-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BKXYW5mBCRtYLoDRgvojQ6RtKPVKE9IItt12iCTuGPNaNgvgoT8FL7qFpKR7shFN jxyiLLTqHb/jhGo5fXMAPw== 0001047469-98-034425.txt : 19980915 0001047469-98-034425.hdr.sgml : 19980915 ACCESSION NUMBER: 0001047469-98-034425 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19980619 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980914 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRECEPT BUSINESS SERVICES INC CENTRAL INDEX KEY: 0001051285 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-PAPER AND PAPER PRODUCTS [5110] IRS NUMBER: 752487353 STATE OF INCORPORATION: TX FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-23735 FILM NUMBER: 98708525 BUSINESS ADDRESS: STREET 1: 1909 WOODALL ROGERS FREEWAY STREET 2: STE 500 CITY: DALLAS STATE: TX ZIP: 75201 BUSINESS PHONE: 2147546000 MAIL ADDRESS: STREET 1: PO BOX 219008 CITY: DALLAS STATE: TX ZIP: 75201 8-K/A 1 8-K/A - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DATE OF REPORT (Date of earliest event reported): JUNE 19, 1998 Commission file number: 000-23735 PRECEPT BUSINESS SERVICES, INC. (Exact name of registrant as specified in its charter) Texas 75-2487353 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1909 Woodall Rodgers Freeway, Suite 500 75201 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (214) 754-6600 - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 1 ITEM I. ACQUISITION OR DISPOSITION OF ASSETS On June 19, 1998, Precept Business Services, Inc. a Texas corporation (the "Company" or "Precept"), through a wholly owned subsidiary, acquired all of the issued and outstanding stock of MBF Corporation, a Louisiana corporation ("MBF"), pursuant to that certain Stock Purchase Agreement dated as of June 13, 1998 by and among the Company, Precept Business Products, Inc., a Delaware corporation and a wholly owned subsidiary of the Company, MBF and J.D. Greco, the President and sole stockholder of MBF. Louisiana-based MBF is a single source distributor of printed products, distribution services and information solutions. On June 30, 1998, Precept, through a wholly owned subsidiary, acquired all of the issued and outstanding stock of Mail/Source, Inc., a Louisiana corporation ("Mail Source"), pursuant to that certain Stock Purchase Agreement dated as of June 30, 1998 by and among Precept, Precept Business Products, Inc., Mail Source and three trusts, each representing a son or daughter of J.D. Greco. Louisiana-based Mail Source is a full service mail fulfillment company serving customers primarily in the southeastern part of the United States. To the best knowledge of Precept, at the time of the acquisition of MBF and Mail Source, there was no material relationship between (i) MBF and Mail Source on the one hand and (ii) Precept, or any of its affiliates, its shareholders, any director or officer of Precept, or any associate of such director or officer on the other, except that J.D. Greco was a shareholder of both MBF and Mail Source. The aggregate consideration paid by Precept as a result of the acquisition of MBF was $10,570,111 paid by the issuance of 3,796,735 shares of Precept's Class A Common Stock, par value $.01. The aggregate consideration paid by Precept as a result of the acquisition of Mail Source was $959,711 paid by the issuance of 289,724 shares of Precept's Class A Common Stock. The consideration for the acquisitions was determined by arms-length negotiations between the parties to the stock purchase agreements. The combined financial statements of MBF and Mail Source for the year ended June 30, 1998 are presented in this report, along with the report of the independent auditors. Since the acquisition of Mail Source was not completed until June 30, 1998 and since it was not feasible to provide the audited financial statements of the combined operations until present, this report is considered by Precept to be a timely filing of the required financial statements of the businesses acquired. 2 ITEM 7. FINANCIAL STATEMENTS Item 7 (a) - Financial Statements of Businesses Acquired MBF CORPORATION MAIL/SOURCE, INC. INDEX TO COMBINED FINANCIAL STATEMENTS
Description Page ----------- ---- Report of Independent Auditors. . . . . . . . . . . . . . . . . . . . 4 Combined Balance Sheet at June 30, 1998 . . . . . . . . . . . . . . . 5 Combined Statement of Income and Changes in Retained Earnings for the year ended June 30, 1998 . . . . . . . . . . . . . . . . . . . 6 Combined Statement of Cash Flows for the year ended June 30, 1998 . . 7 Notes to Combined Financial Statements. . . . . . . . . . . . . . . . 8
3 Report of Independent Auditors Board of Directors Precept Business Services, Inc. We have audited the accompanying combined balance sheet as of June 30, 1998, of the corporations listed in Note 1, and the related combined statements of income and changes in retained earnings, and cash flows for the year then ended. These financial statements are the responsibility of the companies' management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform our audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position at June 30, 1998, of the corporations listed in Note 1, and the combined results of their operations and changes in retained earnings, and cash flows for the year then ended in conformity with generally accepted accounting principles. /s/ ERNST & YOUNG LLP Dallas, Texas August 31, 1998 4 MBF CORPORATION MAIL/SOURCE, INC. COMBINED BALANCE SHEET JUNE 30, 1998
ASSETS Current assets: Cash $ 56,128 Trade accounts receivable, less allowance for doubtful accounts of $9,700 1,832,036 Inventories 945,912 Other current assets 151,272 ---------- Total current assets 2,985,348 Property and equipment, net 1,058,523 Other assets, primarily cash surrender value of life insurance 228,613 ---------- Total assets $4,272,484 ---------- ---------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable $ 642,828 Accrued compensation and commissions 454,803 Sales and use taxes payable 315,854 Income taxes payable 113,827 Other accrued expenses 115,762 Long-term debt due within one year 52,908 ---------- Total current liabilities 1,695,982 ---------- Long-term debt: Advance from Precept Business Services, Inc. 1,150,000 Notes payable 249,608 ---------- Total long-term debt 1,399,608 ---------- Commitments and contingencies Shareholders' equity: Common stock of MBF Corporation, $1.00 par value, 9,000 shares issued and authorized 9,000 Common stock of Mail/Source, Inc., $1.00 par value, 900 shares issues and authorized 900 Retained earnings 1,166,994 ---------- Total shareholders' equity 1,176,894 ---------- Total liabilities and shareholders' equity $4,272,484 ---------- ----------
See accompanying notes to combined financial statements. 5 MBF CORPORATION MAIL/SOURCE, INC. COMBINED STATEMENT OF INCOME AND CHANGES IN RETAINED EARNINGS YEAR ENDED JUNE 30, 1998
Revenues from business products $19,213,227 Operating expenses: Cost of goods sold 12,647,755 Sales commissions 2,698,117 Selling, general and administrative expenses 3,313,730 Depreciation and amortization 97,083 ----------- Total operating expenses 18,756,685 ----------- Operating income 456,542 Interest and other expense: Interest expense 129,394 Other expense 1,985 ----------- Total interest and other expense 131,379 ----------- Income before provision for income taxes 325,163 Provision for income taxes 130,065 ----------- Net income 195,098 Retained earnings, beginning of year 971,896 ----------- Retained earnings, end of year $ 1,166,994 ----------- ----------- See accompanying notes to combined financial statements.
6 MBF CORPORATION MAIL SOURCE, INC. COMBINED STATEMENT OF CASH FLOWS YEAR ENDED JUNE 30, 1998
Cash flows from operating activities: Net income $ 195,098 Non-cash adjustments to net income: Depreciation and amortization 97,083 Provision for doubtful accounts 9,716 Changes in operating assets and liabilities: Trade accounts receivable (13,254) Inventories (428,975) Other current assets 25,405 Accounts payable 8,439 Accrued compensation and commissions payable 83,838 Sales and use taxes payable (4,597) Income taxes payable 69,846 Other accrued expenses (132,316) ----------- Net cash flow provided by operating activities (89,717) ----------- Cash flows from investing activities: Purchases of property and equipment (6,393) Change in cash value of life insurance 43,642 ----------- Net cash flow provided by investing activities 37,249 ----------- Cash flows from financing activities: Net repayments on long-term debt to banks (1,225,620) Advance from Precept Business Services, Inc. 1,150,000 ----------- Net cash flow used in financing activities (75,620) ----------- Decrease in cash (128,088) Cash, beginning of year 184,216 ----------- Cash, end of year $ 56,128 ----------- ----------- Cash payments for: Interest $ 129,394 Income taxes $ 88,216
See accompanying notes to combined financial statements. 7 MBF CORPORATION MAIL/SOURCE, INC. NOTES TO COMBINED FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 1998 NOTE 1 - BUSINESS AND BASIS OF PRESENTATION During June 1998, Precept Business Services, Inc. ("Precept") acquired MBF Corporation ("MBF") and Mail Source, Inc. ("Mail Source"). Precept issued 4,086,459 shares of its class A common stock in exchange for all the outstanding shares of common stock of MBF and Mail Source. Mail Source's assets included certain land and office buildings previously owned by certain trusts owned by the children of MBF's former majority shareholder. MBF's corporate office and certain of its branch offices were located in the land and office buildings contributed by the trusts ("Trust Assets"). The accompanying financial statements represent the combined financial position, results of operations and cash flows of MBF and Mail Source, collectively referred to as the "Company" or "MBF Combined," and are presented at their historical basis. Although the acquisitions of MBF and Mail Source occurred as separate transactions, the business operations of the Company are treated as one combined entity because these operations were under common control. MBF is engaged in the forms management business. The forms management business comprises arranging for the manufacture, storage and distribution of business forms, computer supplies, advertising information, and other business products for small to large corporate customers. MBF provides such services in 9 states and 31 locations, primarily in the southeast and southwest areas of the United States. Mail Source is a full service mail fulfillment company that provides printing, insertion and mailing services to small to large customers in the same states and locations as MBF. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES REVENUE RECOGNITION AND CREDIT RISK - Revenue is recognized when the Company ships goods to its customer. For items shipped directly to the customer from the vendor, the Company recognizes revenue when the Company receives notification that the vendor has shipped goods to the customer. For certain customers, the Company enters into a business products management agreement under which the customer requests the Company to hold and manage customized products that the customer has ordered. Under this arrangement, the Company generally recognizes the revenue at the time the goods are received in its warehouse, which also represents the time title passes to the customer. Concentration of credit risk with respect to trade receivables is limited due to the large number of customers and their geographic dispersion in the southeast and southwest parts of the United States. The effects of returns, discounts and other incentives are 8 MBF CORPORATION MAIL/SOURCE, INC. NOTES TO COMBINED FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 1998 estimated and recorded at the time of shipment. Damaged or defective products may be returned to the Company for replacement or credit. The Company performs periodic credit evaluations of its customers and does not require collateral. Historically, the Company has not experienced significant losses related to individual customers or groups of customers in any particular industry or geographic area. An allowance is maintained at a level that management believes is sufficient to cover potential credit losses on accounts receivable. No customer accounted for more than 10% of the Company's revenue in the year ended June 30, 1998. INVENTORIES - Inventories consist of products held for resale and are valued at the lower of cost or market; cost is determined on first-in first-out and specific identification methods. Market value is determined based on replacement cost or net realizable value. PROPERTY AND EQUIPMENT - Property and equipment is recorded at cost. Significant betterments or repairs that extend the useful lives of the assets are capitalized. Depreciation and amortization are recorded primarily on a double-declining basis over the estimated useful lives of the assets as follows: buildings - 20 to 30 years; equipment - 5 to 7 years; and furniture and fixtures - 7 years. INCOME TAXES - The Company accounts for income taxes following the liability method, which prescribes an asset and liability approach that requires the recognition of deferred tax assets and liabilities for the future tax consequences of events that have been recognized in the Company's financial statements or tax returns. Deferred tax assets are recognized, net of any valuation allowance, for deductible temporary differences and tax operating loss and credit carryforwards. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. FAIR VALUE OF FINANCIAL INSTRUMENTS - Carrying values of cash, accounts receivable, cash surrender value of life insurance, accounts payable, accrued expenses and long-term debt to banks approximate fair value due to the short-term maturities of these assets and liabilities. 9 MBF CORPORATION MAIL/SOURCE, INC. NOTES TO COMBINED FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 1998 NOTE 3 - PROPERTY AND EQUIPMENT Property and equipment consists of the following:
