SATISFACTORY TO THE
                  LENDERS (CONSUMMATION OF SUCH A SALE AND RECEIPT OF SUCH
                  PROCEEDS BEING HEREIN A "SALE EVENT"). THE BORROWER SHALL AND
                  SHALL CONTINUE TO USE ITS BEST EFFORTS TO EFFECT SUCH A SALE
                  EVENT AS SOON AS REASONABLY PRACTICABLE. IN CONNECTION
                  THEREWITH, THE BORROWER SHALL PROVIDE TO THE AGENT AND THE
                  LENDERS A WRITTEN REPORT EVERY TWO WEEKS, CONTAINING SUCH
                  DETAILED INFORMATION AS SHALL BE REASONABLY ACCEPTABLE TO THE
                  AGENT AND THE LENDERS AND WHICH REPORT SHALL BE IN A FORM AND
                  SCOPE REASONABLY ACCEPTABLE TO THE AGENT AND THE LENDERS,
                  WHICH INFORMATION SHALL INCLUDE, WITHOUT LIMITATION, A GENERAL
                  REPORT ON THE PROGRESS OF SUCH SALE INITIATIVE, A
                  COMPREHENSIVE LIST IDENTIFYING CONTACTS MADE AND INQUIRIES
                  RECEIVED AND A SUMMARY OF THE CONTENT OF SUCH COMMUNICATIONS.
                  IN ADDITION, PROMPTLY UPON RECEIVING A REQUEST THEREFOR FROM
                  THE AGENT OR ANY LENDER, THE BORROWER SHALL PREPARE AND
                  DELIVER TO THE AGENT AND THE LENDERS SUCH OTHER INFORMATION
                  WITH RESPECT TO THE ABOVE-REFERENCED SALE INITIATIVE AS FROM
                  TIME TO TIME MAY BE REASONABLY REQUESTED BY THE AGENT OR ANY
                  LENDER. THE BORROWER SHALL PROMPTLY NOTIFY THE AGENT AND THE
                  LENDERS OF THE EXISTENCE OF ANY PROPOSALS OR COMMITMENTS IN
                  CONNECTION WITH ANY SUCH SALE (AND THE NATURE AND TERMS
                  THEREOF) AND SHALL, PROMPTLY AFTER RECEIPT THEREOF, PROVIDE
                  COPIES TO THE AGENT AND THE LENDERS OF ANY WRITTEN PROPOSALS.
                  LETTERS OF INTENT OR COMMITMENTS IN CONNECTION WITH ANY SUCH
                  SALE. NOTHING HEREIN SHALL BE DEEMED TO CONSTITUTE THE CONSENT
                  OF THE AGENT OR ANY OF THE LENDERS TO CONSUMMATION OF ANY SUCH
                  REFERENCED SALE. TO THE EXTENT ANY SUCH SALE IS CONTEMPLATED
                  HEREAFTER, THE TERMS OF ANY SUCH SALE SHALL BE SUBJECT TO THE
                  AGREEMENT OF THE AGENT AND THE LENDERS PROVIDED NO SUCH
                  AGREEMENT OF THE LENDERS SHALL BE REQUIRED IF THE PROCEEDS OF
                  SUCH SALE ARE SUFFICIENT FOR AND ARE USED FOR THE REPAYMENT IN
                  FULL IN CASH OF THE OBLIGATIONS AND IN CONNECTION WITH SUCH
                  SALE THE CREDIT AGREEMENT AND THE OTHER LOAN DOCUMENTS HAVE
                  BEEN TERMINATED. THE LENDERS AGREE THAT INFORMATION RECEIVED
                  BY THEM PURSUANT TO THE TERMS OF THIS SECTION 7.3(P) SHALL BE
                  SUBJECT TO THE CONFIDENTIALITY PROVISIONS SET FORTH IN SECTION
                  13.4 OF THE AGREEMENT; PROVIDED, HOWEVER, IN THE EVENT THAT
                  THE AGENT OR ANY OF THE LENDERS COMMENCES ENFORCEMENT OF THEIR
                  RIGHTS AND REMEDIES AGAINST THE BORROWER OR ANY OF THE
                  SUBSIDIARIES IN ACCORDANCE WITH THE TERMS OF

<PAGE>

                  THIS AGREEMENT, THE AGENT AND THE LENDERS SHALL NOT BE
                  PRECLUDED FROM CONTACTING PERSONS CONTACTED BY THE BORROWER IN
                  CONNECTION WITH SUCH SALE INITIATIVE AND UTILIZING THE
                  INFORMATION PROVIDED TO THE LENDERS IN CONNECTION WITH THEIR
                  POTENTIAL NEGOTIATIONS WITH SUCH PERSONS.

                  1.6.     SECTION 8.1(q) OF THE CREDIT AGREEMENT IS AMENDED TO
         DELETE THE TERMS THEREOF IN THEIR ENTIRETY AND TO SUBSTITUTE THE
         FOLLOWING THEREFOR:

                  (q) LIMITED GUARANTY DEFAULT OR REVOCATION. THE LIMITED
                  GUARANTY AGREEMENT SHALL FAIL TO REMAIN IN FULL FORCE OR
                  EFFECT OR ANY ACTION SHALL BE TAKEN BY DARWIN DEASON TO
                  DISCONTINUE OR TO ASSERT THE INVALIDITY OR UNENFORCEABILITY OF
                  THE LIMITED GUARANTY AGREEMENT, OR DARWIN DEASON SHALL FAIL TO
                  COMPLY WITH ANY OF THE TERMS OR PROVISIONS OF THE LIMITED
                  GUARANTY AGREEMENT, OR DARWIN DEASON DENIES THAT HE HAS ANY
                  FURTHER LIABILITY UNDER THE LIMITED GUARANTY AGREEMENT OR
                  GIVES NOTICE TO SUCH EFFECT.

                  1.7.     SECTION 12.3 OF THE CREDIT AGREEMENT IS AMENDED TO
                  DELETE THE FINAL SENTENCE THEREOF IN ITS ENTIRETY.

                  2.       WAIVERS. Effective as of the date of this Amendment
         and subject to the satisfaction of the conditions precedent set forth
         in SECTION 3 below, the parties hereby agree that the Defaults arising
         as a result of the Borrower's noncompliance with the provisions of
         SECTION 7.4(B) for the quarter ended December 31, 1999 are hereby
         waived; provided the Leverage Ratio for such quarter did not exceed
         3.53 to 1.00 (such Default being herein, the "SPECIFIED DEFAULT").

                  3.       CONDITIONS OF EFFECTIVENESS. The provisions of
SECTION 1 of this Amendment shall not become effective unless:



                  (a) this Amendment shall have been executed by the Borrower,
         the Agent and the Lenders on or before May 1, 2000;

                  (b) the Borrower shall have paid to the Agent for the account
         of the Lenders a waiver fee of 12.5 basis points (0.125%) of the
         Aggregate Commitment;

                  (c) the Borrower shall have repaid all amounts outstanding
         under SECTION 2.1A as of the date of this Amendment;

                  (d) the Agent shall have received from each of the Borrower's
         Subsidiaries parties to the Loan Documents a reaffirmation in the form
         attached as EXHIBIT A hereto; together with information evidencing the
         mergers and name changes which have occurred in the Borrower's
         Subsidiaries since the date of Amendment and Waiver No. 2 and prior to
         the date hereof, together with appropriate UCC amendments in connection
         therewith;

                  (e) the Agent shall have received from Darwin Deason an
         original of the executed Limited Guaranty Agreement in the form
         attached as EXHIBIT B hereto together with an

<PAGE>

         opinion of counsel in connection therewith in form and substance
         acceptable to the Agent and the Lenders; and

                  (f) the Agent shall have received from counsel to the Borrower
         an opinion of counsel in connection herewith in form and substance
         reasonably acceptable to the Agent and the Lenders together with
         corporate authorization documents with respect hereto.

                  4.       REPRESENTATIONS AND WARRANTIES OF THE BORROWER. The
Borrower represents and warrants as follows:

         (a) The Borrower has the legal power and authority to execute and
deliver this Amendment and the officers of the Borrower executing this Amendment
have been duly authorized to execute and deliver the same and bind the Borrower
with respect to the provisions hereof.

         (b) This Amendment and the Credit Agreement as previously executed and
as amended hereby constitute legal, valid and binding obligations of the
Borrower, enforceable against it in accordance with their terms (except as
enforceability may be limited by bankruptcy, insolvency or similar laws
affecting the enforcement of creditor's rights generally).

         (c) Upon the effectiveness of this Amendment, the Borrower hereby
reaffirms all covenants, representations and warranties made in the Credit
Agreement and the other Loan Documents to the extent the same are not amended
hereby, agrees that all such representations and warranties shall be deemed to
have been remade as of the effective date of this Amendment.

         (d) The Borrower has caused to be conducted a thorough review of the
terms of the Credit Agreement and the other Loan Documents and the Borrower's
and its Subsidiaries operations since the Closing Date and there are no Defaults
or Unmatured Defaults thereunder other than the Specified Default.

         (d) The entities listed on EXHIBIT A constitute all of the Borrower's
subsidiaries.

                  5.       REFERENCE TO THE EFFECT ON THE CREDIT AGREEMENT.

         (a) Upon the effectiveness of Section 1, on and after the date hereof,
each reference in the Credit Agreement to "this Credit Agreement," "hereunder,"
"hereof," "herein" or words of like import shall mean and be a reference to the
Credit Agreement as amended hereby.

         (b) Except as specifically amended or waived above, the Credit
Agreement and all other documents, instruments and agreements executed and/or
delivered in connection therewith, shall remain in full force and effect, and
are hereby ratified and confirmed.

         (c) The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power of remedy of the Agent or the Lenders, nor constitute a waiver of any
provision of the Credit Agreement or any other documents, instruments and
agreements executed and/or delivered in connection therewith.

<PAGE>

                  6.       COSTS AND EXPENSES. The Borrower agrees to pay all
reasonable costs, fees and out-of-pocket expenses (including attorneys' fees and
expenses charged to the Agent) incurred by the Agent in connection with the
preparation, arrangement, execution and enforcement of this Amendment.

                  7.       GOVERNING LAW. THIS AMENDMENT IS BEING EXECUTED AND
DELIVERED, AND IS INTENDED TO BE PERFORMED, IN DALLAS, TEXAS, AND THE
SUBSTANTIVE LAWS OF THE STATE OF TEXAS SHALL GOVERN THE VALIDITY, CONSTRUCTION,
ENFORCEMENT AND INTERPRETATION OF THIS AMENDMENT AND THE CREDIT AGREEMENT AS
AMENDED HEREBY. ANY DISPUTE BETWEEN THE BORROWER AND THE AGENT, ANY LENDER, OR
ANY INDEMNITEE ARISING OUT OF, CONNECTED WITH, RELATED TO, OR INCIDENTAL TO THE
RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH, THIS AMENDMENT OR THE
CREDIT AGREEMENT AS AMENDED HEREBY, AND WHETHER ARISING IN CONTRACT, TORT,
EQUITY, OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS
OF THE STATE OF TEXAS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL
BANKS.

                  8.       HEADINGS. Section headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose.

                  9.       COUNTERPARTS. This Amendment may be executed in any
number of counterparts, all of which taken together shall constitute one
agreement, and any of the parties hereto may execute this Agreement by signing
any such counterpart. A facsimile signature page hereto sent to the Agent or the
Agent's counsel shall be effective as a counterpart signature provided each
party executing such a facsimile counterpart agrees, if requested, to deliver
originals to the Agent thereof.

                  10.      NO STRICT CONSTRUCTION. The parties hereto have
participated jointly in the negotiation and drafting of this Amendment, the
Credit Agreement and the other Loan Documents. In the event an ambiguity or
question of intent or interpretation arises, this Amendment, the Credit
Agreement and the other Loan Documents shall be construed as if drafted jointly
by the parties hereto and no presumption or burden of proof shall arise favoring
or disfavoring any party by virtue of the authorship of any provisions of this
Amendment, the Credit Agreement or any of the other Loan Documents.