Land $ 61,000 Building 881,576 Furniture, fixtures and equipment 763,394 ---------- 1,705,970 Accumulated depreciation and amortization (647,447) ---------- $1,058,523 ---------- ----------
NOTE 4 - LONG-TERM DEBT When Precept acquired the Company, Precept repaid MBF's outstanding line of credit balance and advanced the Company $1,150,000. Such advance bears interest at prime, 8.5% at June 30, 1998, and is payable on demand. As of June 30, 1998, Precept has represented that it does not intend to demand repayment for at least fifteen months and, as a result, the advance from Precept has been classified as a long-term liability in the Company's balance sheet. All assets of the Company have been pledged by Precept as security for Precept's revolving line of credit. Notes payable includes a mortgage note payable to a bank of $238,338 that carries interest at 8.75% and is secured by assets with a net book value of approximately $685,000 at June 30, 1998. The mortgage note payable is classified as a long-term liability because Precept has the ability to refinance the mortgage note as a long-term liability under Precept's revolver credit agreement with its bank. Notes payable also includes equipment notes payable to a bank of $64,178 that carry interest at an average of 8.65% and are secured by equipment with a net book value of approximately $26,000 at June 30, 1998. Principal payments on these equipment notes of $52,908 and $11,270 are due in each of the next two years, respectively. As part of the acquisition of the Company, Precept has guaranteed the equipment and mortgage notes payable of the Company. NOTE 5 - INCOME TAXES The provision for income taxes consists of the following:
Current: Federal $111,000 State 19,065 -------- Provision for income taxes $130,065 -------- --------
10 MBF CORPORATION MAIL/SOURCE, INC. NOTES TO COMBINED FINANCIAL STATEMENTS YEAR ENDED JUNE 30, 1998 A reconciliation between the statutory U.S. federal income tax rate and the Company's effective income tax rate follows:
Statutory federal income tax rate 34.0% Expenses that are not deductible for income tax reporting 1.8% State income taxes, net of federal income tax benefit 4.2% ----- Effective income tax rate 40.0% ----- -----
There were no significant temporary differences between income and expense items reported for financial and tax purposes. NOTE 6 - COMMITMENTS AND CONTINGENCIES LEASES - The Company is obligated under noncancelable operating leases for office space, warehouse space and equipment that expire at various times through 2003. Annual minimum lease commitments under these leases amount to $101,100, $100,800, $96,900, $71,700 and $54,600, respectively, in the five-year period ended June 30, 2003. Total rent expense amounted to $205,526 in the year ended June 30, 1998. LITIGATION - There are various outstanding claims against the Company arising in the normal course of business. The Company believes that these claims are without merit and that any losses which might ultimately be sustained by the Company would not be material to the financial position, results of operations, or cash flows of the Company. NOTE 8 - RELATED PARTY TRANSACTIONS As of June 30, 1998, other current assets include $56,450 due from the Company's former shareholder. This amount is due within the next year. 11 Item 7(c) - Exhibits 2.1 Stock Purchase Agreement by and among Precept Business Products, Inc., Precept Business Services, Inc., MBF Corporation and J.D. Greco dated June 13, 1998 (1) 2.2 Stock Purchase Agreement by and among Precept Business Products, Inc., Precept Business Services, Inc., Mail/Source, Inc., Joseph D. Greco, II Trust, Laurie Jan Greco Trust and Natalie Ann Greco Trust dated June 30, 1998 (2) 23.1 Consent of Ernst & Young L.L.P. (1) Filed as exhibit to Current Report on Form 8-K dated June 19, 1998. (2) Filed herewith.
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly issued this report to be signed on its behalf by the undersigned hereunto duly authorized. PRECEPT BUSINESS SERVICES, INC. September 11, 1998 By: ------------------------------------- William W. Solomon, Jr. Senior Vice President, Chief Financial Officer (Principal Financial and Accounting Officer) 12 EX-2.2 2 EXHIBIT 2.2 EXHIBIT 2.2 STOCK PURCHASE AGREEMENT BY AND AMONG PRECEPT BUSINESS PRODUCTS, INC. PRECEPT BUSINESS SERVICES, INC. AND MAIL/SOURCE, INC. JOSEPH D. GRECO, II TRUST LAURIE JAN GRECO TRUST NATALIE ANN GRECO TRUST JUNE 30, 1998 TABLE OF CONTENTS
Page (A) -------- ARTICLE 1 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 1.1 Definitions. . . . . . . . . . . . . . . . . . . . . . . . 17 ARTICLE II SALE AND PURCHASE OF THE SHARES . . . . . . . . . . . . . . . . . . . . 20 2.1 Sale of Shares . . . . . . . . . . . . . . . . . . . . . . 20 2.2 Purchase Price . . . . . . . . . . . . . . . . . . . . . . 21 2.3 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . 21 2.4 Closing Deliveries . . . . . . . . . . . . . . . . . . . . 21 2.5 Further Assurances . . . . . . . . . . . . . . . . . . . . 22 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS . . . . . . . . . . . . . . . . . . 22 3.1 Organization . . . . . . . . . . . . . . . . . . . . . . . 22 3.2 Authority. . . . . . . . . . . . . . . . . . . . . . . . . 22 3.3 Minute Books . . . . . . . . . . . . . . . . . . . . . . . 22 3.4 Capitalization . . . . . . . . . . . . . . . . . . . . . . 23 3.5 Title to the Shares. . . . . . . . . . . . . . . . . . . . 23 3.6 No Violation . . . . . . . . . . . . . . . . . . . . . . . 23 3.7 Government Consents. . . . . . . . . . . . . . . . . . . . 23 3.8 Financial Statements . . . . . . . . . . . . . . . . . . . 24 3.9 Accounts Receivable. . . . . . . . . . . . . . . . . . . . 24 3.10 Absence of Undisclosed Liabilities . . . . . . . . . . . . 24 3.11 Absence of Material Adverse Change . . . . . . . . . . . . 24 3.12 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . 25 3.13 Litigation . . . . . . . . . . . . . . . . . . . . . . . . 26 3.14 Compliance with Laws and Regulations . . . . . . . . . . . 27 3.15 Permits. . . . . . . . . . . . . . . . . . . . . . . . . . 27 3.16 Employee Matters . . . . . . . . . . . . . . . . . . . . . 27 3.17 Employee Benefit Plans . . . . . . . . . . . . . . . . . . 28 3.18 Title to Assets; Real Property . . . . . . . . . . . . . . 29 3.19 Condition of Properties. . . . . . . . . . . . . . . . . . 31 3.20 Material Agreements. . . . . . . . . . . . . . . . . . . . 31 3.21 Customers. . . . . . . . . . . . . . . . . . . . . . . . . 32 3.22 Intellectual Property Rights . . . . . . . . . . . . . . . 32 3.23 Subsidiaries and Investments . . . . . . . . . . . . . . . 33 3.24 Competing Interests. . . . . . . . . . . . . . . . . . . . 33 3.25 Illegal or Unauthorized Payments; Political Contributions. . . . . . . . . . . . . . . . . . . . . . . 33 13 3.26 Environmental Matters . . . . . . . . . . . . . . . . . . 33 3.27 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . 34 3.28 Insurance . . . . . . . . . . . . . . . . . . . . . . . . 34 3.29 Bank Accounts and Powers of Attorney. . . . . . . . . . . 34 3.30 Warranties. . . . . . . . . . . . . . . . . . . . . . . . 34 3.31 Inventory . . . . . . . . . . . . . . . . . . . . . . . . 34 3.32 Affiliate Transactions. . . . . . . . . . . . . . . . . . 35 3.33 Tax Matters; Pooling. . . . . . . . . . . . . . . . . . . 35 3.34 Projections; Material Facts . . . . . . . . . . . . . . . 35 3.35 No Misrepresentations . . . . . . . . . . . . . . . . . . 35 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER AND PRECEPT. . . . . . . . . . 36 4.1 Organization. . . . . . . . . . . . . . . . . . . . . . . 36 4.2 Authority . . . . . . . . . . . . . . . . . . . . . . . . 36 4.3 Capitalization. . . . . . . . . . . . . . . . . . . . . . 36 4.4 Parent Class A Common Stock . . . . . . . . . . . . . . . 36 4.5 No Violation. . . . . . . . . . . . . . . . . . . . . . . 36 4.6 Govenmental Consents. . . . . . . . . . . . . . . . . . . 37 4.7 SEC Documents . . . . . . . . . . . . . . . . . . . . . . 37 4.8 Finders' Fees . . . . . . . . . . . . . . . . . . . . . . 37 4.9 Litigation . . . . . . . . . . . . . . . . . . . . . . . 37 4.10 Absence of Material Adverse Change. . . . . . . . . . . . 38 4.11 Tax-Free Reorganization; Pooling. . . . . . . . . . . . . 38 4.12 No Misrepresentations . . . . . . . . . . . . . . . . . . 38 ARTICLE V ADDITIONAL COVENANTS AND AGREEMENTS. . . . . . . . . . . . . . . . . . 39 5.1 Conduct of Business . . . . . . . . . . . . . . . . . . . 39 5.2 No-Shop Provisions. . . . . . . . . . . . . . . . . . . . 39 5.3 Access and Information. . . . . . . . . . . . . . . . . . 39 5.4 Supplemental Disclosure . . . . . . . . . . . . . . . . . 40 5.5 Information for Filings . . . . . . . . . . . . . . . . . 40 5.6 Fulfillment of Conditions by the Company and The Stockholders . . . . . . . . . . . . . . . . . . . . . . 40 5.7 Fulfillment of Conditions by Buyer and Precept. . . . . . 40 5.8 Publicity . . . . . . . . . . . . . . . . . . . . . . . . 40 5.9 Release by The Stockholders . . . . . . . . . . . . . . . 41 5.10 Covenants Relating to Taxes . . . . . . . . . . . . . . . 41 5.11 Pooling; Tax Treatment. . . . . . . . . . . . . . . . . . 41 5.12 Confidentiality . . . . . . . . . . . . . . . . . . . . . 41 5.13 Customer Visits . . . . . . . . . . . . . . . . . . . . . 42 5.14 Reporting . . . . . . . . . . . . . . . . . . . . . . . . 42 5.15 Precept 8-K . . . . . . . . . . . . . . . . . . . . . . . 42 5.16 Termination of Leases . . . . . . . . . . . . . . . . . . 42 14 ARTICLE VI CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . 42 6.1 Conditions to Obligations of Buyer and Precept . . . . . . 42 6.2 Conditions to Obligations of the Company and the Stockholders. . . . . . . . . . . . . . . . . . . . . . . 43 ARTICLE VII INDEMNIFICATION; HOLDBACK . . . . . . . . . . . . . . . . . . . . . . . 44 7.1 Indemnification of Buyer and Precept . . . . . . . . . . . 44 7.2 Notification of Claim; Set Off . . . . . . . . . . . . . . 45 7.3 Defense of Claims. . . . . . . . . . . . . . . . . . . . . 45 7.4 Holdback for Claims. . . . . . . . . . . . . . . . . . . . 46 7.5 Survival . . . . . . . . . . . . . . . . . . . . . . . . . 47 7.6 Exclusive Remedy . . . . . . . . . . . . . . . . . . . . . 48 ARTICLE VIII MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 8.1 Termination of Agreement . . . . . . . . . . . . . . . . . 48 8.2 Effect of Termination. . . . . . . . . . . . . . . . . . . 49 8.3 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . 49 8.4 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . 50 8.5 Further Assurances . . . . . . . . . . . . . . . . . . . . 50 8.6 Assignment . . . . . . . . . . . . . . . . . . . . . . . . 50 8.7 Entire Agreement . . . . . . . . . . . . . . . . . . . . . 50 8.8 Severability . . . . . . . . . . . . . . . . . . . . . . . 50 8.9 Governing Law. . . . . . . . . . . . . . . . . . . . . . . 51 8.10 Arbitration Proceedings. . . . . . . . . . . . . . . . . . 51 8.11 Interpretation . . . . . . . . . . . . . . . . . . . . . . 52 8.12 Counterparts; Facsimile Signatures . . . . . . . . . . . . 52 8.13 Headings . . . . . . . . . . . . . . . . . . . . . . . . . 52 8.14 Construction . . . . . . . . . . . . . . . . . . . . . . . 52 (A) Page numbers in this agreement are for purposes of filing of this current report on Form 8-K/A and are different from the actual legal agreement. EXHIBITS Exhibit A - Affiliate Agreement Exhibit B - Closing Certificate for the Stockholders and the Company Exhibit C - Closing Certificate for the Buyer and Precept Exhibit D - Secretary's Certificate
15 STOCK PURCHASE AGREEMENT THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered into effective as of June 30, 1998 by and among Precept Business Products, Inc., a Delaware corporation (the "Buyer"), Precept Business Services, Inc., a Texas corporation ("Precept"), Mail/Source, Inc. (f/k/a MBF Data/Graphics, Inc.), a Louisiana corporation (the "Company"), Joseph D. Greco, II Trust, a Louisiana trust, Laurie Jan Greco Trust, a Louisiana trust, and Natalie Ann Greco Trust, a Louisiana trust (collectively, the "Stockholders"). RECITALS: WHEREAS, all of the issued and outstanding capital stock of the Company consists of an aggregate of 900 shares of Common Stock, no par value (the "Shares"), all of which are owned by the Stockholders; WHEREAS, Buyer desires to acquire from the Stockholders, and the Stockholders desire to sell to Buyer, all of the Shares, on the terms and subject to the conditions set forth in this Agreement in a transaction that is intended to qualify as a tax-free reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended; and WHEREAS, the transaction contemplated hereby is intended to be treated as a "pooling of interests" for financial accounting purposes. NOW, THEREFORE, in consideration of the foregoing premises and the mutual covenants, promises, representations, warranties and agreements contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I DEFINITIONS 1.1 DEFINITIONS. As used in this Agreement, the following terms shall have the meanings set forth below or in the section of this Agreement referenced below: "Accounts Receivable" is defined in Section 3.9. "Affiliate" shall mean any director, officer, employee or shareholder of any Person, or member of the family of any such Person, or any corporation, partnership, trust or other entity in which any such Person, or any member of the family of any such Person, has a substantial interest or is an officer, director, trustee, partner or holder of more than five percent (5%) of the outstanding capital stock thereof. "Agreement" shall mean this Stock Purchase Agreement. "Buyer" shall mean Precept Business Products, Inc., a Delaware corporation. 16 "Buyer Party" is defined in Section 7.1. "CERCLA" is defined in Section 3.26. "Claim" is defined in Section 7.2. "Closing" is defined in Section 2.3. "Closing Date" is defined in Section 2.3. "Code" is defined in Section 3.17(a). "Common Stock" shall mean the Company's common stock, no par value. "Company" shall mean Mail/Source, Inc. (f/k/a MBF Data/Graphics, Inc.), a Louisiana corporation. "Customer Due Diligence" is defined in Section 5.14. "Disclosure Schedule" is defined in the introductory paragraph to Article III. "Effective Date" is defined in Section 4.7(b). "Employee Benefit Plans" is defined in Section 3.17(c). "Environmental Laws" shall mean any and all laws, statutes, ordinances, rules, regulations, or orders of any Governmental Body pertaining to health or the environment currently in effect in any and all jurisdictions in which the Company owns property or conducts business, including without limitation, the Clean Air Act, as amended, the Comprehensive Environmental, Response, Compensation, and Liability Act of 1980 ("CERCLA"), as amended, the Federal Water Pollution Control Act, as amended, the Occupational Safety and Health Act of 1970, as amended, the Resource Conservation and Recovery Act of 1976 ("RCRA"), as amended, the Safe Drinking Water Act, as amended, the Toxic Substances Control Act, as amended, the Hazardous & Solid Waste Amendments Act of 1984, as amended, the Superfund Amendments and Reauthorization Act of 1986, as amended, the Hazardous Materials Transportation Act, as amended, the Oil Pollution Act of 1990, any state laws implementing the foregoing federal laws, and all other environmental conservation or protection laws. For purposes of this Agreement, the terms "hazardous substance" and "release" have the meanings specified in CERCLA and RCRA, and the term "disposal" has the meaning specified in RCRA; PROVIDED, HOWEVER, that to the extent the laws of the state in which the property is located establish a meaning for "hazardous substance," "release," or "disposal" that is broader than that specified in either CERCLA or RCRA, such broader meaning will apply. "ERISA" is defined in Section 3.17(a). 17 "Financial Statements" is defined in Section 3.8. "GAAP" shall mean United States generally accepted accounting principles as may be modified from time to time. "Governmental Body" is defined in Section 3.7. "Holdback Period" is defined in Section 7.4(b). "Holdback Shares" is defined in Section 7.4(a). "Intellectual Property" is defined in Section 3.22. "Latest Balance Sheet" is defined in Section 3.8. "Liabilities" is defined in Section 3.10. "Lien" is defined in Section 3.5. "Losses" is defined in Section 7.1. "Material Agreements" is defined in Section 3.20. "New Shares" is defined in Section 7.4(d)(i). "Parent Class A Common Stock" shall mean the Class A Common Stock, par value $0.01, of Precept Business Services, Inc., a Texas corporation. "Pension Plans" is defined in Section 3.17(a). "Permits" is defined in Section 3.15. "Person" is defined in Section 3.13. "Plans" is defined in Section 3.17(e). "Pooling Transaction" is defined in Section 3.33(a). "Precept" shall mean Precept Business Services, Inc., a Texas corporation. "Projections" is defined in Section 3.34. "Purchase Price" is defined in Section 2.2. "RCRA" is defined in Section 3.26. 18 "Registered Intellectual Property" is defined in Section 3.22. "S-4 Registration Statement" is defined in Section 4.7. "SEC" shall mean the Securities and Exchange Commission. "Securities Act" is defined in Section 4.7(b). "Shares" shall mean the shares of Common Stock owned by the Stockholders. "Tax" means any federal, state, local, or foreign income, gross receipts, license, payroll, employment, excise, severance, stamp, occupation, premium, windfall profits, environmental (including taxes under Code '59A), customs duties, capital stock, franchise, profits, withholding, social security (or similar), unemployment, disability, real property, personal property, sales, use, transfer, registration, value added, alternative or add-on minimum, estimated, or other tax of any kind whatsoever, including any interest, penalty or addition thereto, whether disputed or not. "Tax Return" means any return, declaration, report, claim for refund, information return or statement relating to Taxes, including any schedule or attachment thereto, and including any amendment thereof. "Transaction Documents" is defined in Section 3.2. "Welfare Benefit Plans" is defined in Section 3.17(b). ARTICLE II SALE AND PURCHASE OF THE SHARES 2.1 SALE OF SHARES. At the Closing (as defined in SECTION 2.3 hereof), subject to the terms and conditions of this Agreement, and on the basis of the representations, warranties and agreements herein contained, each of the Stockholders shall sell, convey, assign, transfer and deliver the Shares to Buyer, and Buyer will purchase, acquire and accept the Shares from the Stockholders, free and clear of all liens, encumbrances, mortgages, pledges, security interests, restrictions or charges of any kind or character, but together with all rights, privileges and advantages attached or accruing thereto. Buyer, however, shall not be required to purchase any Shares under this Agreement unless all of the Stockholders shall execute this Agreement and complete the sale and delivery of all the Shares at the Closing. 19 2.2 PURCHASE PRICE. The purchase price (the "Purchase Price") payable to the Stockholders for the Shares shall be an aggregate amount of $806,591, which shall be allocated among the Stockholders in proportion to their respective share ownership percentages in the Company. On the Closing Date and subject to the terms and conditions hereof, Buyer shall pay the Purchase Price to the Stockholders, collectively, by the issuance of 289,724 shares of Parent Class A Common Stock. Precept hereby agrees to issue the requisite number of shares to each of the Stockholders pursuant to the terms and conditions of this Agreement. 2.3 CLOSING. The closing of the purchase and sale of the Shares contemplated by this Agreement (the "Closing") will take place at the offices of Munsch Hardt Kopf Harr & Dinan, P.C., 4000 Fountain Place, 1445 Ross Avenue, Dallas, Texas 75202 on June 30, 1998 (the "Closing Date"), or at such other place and on such other date as the parties may agree. 2.4 CLOSING DELIVERIES. At the Closing, the certificate(s), documents and other items listed below will be executed and delivered by the appropriate parties: (a) Each Stockholder will deliver stock certificate(s) to Buyer representing all of the Shares, duly endorsed for transfer and accompanied by duly executed stock power(s); (b) Subject to SECTION 7.4 below, Buyer will deliver a stock certificate to the Trustee of each Stockholder representing the shares of Parent Class A Common Stock to be delivered to each respective Stockholder as Purchase Price; (c) Each Stockholder will execute and deliver an Affiliate Agreement substantially in the form of EXHIBIT A hereto; (d) The Stockholders and the Company will execute and deliver to Buyer a Closing Certificate substantially in the form of EXHIBIT B hereto; (e) Buyer will execute and deliver to the Company and each Stockholder a Closing Certificate substantially in the form of EXHIBIT C hereto; (f) The Company will execute and deliver to Buyer, and Buyer will execute and deliver to the Company and each Stockholder, a Secretary's Certificate substantially in the form of EXHIBIT D hereto; (g) If and to the extent requested by Buyer, each director and officer of the Company will deliver to Buyer a written resignation; (h) The Company and the Stockholders will deliver to Buyer a legal opinion of their counsel in such form as Buyer's counsel shall reasonably request; and (i) Buyer will deliver to the Company and the Stockholders a legal opinion of its counsel in such form as the Company's counsel shall reasonably request. 20 2.5 FURTHER ASSURANCES. At or after the Closing, and without further consideration, the Stockholders will execute and deliver to Buyer and/or the Company such further instruments of conveyance and transfer and such other documents as Buyer may reasonably request in order to more effectively convey and transfer to Buyer all of the Shares and to put Buyer in operational control of the Company and its assets. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND THE STOCKHOLDERS The Company (until the Closing) and each Stockholder, jointly and severally, hereby represent and warrant to Buyer that the statements contained in this Article III are true, correct and complete as of the date of this Agreement and will be correct and complete as of the Closing Date (as though made then and as though the Closing Date were substituted for the date of this Agreement throughout this Article III), except as set forth in the Disclosure Schedule attached hereto and delivered by the Stockholders to Buyer on the date hereof (the "Disclosure Schedule"). The Disclosure Schedule will be arranged in sections corresponding to the lettered and numbered sections contained in this Article III. 3.1 ORGANIZATION. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Louisiana and has full corporate power to own its properties and to conduct its business as presently conducted. The Company is duly authorized, qualified or licensed to do business and is in good standing as a foreign corporation in each state or other jurisdiction in which its assets are located or in which its business or operations as presently conducted make such qualification necessary, except where the failure to be so licensed or qualified would not be expected to have a material adverse effect on the Company. The jurisdictions wherein the Company is so qualified are listed in SECTION 3.1 OF THE DISCLOSURE SCHEDULE. 