           - - - - Remainder of this page intentionally blank - - - -

<PAGE>

                  IN WITNESS WHEREOF, this Amendment has been duly executed as
of the day and year first above written.



                              PRECEPT BUSINESS SERVICES, INC.
                                 AS THE BORROWER

                              By:
                              Name:  William W. Solomon, Jr.
                              Title:  Chief Financial Officer

                              BANK ONE, TEXAS, NA,
                                 INDIVIDUALLY AND AS AGENT

                              By:

                              Print Name:

                              Title:

                              WELLS FARGO BANK (TEXAS),
                              NATIONAL ASSOCIATION,
                              AS A LENDER

                              By:

                              Print Name:

                              Title:


<PAGE>

                                    EXHIBIT A
                                       TO
                           AMENDMENT AND WAIVER NO. 3

                         REAFFIRMATION OF LOAN DOCUMENTS

                                    Attached

<PAGE>

                                  REAFFIRMATION

                  Each of the undersigned acknowledges receipt of a copy of
Amendment and Waiver No. 3 to the Credit Agreement dated as of March 22, 1999,
as previously amended by Amendment and Waiver No. 1 thereto dated as of May 14,
1999 and Amendment and Waiver No. 2 thereto dated as of November 12, 1999, by
and among Precept Business Services, Inc., the Lenders and the Agent (as so
amended thereby and as further amended, modified, supplemented and/or restated
from time to time, the "Credit Agreement") which Amendment and Waiver No. 3 is
dated as of April 27, 2000 (the "Amendment"). Capitalized terms used in this
Reaffirmation and not defined herein shall have the meanings given to them in
the Credit Agreement. Without in any way establishing a course of dealing by the
Agent or any Lender, each of the undersigned reaffirms the terms and conditions
of the Loan Documents executed by it and acknowledges and agrees that such Loan
Documents remain in full force and effect and are hereby ratified, reaffirmed
and confirmed. All references to the Credit Agreement contained in the
above-referenced documents shall be a reference to the Credit Agreement as so
amended by the Amendment and as the same may from time to time hereafter be
amended, modified or restated.

<TABLE>
<S>                                                        <C>
- ------------------------------------------------------     ---------------------------------------------------------------
PRECEPT BUSINESS PRODUCTS, INC.                            PRECEPT-CREATIVE, INC.
                                                           (formerly known as Creative Acquisition Corp.)
- ------------------------------------------------------     ---------------------------------------------------------------
WINGTIP COURIERS, INC.                                     PRECEPT TRANSPORTATION SERVICES OF TEXAS, INC.

- ------------------------------------------------------     ---------------------------------------------------------------
GARDEN STATE LIMOUSINE, INC. (formerly  known              ARTCRAFT PRINTING, INC.
as Garden State Acquisition Corp. and successor
by merger to Transportation Systems Corp.)
- ------------------------------------------------------     ---------------------------------------------------------------
SHORTWAY RIVER ROUGE, INC.                                 COMPUTER FORMS & PRODUCTS, INC.
- ------------------------------------------------------     ---------------------------------------------------------------
JETPORT EXPRESS INC.                                       PRECEPT-SOUTHERN  SYSTEMS,  INC.  (formerly  known as  Precept
                                                           Acquisition Corporation)
- ------------------------------------------------------     ---------------------------------------------------------------
In each case:                                              In each case:

By:                                                        By:
         William W. Solomon, Jr.                              William W. Solomon, Jr.
         Chief Financial Officer                              Chief Financial Officer
</TABLE>

PRECEPT TRANSPORTATION SERVICES, LLC

By: Precept Business Services, Inc., as its sole member

By:

         William  W. Solomon, Jr.
         Chief Financial Officer

<PAGE>

                                    EXHIBIT B
                                       TO
                           AMENDMENT AND WAIVER NO. 2

                           LIMITED GUARANTY AGREEMENT

                                    Attached

<PAGE>

                                LIMITED GUARANTY

                  THIS LIMITED GUARANTY (this "Guaranty") is made as of the 27th
day of April, 2000 by Darwin Deason, an individual residing in Dallas, Texas
("Deason") in favor of the Agent, for the ratable benefit of the Lenders, under
(and as defined in) the Credit Agreement referred to below;

                                   WITNESSETH:

                  WHEREAS, Precept Business Services, Inc., a Texas corporation
(the "Borrower"), Bank One, Texas, NA, as contractual representative (the
"Agent"), and certain Lenders have entered into a certain Credit Agreement dated
as of March 22, 1999, as previously amended by Amendment and Waiver No. 1
thereto dated as of May 14, 1999 and Amendment and Waiver No. 2 thereto dated as
of November 12, 1999 and as simultaneously being amended by Amendment and Waiver
No. 3 thereto dated as of the date hereof (as so amended thereby and as further
amended, modified, supplemented and/or restated from time to time, the "Credit
Agreement"), providing, subject to the terms and conditions thereof, for
extensions of credit to be made by the Lenders to the Borrower;

                  WHEREAS, it is a condition precedent to execution of Amendment
and Waiver No. 3 to the Credit Agreement, the extension of the Provisional Loans
contemplated therein and the continuation of the other financial accommodations
by the Lenders under the Credit Agreement that Deason execute and deliver this
Guaranty, whereby Deason shall guarantee the payment when due of all "Secured
Obligations" (as defined in the Credit Agreement), principal, interest, letter
of credit reimbursement obligations and other amounts that shall be at any time
payable by the Borrower under the Credit Agreement, any "Hedging Agreement" (as
defined in the Credit Agreement), the Notes and the other Loan Documents,
subject to the dollar limitations and termination provisions set forth herein;
and

                  WHEREAS, Deason, owns approximately 14.8% of the outstanding
Capital Stock (Class A Common Stock and Class B Common Stock) of the Borrower
and Deason acknowledges and agrees that the making of the Loans, including the
Provisional Loan, and the extension of the other financial accommodations under
the Credit Agreement and the other Loan Documents to the Borrower is, and will
continue to be, of direct economic benefit to Deason;

                  WHEREAS, in consideration of the foregoing and in order to
induce the Lenders and the Agent to enter into Amendment and Waiver No. 3 to the
Credit Agreement, Deason is willing to guarantee the obligations of the Borrower
under the Credit Agreement, any Hedging Agreement, the Notes, and the other Loan
Documents on the terms and subject to the conditions set forth herein;

                  NOW, THEREFORE, in consideration of the premises and other
good and

<PAGE>

valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:

                  SECTION 1. DEFINITIONS. Terms defined in the Credit Agreement
and not otherwise defined herein have, as used herein, the respective meanings
provided for therein.

                  SECTION 2. REPRESENTATIONS, WARRANTIES AND COVENANTS.

                  (a) REPRESENTATIONS AND WARRANTIES. Deason represents and
warrants (which representations and warranties shall be deemed to have been
renewed at the time of the making of any Advance or issuance of any Letter of
Credit) that:

                           (i)      He has the power, capacity, authority and
         legal right to execute and deliver this Guaranty and to perform his
         obligations hereunder. This Guaranty constitutes a legal, valid and
         binding obligation of Deason enforceable against Deason in accordance
         with its terms, except as enforceability may be limited by bankruptcy,
         insolvency or similar laws affecting the enforcement of creditors'
         rights generally.

                           (ii)     Neither the execution and delivery by him of
         this Guaranty, nor the consummation by him of the transactions herein
         contemplated, nor compliance by him with the terms and provisions
         hereof, will violate any law, rule, regulation, order, writ, judgment,
         injunction, decree or award binding on him or the provisions of any
         indenture, instrument or material agreement to which he is a party or
         is subject, or by which he, or his property, is bound, or conflict with
         or constitute a default thereunder, or result in the creation or
         imposition of any Lien in, of or on his property pursuant to the terms
         of any such indenture, instrument or material agreement. No order,
         consent, approval, license, authorization, or validation of, or filing,
         recording or registration with, or exemption by, any Governmental
         Authority, is required to authorize, or is required in connection with
         the execution, delivery and performance by him of, or the legality,
         validity, binding effect or enforceability against him of, this
         Guaranty.

                  (b) COVENANTS. Unless prior to October 24, 2000 all Guaranteed
Obligations shall have been paid in full in cash and the Commitments and all
Letters of Credit issued under the Credit Agreement shall have terminated or
expired or a "Release Event" (as defined below) occurs, then on or before such
date Deason shall (i) deliver to the Agent a duly executed Pledge Agreement in
the form attached hereto as EXHIBIT A, together with an opinion of counsel to
Deason in connection therewith in form and substance acceptable to the Agent and
the Lenders, (ii) deliver to the Agent original stock certificates for Class A
common stock of Affiliated Computer Services, Inc. (in connection with which all
of the representations required to be made under the Pledge Agreement can be
made) with a current market value at the time of such initial delivery of not
less than $3,021,333.34 (utilizing for purposes of valuation the average closing
price over the five (5) immediately preceding trading days for such stock on the
New York Stock Exchange) and stock powers duly executed in blank for such
shares, (iii) deliver a form U-1 signed by the Borrower and a U-1 signed by
Deason with respect to such pledged shares together with such information as
shall permit the Agent to complete the provisions of such form U-1, and (iv)
thereafter shall comply with each of the covenants and requirements set forth in
such Pledge

<PAGE>

Agreement.

                  SECTION 3. THE LIMITED GUARANTY. (a) (i) GUARANTY TERMS.
Deason hereby unconditionally guarantees the full and punctual payment when due
(whether at stated maturity, upon acceleration or otherwise) of the Secured
Obligations, including, without limitation, (A) the principal of and interest on
each Loan under or Note issued by the Borrower pursuant to the Credit Agreement,
(B) any Reimbursement Obligations of the Borrower, (C) all Hedging Obligations
of the Borrower owing to any Lender or any affiliate of any Lender under any
Hedging Agreement, and (D) all other amounts payable by the Borrower under the
Credit Agreement, any Hedging Agreement and the other Loan Documents (all of the
foregoing being referred to collectively as the "Guaranteed Obligations");
PROVIDED, HOWEVER, notwithstanding anything herein to the contrary, the maximum
amount which may be recovered from Deason pursuant to the terms of this Guaranty
shall not exceed the sum of (1) $2,266,000 (the "Initial Stated Amount"), as
such Initial Stated Amount may be reduced pursuant to the provisions of SECTION
3(a)(ii) below PLUS (2) interest on such sum and expenses of enforcement, if
applicable, pursuant to the terms of SECTION 16 below; PROVIDED, FURTHER, no
demand for payment under this Guaranty shall be permitted to be made if a
"Release Event" (as defined below) has occurred. Upon failure by the Borrower to
pay punctually any such Guaranteed Obligations, Deason agrees that he shall
forthwith on demand pay such amount at the place and in the manner specified in
the Credit Agreement, Hedging Agreements, any Note or the relevant Loan
Document, as the case may be. Deason hereby agrees that this Guaranty is an
absolute, irrevocable and a guaranty of payment and is not a guaranty of
collection. Neither the Agent nor any Lender shall be required to pursue any
other remedy prior to invoking the benefits of this Guaranty, including, without
limitation, taking any action against the Borrower, exhausting any remedy
against any endorser of any instrument issued by the Borrower, foreclosing
against any Collateral of the Borrower or any other guarantors, or setting-off
against the balance of any deposit account of the Borrower or any other
guarantors kept with the Agent or any Lender.