3.2 AUTHORITY. The Company has all requisite corporate power and authority, and each Stockholder has all requisite power and authority, to execute, deliver and perform under this Agreement and, where applicable, other instruments, agreements or documents to be delivered pursuant to this Agreement (collectively, the "Transaction Documents"). The execution, delivery and performance of the Transaction Documents, by the Company and each Stockholder, as the case may be, have been duly authorized by all necessary action, corporate or otherwise, on the part of the Company and each Stockholder. This Agreement has been, and the other Transaction Documents at Closing will be, duly executed and delivered by the Company and each Stockholder and, where applicable, each of the Transaction Documents will be legal, valid and binding agreements of the Company and each Stockholder, respectively, enforceable against each of them in accordance with their respective terms, except (a) as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally and (b) as may be limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies. 3.3 MINUTE BOOKS. The Company has delivered to Buyer true, correct and complete copies of the Company's charter, bylaws, minute books, stock certificate books and stock record 21 books. The minute books of the Company contain minutes or consents reflecting all actions taken by the directors (including any committees) and shareholders of the Company. 3.4 CAPITALIZATION. The authorized capital stock of the Company consists of 1,000 shares of common stock, no par value, of which 900 shares are issued and standing and all of which are held beneficially and of record by the Stockholders. All of the Shares are validly issued, fully paid and non-assessable and are held by the Stockholders free and clear of preemptive or similar rights. The Shares constitute all of the issued and outstanding capital stock of the Company. There are no outstanding options, warrants, convertible securities or other rights, agreements, arrangements or commitments obligating the Company, the Stockholders or any other person or entity to issue or sell any securities or ownership interests in the Company. Except as set forth in SECTION 3.4 OF THE DISCLOSURE SCHEDULE, there are no stockholders' agreements, voting agreements, voting trusts or similar agreements or restrictions binding on any of the Stockholders or applicable in any way to the Shares. To the Company's and the Stockholders' best knowledge, all of the outstanding capital stock of the Company has been offered and sold in compliance with all applicable securities laws, rules and regulations. 3.5 TITLE TO THE SHARES. Except as set forth in SECTION 3.5 OF THE DISCLOSURE SCHEDULE, the Stockholders own the Shares, of record and beneficially, free and clear of any lien, pledge, security interest, liability, charge or other encumbrance or claim of any person or entity, voting trusts, proxies, preemptive rights, rights of first refusal, buy-sell arrangements or other stockholder agreements (a "Lien"). On the Closing Date, the Stockholders will own the Shares, of record and beneficially, free and clear of any Lien. Upon delivery of the Shares to Buyer at the Closing hereunder, Buyer will acquire the entire legal and beneficial interest in all of the Shares, free and clear of any Lien. 3.6 NO VIOLATION. Except as described in SECTION 3.6 OF THE DISCLOSURE SCHEDULE, neither the execution nor the delivery of the Transaction Documents nor the consummation of the transactions contemplated thereby, including without limitation, the transfer of the Shares to Buyer, will conflict with, contravene or result in the material breach of any term or provision of, or violate, or constitute a material default under, or result in the creation of any Lien on the Company's assets pursuant to, or relieve any third party of any obligation or give any third party the right to terminate or accelerate any obligation under any charter provision, bylaw, Material Agreement (as listed in SECTION 3.20 OF THE DISCLOSURE SCHEDULE or with any customer set out in such SECTION 3.21 OF THE DISCLOSURE SCHEDULE), Permit, order, law or regulation to which any of the Stockholders is a party or by which the Company, any of the Stockholders or any of their assets is in any way bound or obligated. 3.7 GOVERNMENTAL CONSENTS. Except as described in SECTION 3.7 OF THE DISCLOSURE SCHEDULE, no material consent, approval, order or authorization of, or material registration, qualification, designation, declaration or filing with, any governmental or quasi-governmental agency, authority, commission, board or other body (collectively, a "Governmental Body") is required on the part of the Company or any of the Stockholders in connection with the transactions contemplated by this Agreement. 22 3.8 FINANCIAL STATEMENTS. Attached as SECTION 3.8 OF THE DISCLOSURE SCHEDULE are true and complete copies of: (i) the unaudited balance sheet of the Company and the unaudited statements of income, retained earnings and cash flows for the period ended October 31, 1997, and (ii) the unaudited balance sheet (the "Latest Balance Sheet") and related statements of income, retained earnings and cash flows of the Company for the period ended April 30, 1998, all of which have been prepared by the Company (the "Financial Statements"). The Financial Statements present fairly the financial condition of the Company at the dates specified and the results of its operations for the periods specified and have been prepared in accordance with GAAP, except for the absence of footnotes and the method of the depreciation of certain assets. The Financial Statements do not contain any material items of a special or nonrecurring nature, except as expressly stated therein. The Financial Statements have been prepared from the books and records of the Company, which accurately and fairly reflect all the material transactions of, acquisitions and dispositions of assets by, and incurrence of liabilities by the Company. 3.9 ACCOUNTS RECEIVABLE. SECTION 3.9 OF THE DISCLOSURE SCHEDULE sets forth the accounts receivable of the Company (including, without limitation, all unbilled accounts receivable and miscellaneous receivables) from sales made as of the date set forth therein (the "Accounts Receivable"), and the payments and rights to receive payments related thereto. Except as set forth in SECTION 3.9 OF THE DISCLOSURE SCHEDULE, the amounts of all Accounts Receivable, unbilled invoices and other debts due or recorded in the records and books of account of the Company as being due to the Company as of the Closing Date constitute valid claims against third parties not affiliated with any Stockholder or the Company and arise from bona fide transactions in the ordinary course of the business of the Company. Except as set forth in SECTION 3.9 OF THE DISCLOSURE SCHEDULE, the Accounts Receivable arose in the ordinary course of business and are fully collectible in the ordinary course of business, without resort to litigation, at the face amount thereof, less any reserve reflected in the Company's Latest Balance Sheet, and in all cases are not subject to: (a) the knowledge of the Company and the Stockholders, any counterclaim, or (b) any set-off or other reduction. 3.10 ABSENCE OF UNDISCLOSED LIABILITIES. The Company does not have any direct or indirect debts, obligations or liabilities of any nature, whether absolute, accrued, contingent, liquidated or otherwise, and whether due or to become due, asserted or, to the knowledge of the Company and the Stockholders, unasserted (collectively, "Liabilities"), except for (a) Liabilities specifically identified in the Latest Balance Sheet, (b) obligations to be performed in the ordinary course of business or under the Material Agreements (as defined in SECTION 3.20 below), and (c) as disclosed in SECTION 3.10 OF THE DISCLOSURE SCHEDULE. 3.11 ABSENCE OF MATERIAL ADVERSE CHANGE. Since the date of the Company's Latest Balance Sheet and except as otherwise set forth in SECTION 3.11 OF THE DISCLOSURE SCHEDULE, there has not been: (a) any material adverse change in the condition (financial or otherwise), results of operations, business, prospects, assets or Liabilities of the Company (b) any payment (including without limitation any dividend or other distribution or repayment of indebtedness) to any Stockholder, other than payment of compensation to employees of the Company in the ordinary course of business and consistent with past practices; (c) any breach or default (or event that with notice or lapse of time or both would constitute a breach or default), termination or, to the knowledge of the Company and the Stockholders, threatened termination under any Material 23 Agreement; (d) any material theft, damage, destruction, casualty loss, condemnation or eminent domain proceeding affecting any of the Company's assets, whether or not covered by insurance; (e) any sale, assignment or transfer of any of the assets of the Company, except in the ordinary course of business and consistent with past practices; (f) any waiver by the Company of any material rights related to the Company's business, operations or assets; (g) any other material transaction, agreement or commitment entered into by the Company or its stockholders affecting the Company's business, operations or assets, except in the ordinary course of business and consistent with past practices; or (h) any agreement or understanding to do or resulting in any of the foregoing. 3.12 TAXES. (a) FILING OF TAX RETURNS. The Company has duly and timely filed with the appropriate governmental agencies all income, excise, corporate, franchise, property, sales, use, payroll, withholding and other Tax Returns (including information returns) and reports required to be filed by the United States or any state or any political subdivision thereof or any foreign jurisdiction. All such Tax Returns or reports are complete and accurate in all material respects and reflect the taxes of the Company for the periods covered thereby. (b) PAYMENT OF TAXES. The Company has paid or accrued all Taxes, penalties and interest that have become due with respect to any Tax Returns that it has filed and any assessments of which it is aware. The Company is not delinquent in the payment of any Tax, assessment or governmental charge. (c) NO PENDING DEFICIENCIES, DELINQUENCIES, ASSESSMENTS OR AUDITS. No Tax deficiency or delinquency has been asserted against the Company. There is no unpaid assessment, proposal for additional taxes, deficiency or delinquency in the payment of any of the Taxes of the Company that could be asserted by any taxing authority. There is no taxing authority audit of the Company pending or, to the knowledge of the Company or the Stockholders threatened, and the results of any completed audits are properly reflected in the Financial Statements. The Company has not violated any federal, state, local or foreign tax law. (d) NO EXTENSION OF LIMITATION PERIOD. The Company has not been granted an extension by any taxing authority of the limitation period during which any tax liability may be assessed or collected or waived any statute of limitation in respect of Taxes. (e) ALL WITHHOLDING REQUIREMENTS SATISFIED. All monies required to be withheld by the Company and paid to governmental agencies for all income, social security, unemployment insurance, sales, excise, use and other Taxes have been (i) collected or withheld and either paid to the respective governmental agencies or set aside in accounts for such purpose or (ii) properly reflected in the Financial Statements. (f) STATE UNEMPLOYMENT TAXES. In respect of the Company's most recently completed reporting period, the Company has paid all state unemployment taxes, if any, to the State of Louisiana of the wages paid by the Company during such period that are subject to such tax. The Company does not know of any increase or proposed increase, or facts that 24 would lead to an increase, in the rate of such state unemployment tax for any period in the future. (g) TAX LIABILITY IN FINANCIAL STATEMENTS. The liabilities (including deferred taxes) shown in the Financial Statements and to be accrued on the books and records of the Company through the Closing Date for Taxes, interest and penalties are and will be, to the knowledge of the Company and the Stockholders, adequate accruals and have been and will be accrued in a manner consistent with the practices utilized for accruing tax liabilities in the tax year ended October 31, 1997 and take into account net operating losses, investment credits and other carryovers for periods ended prior to the Closing Date. (h) TAX EXEMPT USE PROPERTY. None of the Assets of the Company is "tax-exempt use property" within the meaning of Section 168(h) of the Code. (i) COLLAPSIBLE CORPORATION. The Company has not at any time consented to have the provisions of Section 341(f)(2) of the Code apply to it. (j) INDEPENDENT CONTRACTORS. Except as set forth in SECTION 3.12 OF THE DISCLOSURE SCHEDULE, all persons characterized as independent contractors, and not as employees, were properly characterized for all purposes under applicable laws (including, without limitation, their characterization as independent contractors for income and employment tax withholdings and payments). (k) LIENS. There are no liens for Taxes (other than for current Taxes not yet due and payable) upon the assets of the Company. (l) SECURITY FOR TAX EXEMPT OBLIGATIONS. None of the assets of the Company directly or indirectly secures any debt the interest on which the Company has been advised is tax exempt under Section 103(a) of the Code. (m) PARACHUTE PAYMENTS. The Company is not a party to any agreement, contract, arrangement or plan that has resulted or would result, separately or in the aggregate, in the payment of any "excess parachute payments" within the meaning of Section 280G of the Code or any similar provision of foreign, state or local law. (n) EXISTING PARTNERSHIPS. The Company is not a party to any joint venture, partnership, or other arrangement or contract which could be treated as a partnership for federal income tax purposes. (o) NO RULINGS OR REQUESTS FOR RULINGS. There are no outstanding rulings of, or requests for rulings with, any Tax authority addressed to the Company that are, or if issued would be, binding on the Company. 3.13 LITIGATION. Except as described in SECTION 3.13 OF THE DISCLOSURE SCHEDULE, there are currently no pending or, to the knowledge of the Company and the Stockholders, threatened claims, actions, lawsuits, administrative proceedings or reviews, or formal or informal complaints 25 or investigations by any individual, corporation, partnership, Governmental Body or other entity (collectively, a "Person") against or relating to the Company or any of its directors, employees or agents (in their capacities as such) or to which any assets of the Company are subject. The Company is not subject to or bound by any currently existing judgment, order, writ, injunction or decree. 3.14 COMPLIANCE WITH LAWS AND REGULATIONS. The Company is currently complying with and has at all times complied with, and the use, operation and maintenance of its assets comply with and have at all times complied with, and neither the Company, its assets nor the use, operation or maintenance of such assets is in violation or contravention of (a) any applicable statute, law, ordinance, decree, order, rule or regulation, of any Governmental Body, or (b) any federal, state and local laws relating to occupational health and safety, employment and labor matters except where the failure to so comply will not have a material adverse effect on the Company. 3.15 PERMITS. To the best of the knowledge of the Company and the Stockholders, the Company owns or possesses from each appropriate Governmental Body all right, title and interest in and to all permits, licenses, authorizations, approvals, quality certifications, franchises or rights, including any special permits (collectively, "Permits") issued by any Governmental Body necessary to conduct its business except where the failure to do so will not have a material adverse effect on the Company. No loss or expiration of any such Permit is pending or, to the knowledge of the Company and the Stockholders, threatened or reasonably foreseeable, other than expiration in accordance with the terms thereof of Permits that may be renewed in the ordinary course of business without lapsing. 3.16 EMPLOYEE MATTERS. Set forth in SECTION 3.16 OF THE DISCLOSURE SCHEDULE is a complete list of all current employees of the Company, including date of employment, current title and compensation, and date and amount of last increase in compensation. The consummation of the transactions contemplated by this Agreement will not accelerate the time of payment or vesting or increase the amount of compensation due to any director, officer or employee (present or former) of the Company. The Company does not have any collective bargaining, union or labor agreements, contacts or other arrangements with any group of employees, labor union or employee representative. Neither the Company nor the Stockholders knows of any organization effort currently being made or threatened by or on behalf of any labor union with respect to employees of the Company. In addition, (a) the Company is in compliance with all federal, state or other applicable laws, domestic or foreign, respecting employment and employment practices, terms and conditions of employment and wages and hours, and has not and is not engaged in any unfair labor practice, except where any such non-compliance will not have a material adverse effect on the Company; (b) no unfair labor practice complaint against the Company is pending before the National Labor Relations Board or any similar agency; (c) there is no labor strike, dispute, slow down or stoppage actually pending or, to the Company's and the Stockholders' knowledge, threatened against or involving the Company; (d) no collective bargaining agreement is currently being negotiated by the Company; (e) the Company has not experienced any material labor difficulty or organizing activity during the last three years; and (f) to the Company's and the Stockholders' knowledge, and except as set forth in SECTION 3.16 OF THE DISCLOSURE SCHEDULE, no director, officer or other key employee of the Company intends to terminate his or her employment 26 with the Company. The Company does not have any noncompetition agreements with its employees. 3.17 EMPLOYEE BENEFIT PLANS. (a) SECTION 3.17 OF THE DISCLOSURE SCHEDULE lists all "employee pension benefit plans," as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), ever maintained or contributed to (or required to be contributed to) by the Company or any Affiliate (the "Pension Plans"). As used in this SECTION 3.17, "Affiliate" means any corporation, trade or business the employees of which, together with the employees of the Company, are required to be treated as employed by a single employer under the provisions of ERISA or Section 414 of the Internal Revenue Code of 1986, as amended from time to time (the "Code"). (b) SECTION 3.17 OF THE DISCLOSURE SCHEDULE lists each "employee welfare benefit plan" (as defined in Section 3(1) of ERISA) that the Company or any Affiliate maintains, contributes to or is required to contribute to on behalf of any employee or former employee, including any multi-employer welfare plan (the "Welfare Benefit Plans"), and sets forth the amount of any Liability of the Company or any Affiliate for any payment past due with respect to each Welfare Benefit Plan as of the date of the Closing. No voluntary employees' beneficiary association or other funding arrangement (other than insurance contracts) are being used to fund or implement any Welfare Benefit Plan. The Company has not made any written or oral representations to any employee or former employee promising or guaranteeing any employer payment or funding for the continuation of benefits or coverage under any Welfare Benefit Plan for any period of time beyond the end of the current plan year (except to the extent required under Code Section 4980B). (c) SECTION 3.17 OF THE DISCLOSURE SCHEDULE lists each deferred compensation plan, bonus plan, stock option plan, employee stock purchase plan, and any other employee benefit plan, arrangement, or commitment (whether written or oral) not required to be listed under paragraph (a) or (b) above (other than normal policies concerning holidays, vacations and salary continuation during short absences for illness or other reasons) maintained by the Company for employees (the "Employee Benefit Plans"). (d) Neither the Company nor any Affiliate maintains, or, within the last five years, has maintained, contributed to, been required to contribute to or had any employees participating in, any "defined benefit plan" (as defined in Section 3(35) of ERISA) or any multi-employer plan (as defined in Section 3(37) of ERISA). (e) The Pension Plans, the Welfare Benefit Plans and the Employee Benefit Plans and related trusts and insurance contracts (collectively, the "Plans") are legally valid and binding and in full force and effect. All of the Plans comply currently, and have complied in the past, both as to form and operation, with the provisions of all laws, rules and regulations governing or applying to such Plans, including but not limited to ERISA, the Code, the Americans with Disabilities Act, the Family and Medical Leave Act of 1993 and the Age Discrimination in Employment Act; all necessary governmental approvals for 27 the Pension Plans and the Welfare Benefit Plans have been obtained; and a favorable determination as to the qualification under the Code of each of the Pension Plans and each amendment thereto has been made by the Internal Revenue Service, and, to the knowledge of the Company and the Stockholders, nothing has occurred since the date of such determination letters that could adversely affect the qualification of such Plans or the tax exempt status of the related trust. All reports and filings required by any Governmental Body (including without limitation Form 5500 Annual Reports, Summary Annual Reports and Summary Plan Descriptions) with respect to each Plan have been timely and completely filed, and have been distributed to participants as required by applicable law. To the knowledge of the Company and the Stockholders, neither the Company, any Affiliate or any plan fiduciary of any Plan has engaged in any transaction in violation of Section 406(a) or (b) of ERISA or any "prohibited transaction" (as defined in Code Section 4975(c)(1)) that would subject the Company to any taxes, penalties or other Liabilities resulting from such transaction. Neither the Company nor the Stockholders has received notice that any of the Plans is being audited or investigated by any Governmental Body. With respect to such Plans, there are no actions, suits or claims (other than routine claims for benefits in the ordinary course) pending or, to the knowledge of the Company and the Stockholders, threatened, and there are no facts that could reasonably be expected to give rise to any such actions, suits or claims. (f) The Company does not have any Liabilities to any Person with respect to any Plan, except for (i) Liabilities that are fully funded by assets set aside in trust or irrevocably dedicated for that purpose, the fair market value of which assets exceed the Liabilities to which they are set aside or dedicated, and (ii) Liabilities that have been fully accrued on the Financial Statements. The Company may terminate any Welfare Benefit Plan or any Employee Benefit Plan immediately following the Closing without any Liability to employees, former employees, beneficiaries or any other Person except to the extent such Liabilities have been accrued or funded as described in the preceding sentence. (g) True and complete copies of the following documents have been delivered by the Company to Buyer: (i) each Welfare Benefit Plan and each Pension Plan and each related trust agreement or annuity contract (or other funding instrument); (ii) the most recent determination letter issued by the Internal Revenue Service with respect to each Pension Plan; (iii) Annual Reports on Form 5500 Series required to be filed with any Governmental Body for each Welfare Benefit Plan and each Pension Plan for the two most recent plan years; and (iv) the most recent actuarial report for each Pension Plan. 3.18 TITLE TO ASSETS; REAL PROPERTY. (a) Set forth in SECTION 3.18 OF THE DISCLOSURE SCHEDULE is a complete list of (a) all real property leased by the Company; (b) each vehicle owned or leased by the Company; and (c) each asset of the Company with a book value or fair market value greater than $5,000. The Company has good and marketable title to, or a valid leasehold interest in, all of its assets, including without limitation, the assets listed in