         (ii) REDUCTIONS OF INITIAL STATED AMOUNT. The Initial Stated Amount
will be reduced ratably simultaneously with and in proportion to any permanent
reductions of the Aggregate Commitment; PROVIDED, HOWEVER, no such reduction of
Initial Stated Amount shall be available if a Sale Event with respect to either
the transportation or business products operating divisions of the Borrower are
sold and the net cash proceeds (after taking into account all expenses of such
transaction) paid to the Lenders in reduction of the Obligations and reduction
of the Aggregate Commitment are less than $17,500,000 in the case of a Sale
Event with respect to the transportation division or $22,500,000 in the case of
a Sale Event with respect to the business products division, in either of which
events the Initial Stated Amount will remain unchanged and will remain available
for the full Initial Stated Amount as support to the Lenders even after such a
Sale Event unless the Guaranty is released in accordance with the terms set
forth in clause (iii) below. Without affecting the foregoing, it should be noted
that any Sale Event requires the consent of each of the Lenders under the Credit
Agreement and nothing herein shall be construed as a consent to any such sale.

         (iii)    RELEASE EVENTS. For purposes hereof, the term "Release Event"
                  means satisfaction of any one or more of the following:

<PAGE>

                           (A)      LEVERAGE RELATED RELEASE: Satisfaction of
                                    each of the following: (1) the receipt by
                                    the Agent of financial statements and
                                    compliance certificates pursuant to the
                                    terms of SECTION 7.1(A) of the Credit
                                    Agreement, which financial statements and
                                    compliance certificates reflect, to the
                                    reasonable satisfaction of the Agent, that
                                    the Borrower's Leverage Ratio was less than
                                    2.00 to 1.00 as of the end of four
                                    consecutive fiscal quarters (calculated on a
                                    trailing 12-month basis as provided in
                                    SECTION 7.4(B) of the Credit Agreement), (2)
                                    the receipt by the Agent of an unqualified
                                    audit of the Borrower's and its Subsidiaries
                                    financial statements as required pursuant to
                                    the terms of SECTION 7.1(a)(ii) of the
                                    Credit Agreement with respect to one of the
                                    quarters included in the four-quarters
                                    referenced in clause (1) and (3) no Default
                                    or Unmatured Default has occurred and is
                                    continuing under the Credit Agreement as of
                                    the date of satisfaction with such
                                    requirements under clauses (1) and (2); or

                           (A)      EQUITY RELATED RELEASE: The sale by the
                                    Borrower Equity Interests of the Borrower
                                    (other than Disqualified Stock) where the
                                    net cash proceeds equal or exceed $2,266,000
                                    and the proceeds of which are utilized by
                                    the Borrower for the repayment or prepayment
                                    (including all interest and fees accrued
                                    thereon) and termination of the Provisional
                                    Loan facility provided pursuant to SECTION
                                    2.1A of the Credit Agreement in its
                                    entirety; or

                           (C)      CONSENT BASED RELEASE: Receipt by Deason of
                                    a written release and termination of this
                                    Guaranty by the Agent and each of the
                                    Lenders.

                  (b) ACCELERATED GUARANTY OBLIGATION. Notwithstanding anything
in this Guaranty to the contrary, demand for payment from Deason under this
Guaranty shall be presumed to have been issued and the entire unpaid amount
which can be demanded hereunder, together with accrued interest thereon, if any,
shall become immediately due and payable regardless of any payment limitation in
the event of the occurrence of any one or more of the following:

         (1)      Deason has commenced a voluntary case under any applicable
                  bankruptcy, insolvency or other similar law now or hereafter
                  in effect; consented to the entry of an order for relief in an
                  involuntary case, or to the conversion of an involuntary case
                  to a voluntary case, under any such law; consented to the
                  appointment of or taking possession by a receiver, trustee or
                  other custodian for all or a substantial part of his property;
                  made any assignment for the benefit of creditors; or taken any
                  action to authorize any of the foregoing;

         (2)      An involuntary case was commenced against Deason; or a court
                  has entered a decree or order for relief in respect of Deason
                  in an involuntary case, under any

<PAGE>

                  applicable bankruptcy, insolvency or other similar law now or
                  hereinafter in effect; or similar relief has been granted
                  under any applicable federal, state, local or foreign law; or

         (3)      A decree or order of a court having jurisdiction in the
                  premises for the appointment of a receiver, liquidator,
                  sequestrator, trustee, custodian or other officer having
                  similar powers over Deason or over all or a substantial part
                  of his assets has been entered; or an interim receiver,
                  trustee or other custodian of Deason or of all or a
                  substantial part of his property has been appointed or a
                  warrant of attachment, execution or similar process against
                  any substantial part of the property of Deason has been
                  issued.

                  SECTION 4. GUARANTY UNCONDITIONAL. The obligations of Deason
hereunder shall be unconditional and absolute (subject to the provisions of
SECTION 3 above) and, without limiting the generality of the foregoing, shall
not be released, discharged or otherwise affected by:

         (i)      any extension, renewal, settlement, indulgence, compromise,
                  waiver or release of or with respect to the Guaranteed
                  Obligations or any part thereof or any agreement relating
                  thereto, or with respect to any obligation of any other
                  guarantor of any of the Guaranteed Obligations, whether (in
                  any such case) by operation of law or otherwise, or any
                  failure or omission to enforce any right, power or remedy with
                  respect to the Guaranteed Obligations or any part thereof or
                  any agreement relating thereto, or with respect to any
                  obligation of any other guarantor of any of the Guaranteed
                  Obligations;

         (ii)     any modification or amendment of or supplement to the Credit
                  Agreement, any Hedging Agreement, any Note, or any other Loan
                  Document, including, without limitation, any such amendment
                  which may increase the amount of the Secured Obligations
                  guaranteed hereby;

         (iii)    any release, surrender, compromise, settlement, waiver,
                  subordination or modification, with or without consideration,
                  of any collateral securing the Guaranteed Obligations or any
                  part thereof, any other guaranties with respect to the
                  Guaranteed Obligations or any part thereof, or any other
                  obligation of any person or entity with respect to the
                  Guaranteed Obligations or any part thereof, or any
                  nonperfection or invalidity of any direct or indirect security
                  for the Guaranteed Obligations;

         (iv)     any change in the corporate, partnership or other existence,
                  structure or ownership of the Borrower or any other guarantor
                  of any of the Guaranteed Obligations, or any insolvency,
                  bankruptcy, reorganization or other similar proceeding
                  affecting the Borrower or any other guarantor of the
                  Guaranteed Obligations, or any of their respective assets or
                  any resulting release or discharge of any obligation of the
                  Borrower or any other guarantor of any of the Guaranteed
                  Obligations;

<PAGE>

         (v)      the existence of any claim, setoff or other rights which
                  Deason may have at any time against the Borrower, any other
                  guarantor of any of the Guaranteed Obligations, the Agent, any
                  Holder of Secured Obligations or any other Person, whether in
                  connection herewith or in connection with any unrelated
                  transactions, PROVIDED that nothing herein shall prevent the
                  assertion of any such claim by separate suit or compulsory
                  counterclaim;

         (vi)     the enforceability or validity of the Guaranteed Obligations
                  or any part thereof or the genuineness, enforceability or
                  validity of any agreement relating thereto or with respect to
                  any collateral securing the Guaranteed Obligations or any part
                  thereof, or any other invalidity or unenforceability relating
                  to or against the Borrower or any other guarantor of any of
                  the Guaranteed Obligations, for any reason related to the
                  Credit Agreement, any Hedging Agreement, any other Loan
                  Document, or any provision of applicable law or regulation
                  purporting to prohibit the payment by the Borrower or any
                  other guarantor of the Guaranteed Obligations, of any of the
                  Guaranteed Obligations;

         (vii)    the failure of the Agent to take any steps to perfect and
                  maintain any security interest in, or to preserve any rights
                  to, any security or collateral for the Guaranteed Obligations,
                  if any;

         (viii)   the election by, or on behalf of, any one or more of the
                  Holders of Secured Obligations, in any proceeding instituted
                  under Chapter 11 of Title 11 of the United States Code (11
                  U.S.C. 101 et seq.) (the "Bankruptcy Code"), of the
                  application of Section 1111(b)(2) of the Bankruptcy Code;

         (ix)     any borrowing or grant of a security interest by the Borrower,
                  as debtor-in-possession, under Section 364 of the Bankruptcy
                  Code;

         (x)      the disallowance, under Section 502 of the Bankruptcy Code, of
                  all or any portion of the claims of any of the Holders of
                  Secured Obligations or the Agent for repayment of all or any
                  part of the Guaranteed Obligations;

         (xi)     the Agent's or any Lender's failure to diligently preserve the
                  Borrower's or any other guarantor's liability under any Loan
                  Document or to bring an action to enforce collection of any
                  amounts owing under any Loan Document;

         (xii)    the Guaranty being deemed invalid or unenforceable as to or
                  against any party hereto;

         (xiii)   the Borrower's entry into any Loan Document is found to be
                  ULTRA VIRES, any Authorized Officer acting on the Borrower's
                  behalf with regard to any Loan Document is found to have acted
                  beyond the scope of such Authorized Officer's authority, or
                  the Loan Documents are found to be unenforceable against the
                  Borrower for any other reason; or

<PAGE>

         (xiv)    any other act or omission to act or delay of any kind by the
                  Borrower, any other guarantor of the Guaranteed Obligations,
                  the Agent, any Holder of Secured Obligations or any other
                  Person or any other circumstance whatsoever which might, but
                  for the provisions of this SECTION 4, constitute a legal or
                  equitable discharge of any of Deason's obligations hereunder.

                  SECTION 5. DISCHARGE ONLY UPON PAYMENT IN FULL AND CERTAIN
TERMINATION EVENTS: REINSTATEMENT IN CERTAIN CIRCUMSTANCES. Deason' obligations
hereunder shall remain in full force and effect until (a) all Guaranteed
Obligations shall have been paid in full in cash and the Commitments and all
Letters of Credit issued under the Credit Agreement shall have terminated or
expired or (b) a Release Event occurs. If at any time any payment of the
principal of or interest on any Note, any Reimbursement Obligation or any other
amount payable by the Borrower or any other party under the Credit Agreement,
any Hedging Agreement or any other Loan Document is rescinded or must be
otherwise restored or returned upon the insolvency, bankruptcy or reorganization
of the Borrower or otherwise, Deason' obligations hereunder with respect to such
payment shall be reinstated as though such payment had been due but not made at
such time.

                  SECTION 6. GENERAL WAIVERS. Deason irrevocably waives
acceptance hereof, presentment, demand or action on delinquency, protest, the
benefit of any statutes of limitations and, to the fullest extent permitted by
law, any notice not provided for herein, as well as any requirement that at any
time any action be taken by any Person against the Borrower, any other guarantor
of the Guaranteed Obligations, or any other Person. Without in any way limiting
the foregoing, Deason waives the benefits of Chapter 34 of the Texas Business
and Commerce Code.

                  SECTION 7. SUBORDINATION OF SUBROGATION. Until the Secured
Obligations have been indefeasibly paid in full in cash, Deason (i) shall have
no right of subrogation with respect to such Secured Obligations and (ii) waives
any right to enforce any remedy which the Holders of Secured Obligations,
Issuing Banks or the Agent now have or may hereafter have against the Borrower,
any endorser or any guarantor of all or any part of the Secured Obligations or
any other Person, and Deason waives any benefit of, and any right to participate
in, any security or collateral given to the Holders of Secured Obligations, the
Issuing Banks and the Agent to secure the payment or performance of all or any
part of the Secured Obligations or any other liability of the Borrower to the
Holders of Secured Obligations or Issuing Banks. Should Deason have the right,
notwithstanding the foregoing, to exercise his subrogation rights, Deason hereby
expressly and irrevocably (a) subordinates any and all rights at law or in
equity to subrogation, reimbursement, exoneration, contribution, indemnification
or set off that Deason may have to the indefeasible payment in full in cash of
the Secured Obligations and (b) waives any and all defenses available to a
surety, guarantor or accommodation co-obligor until the Secured Obligations are
indefeasibly paid in full in cash. Deason acknowledges and agrees that this
subordination is intended to benefit the Agent and the Holders of Secured
Obligations and shall not limit or otherwise affect Deason's liability hereunder
or the enforceability of this Guaranty, and that the Agent, the Holders of
Secured Obligations and their respective successors and assigns are intended
third party beneficiaries of the waivers and agreements set forth in this
SECTION 7.

<PAGE>

                  SECTION 8. STAY OF ACCELERATION. If acceleration of the time
for payment of any amount payable by the Borrower under the Credit Agreement,
any Hedging Agreement, any Note or any other Loan Document is stayed upon the
insolvency, bankruptcy or reorganization of the Borrower, all such amounts
otherwise subject to acceleration under the terms of the Credit Agreement, any
Hedging Agreement any Note or any other Loan Document shall nonetheless be
payable by Deason hereunder, subject to the limitations set forth herein,
forthwith on demand by the Agent.

                  SECTION 9. NOTICES. Except as otherwise expressly provided
below, any notice required or desired to be served, given or delivered hereunder
shall be in writing and shall be deemed to have been validly served, given or
delivered (i) three (3) days after deposit in the United States Mails, with
proper postage prepaid or provided for, (ii) when sent after receipt of
confirmation or answerback if sent by telecopy, telex or other similar facsimile
transmission, (iii) one (1) business day after deposited with a reputable
overnight courier with all charges prepaid or (iv) when delivered, if
hand-delivered by messenger, all of which shall be properly addressed to the
party to be notified and sent to the address or number indicated as follows:

                  (a)      If to the Agent at:

                           Bank One, Texas, NA
                           1717 Main Street
                           4th Floor
                           Dallas, Texas  75201
                           Attn:  Rick Rogers
                           Ph: 214/290-2540
                           Fax: 214/290-2054

                  (b)      If to Deason at:

                           Darwin Deason
                           c/o Affiliated Computer Services Inc.
                           2828 North Haskell Avenue
                           10th Floor
                           Dallas, Texas  75204
                           Attn:  General Counsel
                           Telephone No.: (214)841-6152
                           Facsimile No.: (214) 841-5746

                  SECTION 10. NO WAIVERS. No failure or delay by the Agent or
any Holder of Secured Obligations in exercising any right, power or privilege
hereunder shall operate as a waiver thereof nor shall any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege. The rights and remedies provided in this
Guaranty, the Credit Agreement, any Hedging Agreement, the Notes, and the other
Loan Documents shall be cumulative and not exclusive of any rights or remedies
provided by law.

<PAGE>

                  SECTION 11. SUCCESSORS AND ASSIGNS. This Guaranty is for the
benefit of the Agent and the Holders of Secured Obligations and their respective
successors and permitted assigns and in the event of an assignment of any
amounts payable under the Credit Agreement, any Hedging Agreement, the Notes, or
the other Loan Documents in accordance with the respective terms thereof, the
rights hereunder, to the extent applicable to the indebtedness so assigned, may
be transferred with such indebtedness. This Guaranty shall be binding upon
Deason and his heirs, successors and assigns.

                  SECTION 12. CHANGES IN WRITING. Neither this Guaranty nor any
provision hereof may be changed, waived, discharged or terminated orally, but
only in writing signed by the Agent with the consent of the Required Lenders,
and, if any such change, waiver, discharge or termination directly and adversely
affects the rights, duties and obligations of Deason hereunder, Deason.

                  SECTION 13. GOVERNING LAW. THIS GUARANTY IS BEING EXECUTED AND
DELIVERED, AND IS INTENDED TO BE PERFORMED, IN DALLAS, TEXAS, AND THE
SUBSTANTIVE LAWS OF THE STATE OF TEXAS SHALL GOVERN THE VALIDITY, CONSTRUCTION,
ENFORCEMENT AND INTERPRETATION OF THIS GUARANTY. ANY DISPUTE BETWEEN DEASON AND
THE AGENT OR ANY LENDER ARISING OUT OF, CONNECTED WITH, RELATED TO, OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH, THIS
GUARANTY, AND WHETHER ARISING IN CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE
RESOLVED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE STATE OF TEXAS, BUT
GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.

                  SECTION 14. CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY
TRIAL.

                  (A) DEASON HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE
JURISDICTION OF ANY UNITED STATES FEDERAL OR TEXAS STATE COURT SITTING IN
DALLAS, TEXAS IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
GUARANTY AND DEASON HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH
ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY SUCH COURT AND
IRREVOCABLY WAIVES ANY OBJECTION HE MAY NOW OR HEREAFTER HAVE AS TO THE VENUE OF
ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR THAT SUCH COURT
IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE AGENT OR
ANY LENDER TO BRING PROCEEDINGS AGAINST DEASON IN THE COURTS OF ANY OTHER
JURISDICTION. ANY JUDICIAL PROCEEDING BY DEASON AGAINST THE AGENT OR ANY LENDER
OR ANY AFFILIATE OF THE AGENT OR ANY LENDER INVOLVING, DIRECTLY OR INDIRECTLY,
ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR CONNECTED WITH THIS
GUARANTY SHALL BE BROUGHT ONLY IN A COURT IN DALLAS, TEXAS.

<PAGE>

                  (B) SERVICE OF PROCESS. DEASON WAIVES PERSONAL SERVICE OF ANY
PROCESS UPON HIM AND IRREVOCABLY APPOINTS THE GENERAL COUNSEL OF AFFILIATED
COMPUTER SERVICES INC. (THE ADDRESS FOR WHICH IS 2828 NORTH HASKELL AVENUE, 10TH
FLOOR, DALLAS, TEXAS, 75204) AS HIS AGENT FOR THE PURPOSE OF ACCEPTING SERVICE
OF PROCESS ISSUED BY ANY COURT. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO
LIMIT THE ABILITY OF THE AGENT OR THE LENDERS TO SERVE ANY SUCH WRITS, PROCESS
OR SUMMONSES IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW. DEASON IRREVOCABLY
WAIVES ANY OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY OBJECTION OF THE LAYING
OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS) WHICH IT MAY NOW OR
HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING WITH RESPECT TO
THIS GUARANTY OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH IN ANY JURISDICTION SET FORTH ABOVE.

                  (C) WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO
IRREVOCABLY WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY
DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF,
CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG
THEM IN CONNECTION WITH THIS GUARANTY OR ANY OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH. EACH OF THE PARTIES
HERETO AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT ANY PARTY HERETO
MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS GUARANTY WITH ANY COURT AS
WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR
RIGHT TO TRIAL BY JURY.

                  (D) WAIVER OF BOND. DEASON WAIVES THE POSTING OF ANY BOND
OTHERWISE REQUIRED OF ANY PARTY HERETO IN CONNECTION WITH ANY JUDICIAL PROCESS
OR PROCEEDING TO ENFORCE ANY JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF
SUCH PARTY, OR TO ENFORCE BY SPECIFIC PERFORMANCE, TEMPORARY RESTRAINING ORDER,
PRELIMINARY OR PERMANENT INJUNCTION, THIS GUARANTY OR ANY OTHER LOAN DOCUMENT.

                  (E) ADVICE OF COUNSEL. EACH OF THE PARTIES REPRESENTS TO EACH
OTHER PARTY HERETO THAT IT HAS DISCUSSED THIS GUARANTY AND, SPECIFICALLY, THE
PROVISIONS OF THIS SECTION 14, WITH ITS COUNSEL.

                  SECTION 15. NO STRICT CONSTRUCTION. The parties hereto have
participated jointly in the negotiation and drafting of this Guaranty. In the
event an ambiguity or question of intent or interpretation arises, this Guaranty
shall be construed as if drafted jointly by the parties hereto and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Guaranty.

<PAGE>

                  SECTION 16. TAXES, INTEREST AFTER DEMAND; EXPENSES OF
ENFORCEMENT, ETC. All payments required to be made by Deason hereunder shall be
made without setoff or counterclaim and free and clear of and without deduction
or withholding for or on account of, any present or future taxes, levies,
imposts, duties or other charges of whatsoever nature imposed by any government
or any political or taxing authority thereof, PROVIDED, HOWEVER, that if Deason
is required by law to make such deduction or withholding, Deason shall forthwith
pay to the Agent or any Holder of Secured Obligations, as applicable, such
additional amount as results in the net amount received by the Agent or any
Holder of Secured Obligations, as applicable, equaling the full amount which
would have been received by the Agent or any Holder of Secured Obligations, as
applicable, had no such deduction or withholding been made. If any payment
hereunder is not paid within two (2) days of demand therefor under the terms
hereof, then interest on the unpaid amount shall be computed at a rate per annum
equal to ten percent (10%) (calculated on the basis of a 365 day year) or the
maximum rate permitted by law, whichever is less, until all past due amounts and
such interest thereon have been paid. Deason also agree to reimburse the Agent
and the Holders of Secured Obligations for any reasonable costs, internal
charges and out-of-pocket expenses (including reasonable attorneys' fees and
time charges of attorneys for the Agent and the Holders of Secured Obligations,
which attorneys may be employees of the Agent or the Holders of Secured
Obligations) paid or incurred by the Agent or any Holders of Secured Obligation
in connection with the collection and enforcement of amounts due under this
Guaranty.

                  SECTION 17. SETOFF. At any time after all or any part of the
Guaranteed Obligations have become due and payable (by acceleration or
otherwise), each Holder of Secured Obligations and the Agent may, without notice
to Deason and regardless of the acceptance of any security or collateral for the
payment hereof, appropriate and apply toward the payment of all or any part of
the Guaranteed Obligations (i) any indebtedness due or to become due from such
Holder of Secured Obligations or the Agent to Deason, and (ii) any moneys,
credits or other property belonging to Deason, at any time held by or coming
into the possession of such Holder of Secured Obligations or the Agent or any of
their respective affiliates.

                  SECTION 18. FINANCIAL INFORMATION. Deason hereby assumes
responsibility for keeping himself informed of the financial condition of the
Borrower and any and all endorsers and/or other guarantor of all or any part of
the Guaranteed Obligations, and of all other circumstances bearing upon the risk
of nonpayment of the Guaranteed Obligations, or any part thereof, that diligent
inquiry would reveal, and Deason hereby agrees that none of the Holders of
Secured Obligations or the Agent shall have any duty to advise Deason of
information known to any of them regarding such condition or any such
circumstances. In the event any Holder of Secured Obligations or the Agent, in
its sole discretion, undertakes at any time or from time to time to provide any
such information to Deason, such Holder of Secured Obligations or the Agent
shall be under no obligation (i) to undertake any investigation not a part of
its regular business routine, (ii) to disclose any information which such Holder
of Secured Obligations or the Agent, pursuant to accepted or reasonable
commercial finance or banking practices, wishes to maintain confidential or
(iii) to make any other or future disclosures of such information or any other
information to Deason.

<PAGE>

                  SECTION 19. SEVERABILITY. Wherever possible, each provision of
this Guaranty shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Guaranty shall be prohibited
by or invalid under such law, such provision shall be ineffective to the extent
of such prohibition or invalidity without invalidating the remainder of such
provision or the remaining provisions of this Guaranty.

                  SECTION 20. ENTIRE AGREEMENT. This Guaranty embodies the final
and entire agreement and understanding among Deason, the Agent and the Holders
of Secured Obligations and supersedes all prior agreements and understandings
among Deason, the Agent and the Holders of Secured Obligations relating to the
subject matter hereof. This Guaranty and the other Loan Documents may not be
contradicted by evidence of prior, contemporaneous or subsequent oral agreements
of the parties. There are no unwritten oral agreements between the parties
hereto.

                  SECTION 21. HEADINGS. Section headings in this Guaranty are
for convenience of reference only and shall not govern the interpretation of any
provision of this Guaranty.

<PAGE>

         IN WITNESS WHEREOF, Deason has caused this Contingent Limited Guaranty
to be duly executed as of the day and year first above written.