SECTION 3.18(a) OF THE DISCLOSURE SCHEDULE, the assets reflected on the Latest Balance Sheet and all assets used by the Company in the conduct of its business (except for assets disposed of in the ordinary 28 course of business and consistent with past practices since the Latest Balance Sheet Date and except for assets held under leases or licenses disclosed pursuant to SECTION 3.20), subject to no Liens, except for (a) Liens for current taxes not yet due; (b) minor imperfections of title and encumbrances that do not materially detract from or interfere with the present use or value of such assets; and (c) Liens disclosed in SECTION 3.18(a) OF THE DISCLOSURE SCHEDULE. (b) SECTION 3.18(b) OF THE DISCLOSURE SCHEDULE lists and describes briefly all real property owned by the Company. With respect to each such parcel of real property: (i) the Company has good and marketable title to the parcel of real property, free and clear of any Lien, easement, covenant or other restriction, (A) except for installments of special assessments not yet delinquent, recorded easements, covenants and other restrictions, and utility easements, building restrictions, zoning restrictions, (B) except for easements and restrictions existing generally with respect to properties of a similar character that do not affect materially and adversely the current use, occupancy or value, or the marketability of title, of the property subject thereto, and (C) except as set forth in SECTION 3.18(b) OF THE DISCLOSURE SCHEDULE; (ii) there are no pending or, to the knowledge of the Company and the Stockholders, threatened condemnation proceedings, lawsuits or administrative actions relating to the property or other matters materially and adversely affecting the current use, occupancy or value thereof; (iii) (A) the legal description for the parcel contained in the deed thereof describes such parcel fully and adequately, and (B) to the knowledge of the Company and the Stockholders, the buildings and improvements are located within the boundary lines of the described parcels of land, are not in material violation of applicable setback requirements, zoning laws and ordinances (and the properties or buildings or improvements thereon are not subject to "permitted non-conforming use" or "permitted non-conforming structure" classifications) and do not encroach on any easement that may burden the land; (iv) all facilities have received all approvals of all Governmental Bodies (including material licenses and permits) required in connection with the ownership or operation thereof, except where the failure to receive such approvals would not be expected to have a material adverse effect on the Company, and all facilities have been operated and maintained in accordance with applicable laws, rules and regulations in all material respects; (v) there are no leases, subleases, licenses, concessions or other agreements, written or oral, granting to any party (or parties) the right of use or occupancy of any portion of the parcel of real property, except as described in SECTION 3.18(b) OF THE DISCLOSURE SCHEDULE; (vi) there are no outstanding options or rights of first refusal to purchase the parcel of real property, or any portion thereof or interest therein; 29 (vii) there are no parties (other than the Company) in possession of the parcel of real property other than tenants under any leases disclosed in SECTION 3.18(a) OF THE DISCLOSURE SCHEDULE who are in possession of space to which they are entitled. 3.19 CONDITION OF PROPERTIES. All facilities, machinery, equipment, fixtures, vehicles and other tangible property owned, leased or used by the Company are in good operating condition and repair, normal wear and tear excepted, are reasonably fit and usable for the purposes for which they are being used, to the knowledge of the Company and the Stockholders, will not likely require major overhaul or repair in the foreseeable future, are adequate and sufficient for the Company's business and, to the knowledge of the Company and the Stockholders, substantially conform with all applicable laws, rules and regulations. The Company maintains policies of insurance issued by insurers of recognized responsibility insuring the Company and its assets and business against such losses and risks. 3.20 MATERIAL AGREEMENTS. (a) SECTION 3.20 OF THE DISCLOSURE SCHEDULE lists each agreement and arrangement (whether written or oral and including all amendments thereto) to which the Company is a party or a beneficiary or by which the Company or any of its assets is bound and that is material to the Company (collectively, the "Material Agreements"), including without limitation (i) any real estate leases; (ii) any contracts for the provision of goods or services by the Company; (iii) any agreement evidencing, securing or otherwise relating to any indebtedness for which the Company is liable; (iv) any capital or operating leases, value-added reseller, reseller or conditional sales agreements relating to vehicles, equipment or other assets of the Company; (v) any supply or manufacturing agreements or arrangements pursuant to which the Company is entitled or obligated to acquire any assets from a third party; (vi) any insurance policies; (vii) any employment, consulting, noncompetition, separation, collective bargaining, union or labor agreements or arrangements; (viii) any agreement with any stockholder, director, officer or employee of the Company, or any Affiliate or family member thereof; (ix) any joint marketing or similar agreement or arrangement; and (x) any other agreement or arrangement pursuant to which, based on historical or projected volume, the Company could be required to make, or be entitled to receive, aggregate payments in excess of $10,000 during any calendar year. (b) The Company has performed all material obligations required to be performed by it in connection with the agreements and arrangements required to be disclosed in SECTION 3.20 OF THE DISCLOSURE SCHEDULE and is not in receipt of any claim of default under any agreement or arrangement required to be disclosed in such Schedule by this SECTION 3.20; the Company has no present expectation or intention of not fully performing any material obligation pursuant to any agreement or arrangement required to be disclosed in SECTION 3.20 OF THE DISCLOSURE SCHEDULE; and neither the Company nor the Stockholders has any knowledge of any breach or anticipated breach by any other party to any agreement or arrangement required to be disclosed in SECTION 3.20 OF THE DISCLOSURE SCHEDULE. 30 (c) The Company has delivered to Buyer a copy of the agreements and arrangements (including all amendments and modifications thereto) required to be disclosed in SECTION 3.20 OF THE DISCLOSURE SCHEDULE and its standard form of customer agreement, all training manuals and a description (with any written or other instructional materials) of how the Company operates its business, undertakes projects for customers or trains its employees. 3.21 CUSTOMERS. Set forth in SECTION 3.21 OF THE DISCLOSURE SCHEDULE is a complete list of customers as of June 24, 1998. Except as set forth in SECTION 3.21 OF THE DISCLOSURE SCHEDULE, no customer has advised the Company of such customer's intent to discontinue doing business with the Company or to reduce the volume of goods or services purchased from or supplied to the Company. Except as set forth in SECTION 3.21 OF THE DISCLOSURE SCHEDULE, the Company has not received from any customer either oral or written notice of such customer's intention to terminate its account with the Company. 3.22 INTELLECTUAL PROPERTY RIGHTS. Set forth in SECTION 3.22 OF THE DISCLOSURE SCHEDULE is a complete list of all registered patents, trademarks, service marks, trade names and copyrights, and applications for and licenses (to or from the Company) with respect to any of the foregoing (collectively, "Registered Intellectual Property"), owned by the Company or with respect to which the Company has any rights. To the knowledge of the Company and the Stockholders, the Company has the sole and exclusive right to use all Registered Intellectual Property and other computer software (both proprietary and third party) and software licenses, intellectual property, proprietary information, trade secrets, trademarks, trade names, copyrights, material and manufacturers specifications, drawings and designs (collectively, "Intellectual Property") used by the Company or necessary in connection with the operation of the Company's business, without infringing on or otherwise acting adversely to the rights or claimed rights of any Person, and neither the Company nor the Stockholders has knowledge of any obligation to pay any royalty or other consideration to any Person in connection with the use of any such Intellectual Property. SECTION 3.22 OF THE DISCLOSURE SCHEDULE also includes a description of the nature of the Company's rights in and to the Intellectual Property. To the knowledge of the Company and the Stockholders , no other Person is infringing the rights of the Company with respect to any of its Intellectual Property. No consent of any third parties will be required for the transfer of Intellectual Property rights to Buyer or the use thereof by Buyer upon consummation of the transactions contemplated hereby, and the Intellectual Property rights (other than with respect to required consents of third party licensors and licensees of software under applicable licenses) are freely transferable. The Company is the sole and exclusive owner of all rights in and to the software described in SECTION 3.22 OF THE DISCLOSURE SCHEDULE, including all source and object code and documentation related thereto, except the third party software listed in SECTION 3.22 OF THE DISCLOSURE SCHEDULE, as to which the Company has been granted all rights and licenses necessary for the Company to sublicense such software to third parties or to provide services to third parties in the manner in which the Company has done so through the date hereof and the date of Closing. The Company has licensed the software only to the third parties listed in SECTION 3.22 OF THE DISCLOSURE SCHEDULE. There are no existing material defaults, events of default or events, occurrences, acts or omissions that, with the giving of notice or lapse of time or both, would constitute material defaults by the Company or, to the Company's and the Stockholders' knowledge, the other parties thereto, with respect to the Company's licenses of the 31 software to licensees or the Company's licenses with third parties with respect to third party software included in the Company's software. 3.23 SUBSIDIARIES AND INVESTMENTS. The Company does not own any direct or indirect equity or debt interest in any other Person, including without limitation, any interest in a partnership or joint venture, and is not obligated or committed to acquire any such interest. 3.24 COMPETING INTERESTS. Except as disclosed in SECTION 3.24 OF DISCLOSURE SCHEDULE, neither the Company, the Stockholders nor any director, officer, relative or Affiliate of any of the foregoing owns, directly or indirectly, an interest in any Person that is a competitor, customer or supplier of the Company or that otherwise has material business dealings with the Company. 3.25 ILLEGAL OR UNAUTHORIZED PAYMENTS; POLITICAL CONTRIBUTIONS. Neither the Company nor any of its officers, directors, employees, agents or other representatives or, to the knowledge of the Company and the Stockholders, any other business entity or enterprise with which the Company is or has been affiliated or associated, has, directly or indirectly, knowingly made or authorized any payment, contribution or gift of money, property or services, whether or not in contravention of applicable law, (a) as a kickback or bribe to any Person or (b) to any political organization, or the holder of or any aspirant to any elective or appointive public office, except for personal political contributions not involving the direct or indirect use of funds of the Company. To the knowledge of the Company and the Stockholders, the Company has not violated any federal or state antitrust statutes, rules or regulations, including without limitation those relating to unfair competition, price fixing or collusion. 