                                        DARWIN DEASON



STATE OF TEXAS             )
                           )       SS.:
COUNTY OF___________       )

                  On this ___ day of April, 2000, before me personally came
Darwin Deason, to me known who, being by me duly sworn, did acknowledge the
execution of this Contingent Limited Guaranty.

                                       Notary Public

                                       (NOTARY STAMP/SEAL)

Accepted in Dallas, Texas
as of the 27th day of April, 2000

BANK ONE, TEXAS, NA, as Agent

By:________________________________
   Name:
   Title:

<PAGE>

                                    EXHIBIT A

                                       TO
                                LIMITED GUARANTY

                            FORM OF PLEDGE AGREEMENT

                                PLEDGE AGREEMENT

                  THIS PLEDGE AGREEMENT (the "Pledge Agreement"), dated as of
[_____________], 2000, is entered into by and between Darwin Deason, an
individual residing in Dallas, Texas (the "Pledgor"), and Bank One, Texas, NA,
as contractual representative (the "Agent") for itself and for the "Holders of
Secured Obligations" under (and as defined in) the Credit Agreement defined
below. Capitalized terms used herein and not otherwise defined herein shall have
the respective meanings ascribed to such terms in the Credit Agreement (as
defined below).

                                   WITNESSETH:

                  WHEREAS, Precept Business Services, Inc., a Texas corporation
(the "Borrower"), the Agent and certain financial institutions (the "Lenders")
have entered into a certain Credit Agreement dated as of March 22, 1999, as
previously amended by Amendment and Waiver No. 1 thereto dated as of May 14,
1999, Amendment and Waiver No. 2 thereto dated as of November 12, 1999 and
Amendment and Waiver No. 3 thereto dated as of April 27, 2000 (as so amended and
as further amended, modified, supplements and or restated from time to time, the
"Credit Agreement"), pursuant to which the Lenders have agreed, subject to
certain conditions precedent, to make loans and other financial accommodations
to the Borrower from time to time;

                  WHEREAS, the Pledgor owns approximately 14.8% of the
outstanding Capital Stock (Class A Common Stock and Class B Common Stock) of the
Borrower acknowledges and agrees that the making of the Loans, including the
Provisional Loan, and the extension of the other financial accommodations under
the Credit Agreement and the other Loan Documents to the Borrower is, and will
continue to be, of direct economic benefit to the Pledgor;

                  WHEREAS, SCHEDULE I hereto sets forth certain shares of
Affiliated Computer Services, Inc. ("ACS") initially being pledged hereunder
(the "Initial Pledged Shares"), which Initial Pledged Shares have a current
market value of not less than $3,021,333.34 (utilizing for purposes of valuation
the average closing price over the five (5) immediately preceding trading days
for such stock);

<PAGE>

                  WHEREAS, Pledgor may from time to time execute and deliver to
the Agent a supplement to this Pledge Agreement substantially in the form of
EXHIBIT A hereto (each such supplement, a "Pledge Supplement") setting forth
additional shares of ACS (the "Additional Pledged Shares") (the Initial Pledged
Shares and the Additional Pledged Shares, collectively referred to herein as the
"Pledged Shares");

                  WHEREAS, the Pledgor has executed and delivered to the Agent
that certain Limited Guaranty dated as of April 27, 2000 (the "Limited
Guaranty"); and

                  WHEREAS, the Agent and the Lenders have required, as a
condition to their continued extension of credit and financial accommodations
under the Credit Agreement, that the Pledgor execute and deliver this Pledge
Agreement;

                  NOW, THEREFORE, for and in consideration of the foregoing and
of any financial accommodations or extensions of credit (including, without
limitation, any loan or advance by renewal, refinancing or extension of the
agreements described hereinabove or otherwise) heretofore, now or hereafter made
to or for the benefit of the Borrower pursuant to the Credit Agreement or any
other agreement, instrument or document executed pursuant to or in connection
therewith, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Pledgor and the Agent hereby
agree as follows:

                  1.       PLEDGE. The Pledgor hereby pledges to the Agent, for
the benefit of the Agent and the Holders of Secured Obligations, and grants to
the Agent for the benefit of the Agent and the Holders of Secured Obligations, a
security interest in, the collateral described in SECTIONS 1.1 through 1.3 below
(collectively as of the date the same is pledged to the Agent, the "Pledged
Collateral"):

                  1.1      (a) The shares of the capital stock of ACS owned by
         the Pledgor (such shares being identified on SCHEDULE I attached hereto
         or on any SCHEDULE I attached to any applicable Pledge Supplement), and
         the certificates representing the shares of such capital stock (all of
         said capital stock being hereinafter collectively referred to as the
         "Pledged Stock"), delivered herewith, or from time to time, delivered
         to the Agent accompanied by stock powers in the form of EXHIBIT B
         attached hereto and made a part hereof (the "Powers") duly executed in
         blank, and all dividends, cash, instruments, investment property and
         other property from time to time received, receivable or otherwise
         distributed in respect of, or in exchange for, any or all of the
         Pledged Stock.

                  (b) The additional shares of capital stock of ACS as required
         to be delivered pursuant to SECTION 3.2 below, and the certificates,
         which shall be delivered to the Agent, representing such additional
         shares (any such additional shares shall constitute part of the Pledged
         Stock and the Agent is irrevocably authorized to unilaterally amend
         SCHEDULE I hereto or on any SCHEDULE I to any applicable Pledge
         Supplement to reflect such additional shares), and all dividends, cash,
         instruments, investment property and other rights and options from time
         to time received, receivable or otherwise distributed in respect of or
         in exchange for any or all of such shares.

<PAGE>

                  1.2      The property and interests in property described in
         SECTION 3 below; and

                  1.3      All proceeds of the collateral described in SECTIONS
         1.1 and 1.2 above.

                  2. SECURITY FOR OBLIGATIONS. The Pledged Collateral secures
the prompt payment, performance and observance of the "Guaranteed Obligations"
(as defined in the Limited Guaranty).

                  3.  PLEDGED COLLATERAL ADJUSTMENTS; ADDITIONAL PLEDGED SHARES.

                  3.1 PLEDGED COLLATERAL ADJUSTMENTS. If, during the term of
         this Pledge Agreement:

                  (a) Any stock dividend, reclassification, readjustment or
         other change is declared or made in the capital structure of ACS, or

                  (b) Any subscription warrants or any other rights or options
         shall be issued in connection with the Pledged Collateral,

         then all new, substituted and additional certificates, shares,
         warrants, rights, options, investment property or other securities,
         issued by reason of any of the foregoing, in connection with Pledged
         Collateral shall be immediately delivered to and held by the Agent
         under the terms of this Pledge Agreement and shall constitute Pledged
         Collateral hereunder.

                  3.2 ADDITIONAL PLEDGED SHARES. The Pledgor and the Agent agree
         that on the last business day of each calendar quarter (or more
         frequently if requested by the Agent), the "Market Value" (as defined
         below) of the Pledged Stock will be calculated and if, at the time of
         such calculation, the Market Value of the Pledged Stock is less than an
         amount equal to 1.33333 multiplied by the Provisional Loan Commitment,
         then within three (3) Business Days the Pledgor will deliver to the
         Agent an executed Pledge Supplement together with additional ACS Class
         A Common Stock (together with Powers with respect thereto) having a
         Market Value such that when added when added to the Market Value of the
         previously Pledged Stock is equal to or greater than 1.33333 multiplied
         by the Provisional Loan Commitment. "Market Value" for the Pledged
         Stock shall be equal to the average closing price over the five (5)
         trading days immediately preceding the applicable date of any
         calculation for such stock on the New York Stock Exchange.

                  4. SUBSEQUENT CHANGES AFFECTING PLEDGED COLLATERAL. The
Pledgor represents and warrants that it has made its own arrangements for
keeping itself informed of changes or potential changes affecting the Pledged
Collateral (including, but not limited to, rights to convert, rights to
subscribe, payment of dividends, cash distributions or other distributions
reorganization or other exchanges, tender offers and voting rights), and the
Pledgor agrees that neither the Agent nor any of the Holders of Secured
Obligations shall have any obligation to inform the Pledgor of any such changes
or potential changes or to take any action or omit to take any action with
respect thereto. The Agent may, after the occurrence of a default by the Pledgor
hereunder or under the Limited Guaranty ( a "Specified Default"), without notice
and at its option, transfer or

<PAGE>

register the Pledged Collateral or any part thereof into its or its nominee's
name with or without any indication that such Pledged Collateral is subject to
the security interest hereunder. In addition, the Agent may after the occurrence
of a Specified Default exchange certificates or instruments representing or
evidencing Pledged Shares for certificates or instruments of smaller or larger
denominations.

                  5. REPRESENTATIONS AND WARRANTIES. The Pledgor represents and
warrants as follows:

                  (a) The Pledgor is the sole legal and beneficial owner of the
                  Pledged Collateral, free and clear of any pledge, mortgage,
                  hypothecation, Lien, charge, encumbrance or any security
                  interest therein except for the security interest created by
                  this Pledge Agreement;

                  (b) The Pledgor has owned the Pledged Collateral of record and
                  beneficially for at least the two (2) year holding period
                  required under paragraph (k) of Rule 144 as promulgated by the
                  Securities and Exchange Commission under the Securities Act
                  ("RULE 144") and if any of the Pledged Collateral was acquired
                  by the Pledgor by purchase, the purchase price has been paid
                  for in full for at least two (2) years and after the
                  occurrence of a Specified Default, assuming the Agent is not
                  then an affiliate (as defined in Rule 144) of ACS, the sale by
                  the Agent of the Pledged Collateral could be made by or on
                  behalf of the Agent without compliance with Rule 144;

                  (c) There are no restrictions upon the voting rights
                  associated with, or upon the transfer of, any of the Pledged
                  Collateral;

                  (d) The Pledgor has the right to vote, pledge and grant a
                  security interest in or otherwise transfer such Pledged
                  Collateral free of any Liens;

                   (e) The pledge of the Pledged Collateral does not violate (1)
                  any mortgage, bank loan or credit agreement or other
                  agreements to which the Pledgor is a party or by which any of
                  his assets may be bound; or (2) any restriction on such
                  transfer or encumbrance of such Pledged Collateral;

                   (f) The Pledgor agrees to execute and file financing
                  statements pursuant to the Uniform Commercial Code as the
                  Agent may request to perfect the security interest granted
                  hereby;

                  (g) No authorization, approval, or other action by, and no
                  notice to or filing with, any governmental authority or
                  regulatory body is required either (i) for the pledge of the
                  Pledged Collateral pursuant to this Pledge Agreement or for
                  the execution, delivery or performance of this Pledge
                  Agreement by the Pledgor or (ii) for the exercise by the Agent
                  of the remedies in respect of the Pledged Collateral pursuant
                  to this Pledge Agreement (except as may be required in
                  connection with such disposition by laws affecting the
                  offering and sale of securities generally);

<PAGE>

                  (h) Upon delivery of each of the certificates representing the
                  Pledged Collateral, the pledge of the Pledged Collateral
                  pursuant to this Pledge Agreement will create a valid and
                  perfected first priority security interest in the Pledged
                  Collateral, in favor of the Agent for the benefit of the Agent
                  and the Holders of Secured Obligations, securing the payment
                  and performance of the Guaranteed Obligations;

                  (i) The Powers are duly executed and give the Agent the
                  authority they purport to confer;

                  (j) The Pledgor has no obligation to make further capital
                      contributions or make any other payments to ACS with
                      respect to his interest therein; and

                  (k) The information set forth on the questionnaire attached
                      hereto as EXHIBIT C and made a part hereof, and any
                      subsequent questionnaire supplied by the Pledgor (each, a
                      "QUESTIONNAIRE"), is and will be true and complete in all
                      material respects.

                  6. VOTING RIGHTS. During the term of this Pledge Agreement,
and except as provided in this SECTION 6 below, the Pledgor shall have the right
to vote the Pledged Stock on all governing questions in a manner not
inconsistent with the terms of this Pledge Agreement. After the occurrence of a
Specified Default, the Agent or the Agent's nominee may, at the Agent's or such
nominee's option and upon written notice from the Agent to the Pledgor, (i)
exercise all voting powers pertaining to the Pledged Collateral and (ii)
exercise, or direct the Pledgor as to the exercise of any and all rights of
conversion, exchange, subscription or any other rights, privileges or options
pertaining to the applicable Pledged Collateral, as if the Agent were the
absolute owner thereof, all without liability except to account for property
actually received by it, but the Agent shall have no duty to exercise any of the
aforesaid rights, privileges or options and shall not be responsible for any
failure so to do or delay in so doing. Such authorization shall constitute an
irrevocable voting proxy from the Pledgor to the Agent or, at the Agent's
option, to the Agent's nominee.

                  7. DIVIDENDS AND OTHER DISTRIBUTIONS. (a) So long as no
Specified Default shall have occurred and is continuing:

                  (i) The Pledgor shall be entitled to receive and retain any
         and all dividends and cash distributions paid in respect of the Pledged
         Collateral, PROVIDED, HOWEVER, that any and all

                           (A) distributions and dividends paid or payable other
                  than in cash with respect to, and instruments and other
                  property received, receivable or otherwise distributed with
                  respect to, or in exchange for, any of the Pledged Collateral;

                           (B) dividends and other distributions paid or payable
                  in cash with respect to any of the Pledged Collateral on
                  account of a partial or total liquidation or dissolution or in
                  connection with a reduction of capital, capital surplus or
                  paid-in

<PAGE>

                  surplus; and

                           (C) cash paid, payable or otherwise distributed with
                  respect to principal of, or in redemption of, or in exchange
                  for, any of the Pledged Collateral;

         shall be Pledged Collateral, and shall be forthwith delivered to the
         Agent to hold, for the benefit of the Agent and the Holders of Secured
         Obligations, as Pledged Collateral and shall, if received by the
         Pledgor, be received in trust for the Agent, for the benefit of the
         Agent and the Holders of Secured Obligations, be segregated from the
         other property or funds of the Pledgor, and be delivered immediately to
         the Agent as Pledged Collateral in the same form as so received (with
         any necessary endorsement); and

                  (ii) The Agent shall execute and deliver (or cause to be
         executed and delivered) to the Pledgor all such proxies and other
         instruments as the Pledgor may reasonably request for the purpose of
         enabling the Pledgor to receive the dividends or interest payments
         which it is authorized to receive and retain pursuant to CLAUSE (i)
         above.

         (b) After the occurrence and during the continuance of a Specified
         Default:

                  (i) All rights of the Pledgor to receive the dividends and
         distributions which it would otherwise be authorized to receive and
         retain pursuant to SECTION 7(a)(i) hereof shall cease, and all such
         rights shall thereupon become vested in the Agent, for the benefit of
         the Agent and the Holders of Secured Obligations, which shall thereupon
         have the sole right to receive and hold as Pledged Collateral such
         dividends and distributions;

                  (ii) All dividends and distributions which are received by the
         Pledgor contrary to the provisions of CLAUSE (i) of this SECTION 7(b)
         shall be received in trust for the Agent, for the benefit of the Agent
         and the Holders of Secured Obligations, shall be segregated from other
         funds of the Pledgor and shall be paid over immediately to the Agent as
         Pledged Collateral in the same form as so received (with any necessary
         endorsements);

                  (iii) The Pledgor shall, upon the request of the Agent, at
         Borrower's expense, execute and deliver all such instruments and
         documents, and do or cause to be done all such other acts and things,
         as may be necessary or, in the opinion of the Agent or its counsel,
         advisable to register the applicable Pledged Collateral under the
         provisions of the Securities Act of 1933, as amended (the "Securities
         Act") and to exercise its reasonable efforts to cause the registration
         statement relating thereto to become effective and to remain effective
         for such period as prospectuses are required by law to be furnished,
         and to make all amendments and supplements thereto and to the related
         prospectus which, in the opinion of the Agent or its counsel, are
         necessary or advisable, all in conformity with the requirements of the
         Securities Act and the rules and regulations of the Securities and
         Exchange Commission applicable thereto;

                  (iv) The Pledgor shall, upon the request of the Agent, at
         Borrower's expense, use its reasonable efforts to qualify the Pledged
         Collateral under state securities or "Blue Sky" laws and to obtain all
         necessary governmental approvals for the sale of the Pledged

<PAGE>

         Collateral, as requested by the Agent; and

                  (v) The Pledgor shall, upon the request of the Agent, at the
         Borrower's expense, do or cause to be done all such other acts and
         things as may be necessary to make such sale of the Pledged Collateral
         or any part thereof valid and binding and in compliance with applicable
         law.

The Borrower will reimburse the Agent and/or the Holders of Secured Obligations
for all expenses incurred by the Agent and/or the Holders of Secured
Obligations, including, without limitation, reasonable attorneys' and
accountants' fees and expenses in connection with the foregoing. Upon or at any
time after the occurrence of a Specified Default, if the Agent determines that,
prior to any public offering of any securities constituting part of the Pledged
Collateral and Rule 144 under the Securities Act of 1933 is not available for
the proposed sale, such securities should be registered under the Securities Act
and/or registered or qualified under any other federal or state law and such
registration and/or qualification is not practicable, then the Pledgor agrees
that it will be commercially reasonable if a private sale, upon at least five
(5) Business Days' notice to the Pledgor, is arranged so as to avoid a public
offering, even though the sales price established and/or obtained at such
private sale may be substantially less then prices which could have been
obtained for such security on any market or exchange or in any other public
sale.

                  (c) Upon the Agent's request following a determination that
         due to a change in the interpretation of Rule 144 or otherwise the sale
         by the Agent of the Pledged Collateral would require compliance with
         Rule 144, the Pledgor shall:

                           (i) use his reasonable efforts to cause ACS to comply
                  at all times and on a timely basis with the requirements of
                  paragraph (c) of Rule 144 to the extent required to permit a
                  sale of the Pledged Stock in compliance with Rule 144 and
                  promptly notify the Agent if such Pledgor obtains knowledge
                  that ACS has failed at any time to comply with such
                  requirements;

                           (ii) complete and execute one or more Forms 144 or
                  fully cooperate in the completion and execution of one or more
                  Forms 144 if completed and/or executed by the Agent, to the
                  extent required to permit the sale of the Pledged Stock in
                  compliance with Rule 144; and

                           (iii) complete and maintain current a Questionnaire
                  containing such information as the Agent reasonably requests
                  in connection with the Agent's ability to comply with Rule 144
                  in any sale of Pledged Stock including, without limitation,
                  the delivery of a completed Questionnaire contemporaneously
                  with the delivery of the Pledged Stock.

                  8. TRANSFERS AND OTHER LIENS. The Pledgor agrees that it will
not (i) sell or otherwise dispose of, or grant any option with respect to, any
of the Pledged Collateral without the prior written consent of the Agent, or
(ii) create or permit to exist any Lien upon or with respect to any of the
Pledged Collateral, except for the security interest under this Pledge

<PAGE>

Agreement.

                  9. REMEDIES. (a) The Agent shall have, in addition to any
other rights given under this Pledge Agreement or by law, all of the rights and
remedies with respect to the Pledged Collateral of a secured party under the
Uniform Commercial Code as in effect in the State of Texas. The Agent
(personally or through an agent) is hereby authorized and empowered to transfer
and register in its name or in the name of its nominee the whole or any part of
the Pledged Collateral, to exercise all voting rights with respect thereto, to
collect and receive all cash dividends or distributions and other distributions
made thereon, and to otherwise act with respect to the Pledged Collateral as
though the Agent were the outright owner thereof, the Pledgor hereby irrevocably
constituting and appointing the Agent as the proxy and attorney-in-fact of the
Pledgor, with full power of substitution to do so, provided, however, that the
Agent shall have no duty to exercise any such right or to preserve the same and
shall not be liable for any failure to do so or for any delay in doing so;
PROVIDED, FURTHER, however that the Agent agrees to exercise such proxy and
powers contained in this sentence only so long as a Specified Default shall have
occurred and is continuing and following written notice thereof. In addition,
after the occurrence of a Specified Default, the Agent shall have such powers of
sale and other powers as may be conferred by applicable law. With respect to the
Pledged Collateral or any part thereof which shall then be in or shall
thereafter come into the possession or custody of the Agent or which the Agent
shall otherwise have the ability to transfer under applicable law, the Agent
may, in its sole discretion, without notice except as specified below, after the
occurrence of a Specified Default, sell or cause the same to be sold at any
exchange, broker's board or at public or private sale, in one or more sales or
lots, at such price as the Agent may deem best, for cash or on credit or for
future delivery, without assumption of any credit risk, and the purchaser of any
or all of the Pledged Collateral so sold shall thereafter own the same,
absolutely free from any claim, encumbrance or right of any kind whatsoever. The
Agent and each of the Holders of Secured Obligations may, in its own name, or in
the name of a designee or nominee, buy the Pledged Collateral at any public sale
and, if permitted by applicable law, buy the Pledged Collateral at any private
sale. The Borrower will pay to the Agent all reasonable expenses (including,
without limitation, court costs and reasonable attorneys' and paralegals' fees
and expenses) of, or incidental to, the enforcement of any of the provisions
hereof. The Agent agrees to distribute any proceeds of the sale of the Pledged
Collateral in accordance with the Credit Agreement and the Pledgor shall remain
liable for any deficiency following the sale of the Pledged Collateral, subject
to the limitations or liability set forth in the Limited Guaranty.

                  (b) The Agent will give the Pledgor reasonable notice of the
time and place of any public sale thereof, or of the time after which any
private sale or other intended disposition is to be made. Any sale of the
Pledged Collateral conducted in conformity with reasonable commercial practices
of banks, commercial finance companies, insurance companies or other financial
institutions disposing of property similar to the Pledged Collateral shall be
deemed to be commercially reasonable. Notwithstanding any provision to the
contrary contained herein, the Pledgor agrees that any requirements of
reasonable notice shall be met if such notice is received by the Pledgor as
provided in SECTION 19 below at least five (5) Business Days before the time of
the sale or disposition; provided, however, that Agent may give any shorter
notice that is commercially reasonable under the circumstances. Any other
requirement of notice, demand or

<PAGE>

advertisement for sale is waived, to the extent permitted by law.

                  (c) In view of the fact that federal and state securities laws
may impose certain restrictions on the method by which a sale of the Pledged
Collateral may be effected after a Specified Default, the Pledgor agrees that
after the occurrence of a Specified Default, the Agent may, from time to time,
attempt to sell all or any part of the Pledged Collateral by means of a private
placement restricting the bidders and prospective purchasers to those who are
qualified and will represent and agree that they are purchasing for investment
only and not for distribution. In so doing, the Agent may solicit offers to buy
the Pledged Collateral, or any part of it, from a limited number of investors
deemed by the Agent, in its reasonable judgment, to be financially responsible
parties who might be interested in purchasing the Pledged Collateral. If the
Agent solicits such offers from not less than four (4) such investors, then the
acceptance by the Agent of the highest offer obtained therefrom shall be deemed
to be a commercially reasonable method of disposing of such Pledged Collateral;
provided, however, that this Section does not impose a requirement that the
Agent solicit offers from four or more investors in order for the sale to be
commercially reasonable.