3.26 ENVIRONMENTAL MATTERS. Except for matters disclosed in SECTION 3.26 OF THE DISCLOSURE SCHEDULE, (a) to the best of the knowledge of the Company and the Stockholders, the properties, operations and activities of the Company are in compliance in all material respects with all applicable Environmental Laws; (b) the Company and the properties and operations of the Company are not subject to any existing, pending, or, to the knowledge of the Company and the Stockholders, threatened action, suit, claim, investigation, inquiry or proceeding by or before any governmental entity under any Environmental Laws; (c) to the best of the knowledge of the Company and the Stockholders, all notices, permits, licenses or similar authorizations, if any, required to be obtained or filed by the Company under any Environmental Laws in connection with any aspect of the business of the Company have been duly obtained or filed and will remain valid and in effect after the Closing, and the Company is in compliance with the terms and conditions of all such notices, permits, licenses, and similar authorizations; (d) to the best of the knowledge of the Company and the Stockholders, there are no physical or environmental conditions existing on any property of the Company or resulting from the Company's operations or activities, past or present, at any location, that would give rise to any on-site or off-site remedial obligations imposed on the Company under any Environmental Laws; (e) to the best of the knowledge of the Company and the Stockholders, there has been no material release of hazardous substances into the environment by the Company; and (f) the Company has made available to the Buyer all internal and external environmental audits and studies and all correspondence on substantial environmental matters in the possession of the Company relating to any of the current or former properties or operations of the Company. 32 3.27 BROKERS. Except to the extent disclosed in SECTION 3.27 OF THE DISCLOSURE SCHEDULE, no broker, finder or investment banker is entitled to any brokerage, finder's or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of the Company or the Stockholders. 3.28 INSURANCE. Set forth in SECTION 3.28 OF THE DISCLOSURE SCHEDULE is a list of all insurance policies currently in effect under which the Company is a beneficiary or an insured. Such insurance coverage will remain in effect (or will be replaced by similar policies) with respect to the Company and its properties as to all events occurring on or prior to the Closing. As of the date of this Agreement, neither the Company nor the Stockholders has received any notice that any of the policies listed in SECTION 3.28 OF THE DISCLOSURE SCHEDULE has been or will be canceled prior to its scheduled termination date, or would not be renewed substantially on the same terms now in effect if the insured party requested renewal or has received notice from any of its insurance carriers that any insurance premiums will be subject to increase in an amount materially disproportionate to the amount of the increases with respect thereto (or with respect to similar insurance) in prior years. The Company is not in material default under any such policy and all premiums due and payable with respect to such coverage have been paid or accrued. 3.29 BANK ACCOUNTS AND POWERS OF ATTORNEY. Set forth in SECTION 3.29 OF THE DISCLOSURE SCHEDULE is a complete list of (a) the name and address of each bank or other depository institution in which the Company has an account or safe deposit box, the number of such account or safe deposit box and the names of all persons authorized to draw thereon or to have access thereto, and (b) the names of all persons, if any, holding powers of attorney from the Company and a summary statement of the terms thereof. 3.30 WARRANTIES. SECTION 3.30 OF THE DISCLOSURE SCHEDULE summarizes all claims outstanding, pending or, to the knowledge of the Company and the Stockholders, threatened for breach of any warranty relating to any products or services sold by the Company prior to the date hereof. The description of the Company's product and service warranties set forth in SECTION 3.30 OF THE DISCLOSURE SCHEDULE is correct and complete. 3.31 INVENTORY. SECTION 3.31 OF THE DISCLOSURE SCHEDULE sets forth, as of June 24, 1998, all inventory of the Company that is (a) owned by the Company, and (b) owned by customers of the Company, if any. All inventory owned by the Company is merchantable and fit for the purpose for which it was procured or manufactured, and none of which is obsolete, damaged or defective in any material amount. Such inventory owned by the Company is not subject to any liens, charges, pledges, security interests or other encumbrances. 3.32 AFFILIATE TRANSACTIONS. Except as disclosed in SECTION 3.32 OF THE DISCLOSURE SCHEDULE and other than pursuant to this Agreement and the Transaction Documents, neither the Stockholders nor any Affiliate has any agreement, undertaking or understanding with the Company (other than normal employment arrangements) or any interest in any property, real, personal or mixed, tangible or intangible (including, without limitation, intellectual property rights), used in or pertaining to the business of the Company (other than ownership of capital stock of the Company). Neither the Stockholders nor any Affiliate has any direct or indirect interest in any competitor, supplier or customer of the Company or in any person, firm or entity from whom or to whom the Company leases any property, or in any other person, firm or entity with whom the 33 Company transacts business of any nature. For purposes of this SECTION 3.32 the members of the immediate family of a director, officer, employee or shareholder shall consist of the spouse, parents, children, siblings, mothers-and fathers-in-law, sons- and daughters-in-law, and brothers- and sisters in-law of such director, officer, employee or shareholder. 3.33 TAX MATTERS; POOLING. (a) Neither the Company nor any of its Affiliates has taken or agreed to take any action that would prevent the transaction contemplated hereby from (i) constituting a reorganization qualifying under the provisions of Section 368(a) of the Code or (ii) being treated for financial accounting purposes as a "pooling of interests" in accordance with GAAP and the rules, regulations and interpretations of the SEC (a "Pooling Transaction"). (b) There is no current plan or intention by the Stockholders to sell, exchange or otherwise dispose of any of the Shares delivered to the Stockholders at Closing to either Precept or the Company. (c) The Company and each Stockholder will each pay their respective expenses, if any, incurred in connection with the transaction contemplated hereby. (d) The Company is not an investment company as defined in Section 368(a)(2)(F)(iii) and (iv) of the Code. (e) The Company is not under the jurisdiction of a court in a title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code. 3.34 PROJECTIONS; MATERIAL FACTS. In connection with the transactions contemplated by this Agreement, the Stockholders have furnished to Buyer certain projections and estimates relating to the Company attached hereto as SCHEDULE 3.34 (the "Projections"). The Company and the Stockholders represent and warrant that the assumptions and projections in the Projections were prepared by the Company and the Stockholders in good faith based on their best knowledge, information and belief. The Company and the Stockholders know of no information or fact that has or would have a material adverse effect on the financial condition, business or business prospects of the Company that has not been disclosed to Buyer. Since the date of the Projections, the Company and the Stockholders know of no material adverse change in the business, business prospects, property, condition or results of operations of the Company. 3.35 NO MISREPRESENTATIONS. Since June 24, 1998, neither the Company nor the Stockholders has received any appraisal, report or other information relating to the value or condition of the Company or that indicates a material adverse change in the value or condition of the Company or any of its material assets. The representations, warranties and statements made by the Company and the Stockholders in or pursuant to this Agreement (including the Disclosure Schedule) are true, complete and correct in all material respects and do not contain any untrue statement of a material fact or omit to state any material fact necessary to make any such representation, warranty or statement, under the circumstances in which it is made, not misleading. 34 ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER AND PRECEPT Buyer and Precept, respectively, represent and warrant to the Company (until the Closing) and each Stockholder as follows: 4.1 ORGANIZATION. Buyer is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and Precept is a corporation duly organized, validly existing and in good standing under the laws of the State of Texas. Each of Buyer and Precept is duly authorized, qualified or licensed to do business and is in good standing as a foreign corporation in each state or other jurisdiction in which its assets are located or in which its business or operations as presently conducted make such qualification necessary, except where the failure to be so licensed or qualified would not be expected to have a material adverse effect on Buyer or Precept. The jurisdictions wherein Buyer and Precept are so qualified are listed in SECTION 4.1 OF THE DISCLOSURE SCHEDULE. 4.2 AUTHORITY. Buyer and Precept have all requisite corporate power and authority to execute, deliver and perform under the Transaction Documents. The execution, delivery and performance of the Transaction Documents by Buyer and Precept have been duly authorized by all necessary action, corporate or otherwise, on the part of Buyer and Precept. This Agreement has been, and the Transaction Documents at Closing will be, duly executed and delivered by Buyer and Precept and are legal, valid and binding agreements of Buyer and Precept, enforceable against each of them in accordance with their respective terms, except (a) as may be limited by applicable bankruptcy, insolvency, reorganization, moratorium and other laws of general application affecting enforcement of creditors' rights generally and (b) as may be limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies. 4.3 CAPITALIZATION. The authorized capital stock of Precept consists of (a) 110,500,000 shares of Common Stock, of which 100,000,000 shares have been designated Class A Common Stock, $0.01 par value per share, of which 35,509,503 shares are issued and outstanding as of March 31, 1998 and 10,500,000 shares of which have been designated Class B Common Stock, of which 10,102,997 shares are issued and outstanding as of March 31, 1998, and (b) 3,000,000 shares of Preferred Stock, of which no shares are issued and outstanding as of March 31, 1998. All outstanding shares are validly issued, fully paid and non-assessable and were offered and sold in compliance with all applicable securities laws and regulations. 4.4 PARENT CLASS A COMMON STOCK. The shares of Parent Class A Common Stock to be issued pursuant to this Agreement will be duly authorized, validly issued, and upon receipt of the consideration contemplated hereby, fully paid and nonassessable. 4.5 NO VIOLATION. The execution, delivery and performance of the Transaction Documents by Buyer and Precept will not conflict with or result in the breach of any term or provision of, or violate or constitute a default under any charter provision or bylaw or under any 35 material agreement, instrument, order, law or regulation to which Buyer or Precept is a party or by which Buyer or Precept is in any way bound or obligated. 4.6 GOVERNMENTAL CONSENTS. To the knowledge of Buyer and Precept, no consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any Governmental Body is required on the part of Buyer or Precept in connection with the transactions contemplated by this Agreement. 