                  10. AGENT APPOINTED ATTORNEY-IN-FACT. The Pledgor hereby
appoints the Agent its attorney-in-fact, coupled with an interest, with full
authority, in the name of the Pledgor or otherwise, from time to time in the
Agent's sole discretion, to take any action and to execute any instrument which
the Agent may deem necessary or advisable to accomplish the purposes of this
Pledge Agreement, including, without limitation, to receive, endorse and collect
all instruments made payable to the Pledgor representing any dividend,
distribution, interest payment or other distribution in respect of the Pledged
Collateral or any part thereof and to give full discharge for the same and to
arrange for the transfer of all or any part of the Pledged Collateral on the
books of ACS to the name of the Agent or the Agent's nominee; PROVIDED, HOWEVER
that the Agent agrees to exercise such powers only so long as a Specified
Default shall have occurred and is continuing.

                  11. WAIVERS. (i) The Pledgor waives presentment and demand for
payment of any of the Guaranteed Obligations, protest and notice of dishonor or
Specified Default with respect to any of the Guaranteed Obligations and all
other notices to which the Pledgor might otherwise be entitled except as
otherwise expressly provided herein or in the Credit Agreement.

                  (ii) The Pledgor understands and agrees that his obligations
and liabilities under this Pledge Agreement shall remain in full force and
effect, notwithstanding foreclosure of any real property securing all or any
part of the Guaranteed Obligations by trustee sale or any other reason impairing
the right of the Pledgor, the Agent or any of the Holders of Secured Obligations
to proceed against any other guarantor or such guarantor's property. The Pledgor
agrees that all of its obligations under this Pledge Agreement shall remain in
full force and effect without defense, offset or counterclaim of any kind,
notwithstanding that the Pledgor's rights may be impaired, destroyed or
otherwise affected by reason of any action or inaction on the part of the Agent
or any Holder of Secured Obligations.

                  12. TERM. This Pledge Agreement shall remain in full force and
effect until (a)

<PAGE>

all "Guaranteed Obligations" (as defined in the Limited Guaranty) shall have
been paid in full in cash and the Commitments and all Letters of Credit issued
under the Credit Agreement shall have terminated or expired or (b) a "Release
Event" (as defined in the Limited Guaranty) occurs. Upon the termination of this
Pledge Agreement as provided above (other than as a result of the sale of the
Pledged Collateral), the Agent will release the security interest created
hereunder and, if it then has possession of the Pledged Stock, will deliver the
Pledged Stock and the Powers to the Pledgor. If at any time any payment of the
principal of or interest on any Note, any Reimbursement Obligation or any other
amount payable by the Borrower or any other party under the Credit Agreement,
any Hedging Agreement or any other Loan Document is rescinded or must be
otherwise restored or returned upon the insolvency, bankruptcy or reorganization
of the Borrower or otherwise, and the Pledgor's obligations hereunder with
respect to such payment shall be reinstated as though such payment had been due
but not made at such time and the Pledgor shall redeliver the Pledged Stock and
Powers to the Agent.

                  13. DEFINITIONS. The singular shall include the plural and
vice versa and any gender shall include any other gender as the context may
require.

                  14. SUCCESSORS AND ASSIGNS. This Pledge Agreement shall be
binding upon and inure to the benefit of the Pledgor, the Agent, for the benefit
of itself and the Holders of Secured Obligations, and their respective heirs,
successors and assigns. The Pledgor's heirs, successors and assigns shall
include, without limitation, a receiver, trustee or debtor-in-possession of or
for the Pledgor.

                  15. GOVERNING LAW. THIS PLEDGE AGREEMENT IS BEING EXECUTED AND
DELIVERED, AND IS INTENDED TO BE PERFORMED, IN DALLAS, TEXAS, AND THE
SUBSTANTIVE LAWS OF THE STATE OF TEXAS SHALL GOVERN THE VALIDITY, CONSTRUCTION,
ENFORCEMENT AND INTERPRETATION OF THIS PLEDGE AGREEMENT AND ALL OTHER LOAN
DOCUMENTS. ANY DISPUTE BETWEEN THE PLEDGOR AND THE AGENT, ANY LENDER OR ANY
HOLDER OF SECURED OBLIGATIONS ARISING OUT OF, CONNECTED WITH, RELATED TO, OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED BETWEEN THEM IN CONNECTION WITH, THIS
PLEDGE AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS, AND WHETHER ARISING IN
CONTRACT, TORT, EQUITY, OR OTHERWISE, SHALL BE RESOLVED IN ACCORDANCE WITH THE
SUBSTANTIVE LAWS OF THE STATE OF TEXAS, BUT GIVING EFFECT TO FEDERAL LAWS
APPLICABLE TO NATIONAL BANKS.

                  16. CONSENT TO JURISDICTION; SERVICE OF PROCESS; JURY TRIAL.

         (A) THE PLEDGOR HEREBY IRREVOCABLY SUBMITS TO THE NON-EXCLUSIVE
JURISDICTION OF ANY UNITED STATES FEDERAL OR TEXAS STATE COURT SITTING IN
DALLAS, TEXAS IN ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN
DOCUMENTS AND THE PLEDGOR HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT
OF SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN ANY

<PAGE>

SUCH COURT AND IRREVOCABLY WAIVES ANY OBJECTION HE MAY NOW OR HEREAFTER HAVE AS
TO THE VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN SUCH A COURT OR
THAT SUCH COURT IS AN INCONVENIENT FORUM. NOTHING HEREIN SHALL LIMIT THE RIGHT
OF THE AGENT OR ANY LENDER TO BRING PROCEEDINGS AGAINST THE PLEDGOR IN THE
COURTS OF ANY OTHER JURISDICTION. ANY JUDICIAL PROCEEDING BY THE PLEDGOR AGAINST
THE AGENT OR ANY LENDER OR ANY AFFILIATE OF THE AGENT OR ANY LENDER INVOLVING,
DIRECTLY OR INDIRECTLY, ANY MATTER IN ANY WAY ARISING OUT OF, RELATED TO, OR
CONNECTED WITH ANY LOAN DOCUMENT SHALL BE BROUGHT ONLY IN A COURT IN DALLAS,
TEXAS.

         (B) SERVICE OF PROCESS. DEASON WAIVES PERSONAL SERVICE OF ANY PROCESS
UPON HIM AND IRREVOCABLY APPOINTS THE GENERAL COUNSEL OF AFFILIATED COMPUTER
SERVICES INC. (THE ADDRESS FOR WHICH IS 2828 NORTH HASKELL AVENUE, 10TH FLOOR,
DALLAS, TEXAS, 75204) AS THE PLEDGOR'S AGENT FOR THE PURPOSE OF ACCEPTING
SERVICE OF PROCESS ISSUED BY ANY COURT. NOTHING HEREIN SHALL IN ANY WAY BE
DEEMED TO LIMIT THE ABILITY OF THE AGENT OR THE LENDERS TO SERVE ANY SUCH WRITS,
PROCESS OR SUMMONSES IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW THE PLEDGOR
IRREVOCABLY WAIVES ANY OBJECTION (INCLUDING, WITHOUT LIMITATION, ANY OBJECTION
OF THE LAYING OF VENUE OR BASED ON THE GROUNDS OF FORUM NON CONVENIENS) WHICH HE
MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY SUCH ACTION OR PROCEEDING WITH
RESPECT TO THIS PLEDGE AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH IN ANY JURISDICTION SET FORTH
ABOVE.

         (C) WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO IRREVOCABLY WAIVES
ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING
IN CONTRACT, TORT, OR OTHERWISE, ARISING OUT OF, CONNECTED WITH, RELATED TO OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS
PLEDGE AGREEMENT OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH. EACH OF THE PARTIES HERETO AGREES AND CONSENTS
THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT
TRIAL WITHOUT A JURY AND THAT ANY PARTY HERETO MAY FILE AN ORIGINAL COUNTERPART
OR A COPY OF THIS PLEDGE AGREEMENT WITH ANY COURT AS WRITTEN EVIDENCE OF THE
CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.

         (D) WAIVER OF BOND. THE PLEDGOR WAIVES THE POSTING OF ANY BOND
OTHERWISE REQUIRED OF ANY PARTY HERETO IN CONNECTION WITH ANY

<PAGE>

JUDICIAL PROCESS OR PROCEEDING TO REALIZE ON THE COLLATERAL ENFORCE ANY JUDGMENT
OR OTHER COURT ORDER ENTERED IN FAVOR OF SUCH PARTY, OR TO ENFORCE BY SPECIFIC
PERFORMANCE, TEMPORARY RESTRAINING ORDER, PRELIMINARY OR PERMANENT INJUNCTION,
THIS PLEDGE AGREEMENT OR ANY OTHER LOAN DOCUMENT.

         (E) ADVICE OF COUNSEL. EACH OF THE PARTIES REPRESENTS TO EACH OTHER
PARTY HERETO THAT IT HAS DISCUSSED THIS PLEDGE AGREEMENT AND, SPECIFICALLY, THE
PROVISIONS OF THIS SECTION 16, WITH ITS COUNSEL.

                  17. NO STRICT CONSTRUCTION. The parties hereto have
participated jointly in the negotiation and drafting of this Pledge Agreement.
In the event an ambiguity or question of intent or interpretation arises, this
Pledge Agreement shall be construed as if drafted jointly by the parties hereto
and no presumption or burden of proof shall arise favoring or disfavoring any
party by virtue of the authorship of any provisions of this Pledge Agreement.

                  18. SEVERABILITY. Whenever possible, each provision of this
Pledge Agreement shall be interpreted in such manner as to be effective and
valid under applicable law, but, if any provision of this Pledge Agreement shall
be held to be prohibited or invalid under applicable law, such provision shall
be ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Pledge Agreement.

                  19. FURTHER ASSURANCES. The Pledgor agrees that he will
cooperate with the Agent and will execute and deliver, or cause to be executed
and delivered, all such other stock powers, proxies, instruments and documents,
and will take all such other actions, including, without limitation, the
execution and filing of financing statements, as the Agent may reasonably
request from time to time in order to carry out the provisions and purposes of
this Pledge Agreement.

                  20. THE AGENT'S DUTY OF CARE. The Agent shall not be liable
for any acts, omissions, errors of judgment or mistakes of fact or law
including, without limitation, acts, omissions, errors or mistakes with respect
to the Pledged Collateral, except for those arising out of or in connection with
the Agent's (i) Gross Negligence or willful misconduct, or (ii) failure to use
reasonable care with respect to the safe custody of the Pledged Collateral in
the Agent's possession. Without limiting the generality of the foregoing, the
Agent shall be under no obligation to take any steps necessary to preserve
rights in the Pledged Collateral against any other parties but may do so at its
option. All expenses incurred in connection therewith shall be for the sole
account of the Pledgor, and shall constitute part of the Guaranteed Obligations
secured hereby. THE PARTIES INTEND FOR THE EXCULPATORY PROVISIONS OF THIS
SECTION 20 TO APPLY AND PROTECT THE AGENT FROM THE CONSEQUENCES OF ITS OWN
NEGLIGENCE, WHETHER OR NOT THAT NEGLIGENCE IS THE SOLE, CONTRIBUTING OR
CONCURRING CAUSE OF ANY CLAIM.

                  21. NOTICES. All notices and other communications required or
desired to be served, given or delivered hereunder shall be given in the manner
and to the addresses set forth in

<PAGE>

the Credit Agreement.

                  22. AMENDMENTS, WAIVERS AND CONSENTS. No amendment or waiver
of any provision of this Pledge Agreement nor consent to any departure by the
Pledgor herefrom, shall in any event be effective unless the same shall be in
writing and signed by the Agent pursuant to the terms of the Credit Agreement,
and then such amendment, waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given.

                  23. SECTION HEADINGS. The section headings herein are for
convenience of reference only, and shall not affect in any way the
interpretation of any of the provisions hereof.

                  24. EXECUTION IN COUNTERPARTS. This Pledge Agreement may be
executed in any number of counterparts, each of which shall be an original, but
all of which shall together constitute one and the same agreement.

                  25. MERGER. This Pledge Agreement and the other Loan Documents
embody the final and entire agreement and understanding among the Pledgor, the
Agent and the Holders of Secured Obligations and supersede all prior agreements
and understandings among the Pledgor, the Agent and the Holders of Secured
Obligations relating to the subject matter thereof. This Pledge Agreement and
the other Loan Documents may not be contradicted by evidence of prior,
contemporaneous or subsequent oral agreements of the parties. There are no
unwritten oral agreements between the parties hereto.

<PAGE>

                  IN WITNESS WHEREOF, the Pledgor and the Agent have executed
this Pledge Agreement as of the date set forth above.

                                    DARWIN DEASON


                                    ---------------------------------

                                    BANK ONE, TEXAS, NA, as agent for itself and
                                    the Holders of Secured Obligations

                                    By:
                                       ------------------------------
                                       Name:
                                       Title:

<PAGE>

                                   SCHEDULE I

                                       to

                                PLEDGE AGREEMENT

                        dated as of [_____________], 2000

                             INITIAL PLEDGED SHARES

       NUMBER OF SHARES OF ACS                       CERTIFICATE NUMBER

<PAGE>

                                    EXHIBIT A

                                       to

                                PLEDGE AGREEMENT

                         dated as of [___________], 2000

                            Form of Pledge Supplement

           Reference is hereby made to the Pledge Agreement (the "Pledge
Agreement") dated as of the [___] day of [________], 2000, by and between Darwin
Deason (the "Pledgor") and Bank One, Texas, NA, as contractual representative
(the "Agent"), whereby the Pledgor has pledged certain capital stock of
Affiliated Computer Services, Inc. ("ACS") as collateral to the Agent, for the
ratable benefit of the Holders of Secured Obligations, as more fully described
in the Pledge Agreement. This Supplement is a "Pledge Supplement" as defined in
the Pledge Agreement and is, together with the certificates and Powers delivered
herewith, subject in all respects to the terms and provisions of the Pledge
Agreement. Capitalized terms used herein and not defined herein shall have the
meanings given to them in the Pledge Agreement.

           By its execution below, the Pledgor hereby agrees that (i) the
capital stock of ACS listed on the SCHEDULE I hereto shall be pledged to the
Agent as additional collateral pursuant to SECTION [1.[_]][3.2] of the Pledge
Agreement and (ii) such property shall be considered Pledged Stock under the
Pledge Agreement and be a part of the Pledged Collateral pursuant to the Pledge
Agreement.

           By its execution below, the Pledgor represents and warrants that the
representations and warranties contained in SECTION 5 of the Pledge Agreement
are true and correct in all respects as of the date hereof and after taking into
account the pledge of the additional Pledged Stock relating hereto.

<PAGE>

           IN WITNESS WHEREOF, the Pledgor has executed and delivered this
Pledge Supplement to the Pledge Agreement as of this __________ day of
_________, ____.

           DARWIN DEASON

           ------------------------

<PAGE>

                                   SCHEDULE I

                                       TO

                                PLEDGE SUPPLEMENT

                            ADDITIONAL PLEDGED STOCK

       NUMBER OF SHARES OF ACS                       CERTIFICATE NUMBER

<PAGE>

                                    EXHIBIT B

                                       to

                                PLEDGE AGREEMENT

                         dated as of [___________], 2000

                               Form of Stock Power

                                   STOCK POWER

                  FOR VALUE RECEIVED, the undersigned does hereby sell, assign
and transfer to _____________________________ _____ Shares of Common Stock of
Affiliated Computer Services, Inc., a __________ corporation, represented by
Certificate No. __ (the "Stock"), standing in the name of the undersigned on the
books of said corporation and does hereby irrevocably constitute and appoint
___________________________________ as the undersigned's true and lawful
attorney, for it and in its name and stead, to sell, assign and transfer all or
any of the Stock, and for that purpose to make and execute all necessary acts of
assignment and transfer thereof; and to substitute one or more persons with like
full power, hereby ratifying and confirming all that said attorney or substitute
or substitutes shall lawfully do by virtue hereof.

Dated: _______________

DARWIN DEASON

- -------------------------

<PAGE>

                                    EXHIBIT C

                                       to

                                PLEDGE AGREEMENT

                         dated as of [___________], 2000

                              Form of Questionnaire

                  INFORMATIONAL EXHIBIT - PLEDGE OF SECURITIES

                  In connection with the undersigned's pledge of the following
capital stock of Affiliated Computer Services, Inc. (the "Securities") to Bank
One Texas, N.A., as agent (the "Agent"):

<TABLE>
<CAPTION>
                                                      CLASS                           AMOUNT
        NAME OF ISSUER                           OF SECURITIES                        PLEDGED
        --------------                           -------------                        -------
<S>                                       <C>                                     <C>
Affiliated Computer Services, Inc.        Class A Common Stock                    ________ Shares
                                          Par Value $__________
</TABLE>

the undersigned warrants and represents that the answers which he is hereby
providing to the following questions are to the best of the undersigned's
knowledge, complete, true, accurate and not misleading in any way and that if
the undersigned, at any time, receives any information which would in any way
make such answer incomplete, untrue, inaccurate or misleading (either at the
time such answer was given or at some later time), the undersigned will
immediately notify the Agent of the existence of such information and, provide
the Agent with all such information within ten (10) business days of the
undersigned's receipt thereof.

Part I

1.       How did you acquire the Securities? Were any of the Securities ever
         registered under the Securities Act of 1933? Are any of the Securities
         subject to any restrictions on their transferability? Provide details
         with respect to each class or issue of the Securities in order to
         substantiate and clarify your answers.

         [_______________________________]

2.       Are any of the Securities part of an issue or class which is regularly
         traded on one or more securities exchanges or quotation systems? If so,
         please identify all such exchanges and systems.

         [_______________________________]

3.       Are any of the Securities "restricted securities" within the meaning of
         Rule 144 of the

<PAGE>

         Securities Act of 1933 -- i.e., securities acquired directly or
         indirectly from the issuer thereof, or from any affiliate of such
         issuer, in a transaction or chain of transactions not involving any
         public offering?

         [_______________________________]

4.       Do you own or have a beneficial interest in any other securities issued
         by the issuer of the Securities? If so, provide details and set forth
         the amounts of each such security that you hold.

         [_______________________________]

5.       Do any of the following persons or entities own of record or have a
         beneficial interest in any securities issued by the issuer of the
         Securities? If so, provide details and set forth the amounts of each
         such security that each such person holds.

         (a)      Your spouse or any relative of either you or your spouse who
                  has the same home as you.

         [_______________________________]

         (b)      Any trust or estate in which you or any person specified in
                  subparagraph (a) above collectively own ten percent (10%) or
                  more of the total beneficial interest or of which any such
                  person serves as trustee, executor or in any similar capacity.

         [_______________________________]

         (c)      Any corporation or other organization in which you or any
                  person specified in subparagraph (a) are the beneficial owners
                  collectively of ten percent (10%) or more of any class of
                  equity securities of ten percent (10%) or more of the total
                  equity interest.

         [_______________________________]

6.       Are you or any of the persons or entities described in Question 5 above
         an "affiliate" of the issuer of the Securities -- i.e., are you or any
         such person directly, or indirectly through one or more intermediaries,
         controlled by, in control of or under common control with such issuer?
         If yes, please give all details.

         [_______________________________]

7.       Are you aware of any state or federal securities law which would
         prevent the Agent from legally selling the Securities?

         [_______________________________]


                                   Part II
<PAGE>

8.       With respect to the Securities, is the issuer subject to the reporting
         requirements of either Section 13 or Section 15(d) of the Securities
         Exchange Act of 1934, and, is the issuer current with respect to all
         required filings thereunder, including its most recent annual report on
         Form 10-K?

         [_______________________________]

9.       If you acquired the Securities with the proceeds of any loan, was such
         loan on a full or partial recourse basis? If yes, answer the following
         questions:

         (a)      On what date did you fully pay for the Securities? Describe
                  any type of deferred payment arrangement under which any of
                  the Securities were purchased and describe any contingencies
                  regarding the issuance of the Securities.

         [_______________________________]

         (b)      If any of the Securities were obtained through conversion
                  privileges with respect to other securities of that issuer or
                  through stock dividends, splits or recapitalizations, describe
                  the circumstances surrounding such acquisition and the
                  acquisition of the convertible securities or securities in
                  respect of which the stock dividend, split or recapitalization
                  occurred.

         [_______________________________]

<PAGE>



10.      Have you or any of the persons or entities set forth in Question 5
         above sold securities of the same class or any securities convertible
         into securities within the last three (3) months of the same class as
         the Securities pursuant to Rule 144? If so, provide copies of Form 144.

         [_______________________________]

11.      In the last three months, have you or any of the persons or entities
         set forth in Question 5 above, sold any securities of the same class as
         the Securities?

         [_______________________________]

                  In addition to the foregoing warranties and representations,
the undersigned hereby acknowledges that the undersigned understands that the
Agent may rely upon the information given in these questions in realizing upon
and selling the Securities.

                  IN WITNESS WHEREOF, this instrument has been duly executed by
the undersigned this [_______] day of [____________], 2000.

                                  DARWIN DEASON

                                  By:_________________________
                                     Name:
                                     Title:


<PAGE>



STATE OF                 )
                         )  SS.
COUNTY OF                )

                  On this [_______] day of [_______________], in the year 2000
before me, the undersigned, a Notary Public in and for said State, personally
appeared Darwin Deason, known to me to be the person whose name is subscribed to
the within instrument, and acknowledged that he executed the same.

                                            WITNESS my hand and official seal.

                                            ----------------------------------
                                                           Notary Public

<TABLE> <S> <C>

<PAGE>
<ARTICLE> 5

<S>                             <C>                     <C>
<PERIOD-TYPE>                   9-MOS                   3-MOS
<FISCAL-YEAR-END>                          JUN-30-2000             JUN-30-2000
<PERIOD-START>                             JUL-01-1999             JAN-01-2000
<PERIOD-END>                               MAR-31-2000             MAR-31-2000
<CASH>                                               0                       0
<SECURITIES>                                         0                       0
<RECEIVABLES>                               20,928,000<F1>          20,928,000<F1>
<ALLOWANCES>                                   347,000                 347,000
<INVENTORY>                                  7,595,000               7,595,000
<CURRENT-ASSETS>                            55,939,000              55,939,000
<PP&E>                                       2,781,000               2,781,000
<DEPRECIATION>                               4,728,000               4,728,000
<TOTAL-ASSETS>                              79,484,000              79,484,000
<CURRENT-LIABILITIES>                       19,930,000              19,930,000
<BONDS>                                              0                       0
                        2,592,000               2,592,000
                                          0                       0
<COMMON>                                       103,000                 103,000
<OTHER-SE>                                  13,133,000<F2>          13,133,000<F2>
<TOTAL-LIABILITY-AND-EQUITY>                79,484,000              79,484,000
<SALES>                                    106,815,000              36,728,000
<TOTAL-REVENUES>                           106,815,000              36,728,000
<CGS>                                       71,701,000              24,844,000
<TOTAL-COSTS>                              103,864,000              36,557,000
<OTHER-EXPENSES>                                     0                       0
<LOSS-PROVISION>                                     0                       0
<INTEREST-EXPENSE>                           2,322,000                 552,000
<INCOME-PRETAX>                                629,000               (381,000)
<INCOME-TAX>                                   284,000               (171,000)
<INCOME-CONTINUING>                            345,000               (210,000)
<DISCONTINUED>                            (15,954,000)            (17,088,000)
<EXTRAORDINARY>                                      0                       0
<CHANGES>                                            0                       0
<NET-INCOME>                              (15,609,000)            (17,298,000)
<EPS-BASIC>                                     (1.58)                  (1.70)
<EPS-DILUTED>                                   (1.51)                  (1.70)
<FN>
<F1>Amount represents net accounts receivable.
<F2>Amount includes additional paid-in capital, retained earnings, and treasury
stock.
</FN>


</TABLE>


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