4.7 SEC DOCUMENTS. (a) Precept has furnished or made available to the Company or the Stockholders a true and complete copy of its Registration Statement on Form S-4 filed under the Securities Act of 1933, as filed with the SEC and declared effective on February 10, 1998 (the "S-4 Registration Statement"). The S-4 Registration Statement is currently effective, and the shares of Parent Class A Common Stock to be delivered to the Stockholders at the Closing will be registered under the Securities Act pursuant to the S-4 Registration Statement. (b) The S-4 Registration Statement was prepared in compliance in all material respects with the applicable requirements of the Securities Act of 1933, as amended (the "Securities Act"). As of February 10, 1998 (the "Effective Date"), the S-4 Registration Statement (i) complied as to form in all material respects with the applicable requirements of the Securities Act and (ii) did not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein not misleading. The prospectus relating to the S-4 Registration Statement (i) complied as to form in all material respects with the applicable requirements of the Securities Act as of the date thereof, and (ii) did not contain any untrue statement of a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading. Each of the consolidated balance sheets of Precept included in the S-4 Registration Statement (including the related notes and schedules) fairly presents the consolidated financial position of Precept as of the dates set forth therein and each of the consolidated statements of income, cash flows and shareholders' equity included in the S-4 Registration Statement (including any related notes and schedules) fairly presents the results of income, cash flows and shareholders' equity, as the case may be, of Precept for the periods set forth therein (subject, in the case of unaudited statements, to normal year-end audit adjustments that would not be material in amount or effect), in each case in accordance with GAAP consistently applied during the periods involved. 4.8 FINDERS' FEES. There is no investment banker, broker, finder or other intermediary that has been retained by or is authorized to act on behalf of Buyer who might be entitled to any fee or commission from the Stockholders or the Company upon consummation of the transactions contemplated by this Agreement. 4.9 LITIGATION. Except as set forth in the S-4 Registration Statement, there are currently no pending or, to the knowledge of Precept or Buyer, threatened material claims, actions, lawsuits, administrative proceeding or reviews of formal or informal complaints or investigations by any Person against or relating to Precept or Buyer or any of its directors, employees, or agents (in their capacities as such) or to which any assets of Precept or Buyer are subject. Except as otherwise set 36 forth in the S-4 Registration Statement, neither Precept nor Buyer is bound by, or subject to, any currently existing judgment, order, writ, injunction or decree that would have a material adverse effect on Buyer or Precept. 4.10 ABSENCE OF MATERIAL ADVERSE CHANGE. Since the Effective Date and except as otherwise set forth in SECTION 4.10 OF THE DISCLOSURE SCHEDULE, there has not been: (a) any material adverse change in the condition (financial or otherwise), results of operations, business, prospects, assets or Liabilities of Precept or Buyer; (b) any payment (including, without limitation, any dividend or other distribution or repayment of indebtedness) to any shareholder of Precept, other than payment of compensation to employees of Precept or Buyer in the ordinary course of business and consistent with past practices; (c) any breach or default (or event that with notice or lapse of time or both would constitute a breach or default), termination or, to the knowledge of the executive officers of Precept and Buyer threatened termination, under any material agreement of Precept or Buyer; (d) any material theft, damage, destruction, casualty loss, condemnation or eminent domain proceeding affecting any of assets of Precept or Buyer, whether or not covered by insurance; (e) any sale, assignment or transfer of any of the assets of Precept or Buyer, except in the ordinary course of business and consistent with past practices; (f) any waiver by Precept or Buyer of any material rights related to Precept's or Buyer's respective business, operations or assets; (g) any other material transaction, agreement or commitment entered into by the Precept, Buyer or their significant shareholders affecting Precept's or Buyer's respective business, operations or assets, except in the ordinary course of business and consistent with past practices, or (h) any agreement or understanding to do or resulting in any of the foregoing. 4.11 TAX-FREE REORGANIZATION; POOLING. (a) Neither Buyer nor Precept nor any of their Affiliates has taken or agreed to take any action that would prevent the transaction contemplated hereby from (i) constituting a reorganization qualifying under the provisions of Section 368(a) of the Code or (ii) being treated for financial accounting purposes as a Pooling Transaction. (b) Buyer and Precept have no current plan or intention to liquidate the Company, to merge the Company into any other corporation, to cause the Company to sell or otherwise dispose of any of its assets, except for dispositions made in the ordinary course of business, or to sell or otherwise dispose of any of the Company stock acquired in the transaction contemplated hereby, except for transfers described in Section 368(a)(2)(C) of the Code. (c) Buyer and Precept have no current plan or intention to reacquire any of the Parent Class A Common Stock issued in the transaction contemplated hereby. (d) It is the present intention of Buyer to continue at least one significant historic business line of the Company, or to use at least a significant portion of the Company's historic business assets in a business, in each case within the meaning of Treasury Regulations Section 1.368-1(d). 4.12 NO MISREPRESENTATIONS. The representations, warranties and statements made by Buyer and Precept in or pursuant to this Agreement (including the Disclosure Schedule) are true, 37 complete and correct in all material respects and do not contain any untrue statement of a material fact or omit to state any material fact necessary to make any such representation, warranty or statement, under the circumstance in which it was made, not misleading. ARTICLE V ADDITIONAL COVENANTS AND AGREEMENTS 5.1 CONDUCT OF BUSINESS. Prior to the Closing, the Company will, and the Stockholders will cause the Company to (a) operate in the ordinary course of business and consistent with past practices and use their reasonable best efforts, consistent with past practice to preserve the goodwill of the Company and of their employees, customers, suppliers, Governmental Bodies and others having business dealings with the Company; (b) except as contemplated by this Agreement, not engage in any transaction outside the ordinary course of business, including without limitation by making any material expenditure, investment or commitment or entering into any material agreement or arrangement of any kind; (c) maintain all insurance policies and all Permits that are required for the Company to carry on its business; (d) maintain books of account and records in the usual, regular and ordinary manner and consistent with past practices; and (e) not take any action that would result in a breach (as of the Closing) of the representations and warranties set forth in SECTION 3.11. 5.2 NO-SHOP PROVISIONS. Neither the Company nor the Stockholders has entered into any agreement, commitment or understanding with any other Person with respect to the sale of the Shares or a substantial portion of the business or assets of the Company (whether through an asset sale, stock sale, merger or otherwise). Until the Closing, the Company and the Stockholders agree to negotiate exclusively and in good faith with Buyer with respect to the sale of the Shares or the Company's assets, and neither the Company nor the Stockholders will, directly or indirectly (through agents or otherwise), encourage or solicit any inquiries or accept any proposals by, or engage in any discussions or negotiations with or furnish any information to, any other Person concerning a sale of the Shares or a substantial portion of the assets or business of the Company (whether through an asset sale, stock sale, merger or otherwise), and the Company and each Stockholder will promptly communicate to Buyer the material substance of any inquiry or proposal concerning any such transaction that may be received. 5.3 ACCESS AND INFORMATION. The Company will permit Buyer and its representatives to have reasonable access to the Company's directors, officers, employees, agents, assets and properties and all relevant books, records and documents of or relating to the business and assets of the Company during normal business hours and will furnish to Buyer such information, financial records and other documents relating to the Company and their respective operations and business as Buyer may reasonably request. The Company and each Stockholder will permit Buyer and its representatives reasonable access to the Company's accountants, auditors, suppliers and Governmental Bodies having dealings with the Company for consultation or verification of any information obtained by Buyer, on and after the date of execution and delivery of this Agreement, and will use their respective best efforts to cause such Persons to cooperate with Buyer and its representatives in such consultation and in verifying such information. 38 5.4 SUPPLEMENTAL DISCLOSURE. Each party hereto will promptly supplement or amend each of the Schedules hereto with respect to any matter that arises or is discovered after the date hereof that, if existing or known at the date hereof, would have been required to be set forth or listed in the Schedules hereto; provided that, for purposes of determining the rights and obligations of the parties hereunder (other than the obligations of the parties under this SECTION 5.4), any such supplemental or amended disclosure will be deemed to have been disclosed to the other party for purposes of SECTION 7.1 hereof and each party reserves the right, in the event of any such supplemental disclosure, to terminate this Agreement pursuant to SECTION 8.1(b) or SECTION 8.1(e), as the case may be, of this Agreement if such supplemental disclosure, in such party's reasonable opinion, could have a material adverse effect on the assets, liabilities, financial condition or prospects of either the Company, Precept or Buyer (as the case may be). 5.5 INFORMATION FOR FILINGS. The Stockholders and the Company will furnish Buyer with all information concerning the Company as is required for inclusion in any application or filing made by Buyer to any Governmental Body in connection with the transactions contemplated by this Agreement. 5.6 FULFILLMENT OF CONDITIONS BY THE COMPANY AND THE STOCKHOLDERS. The Company and the Stockholders agree not to take any action that would cause the conditions on the obligations of the parties to effect the transactions contemplated hereby not to be fulfilled, including without limitation, by taking or causing to be taken any action that would cause the representations and warranties made by the Company or the Stockholders herein not to be true and correct as of the Closing. The Company and the Stockholders will take all reasonable steps to cause to be fulfilled the conditions precedent to Buyer's and Precept's obligations to consummate the transactions contemplated hereby that are dependent on the actions of the Company or the Stockholders, respectively. 5.7 FULFILLMENT OF CONDITIONS BY BUYER AND PRECEPT. Subject to SECTION 5.12 below, Buyer and Precept agree not to take any action, unless otherwise required by applicable legal requirements, that would cause the conditions on the obligations of the parties to effect the transactions contemplated hereby not to be fulfilled, including without limitation, by taking or causing to be taken any action that would cause the representations and warranties made by Buyer or Precept herein not to be true and correct as of the Closing. Buyer and Precept will take all reasonable steps to cause to be fulfilled the conditions precedent to the Company's and the Stockholders' obligations to consummate the transactions contemplated hereby that are dependent on the actions of Buyer or Precept, respectively. 5.8 PUBLICITY. Buyer, Precept, the Company and the Stockholders will cooperate with each other in the development and distribution of all news releases and other public disclosures relating to the transactions contemplated by this Agreement. Neither Buyer or Precept, on the one hand, nor the Company or the Stockholders, on the other hand, will issue or make, or allow to have issued or made, any press release or public announcement concerning the transactions contemplated by this Agreement without the advance approval in writing of the form and substance thereof by the other parties, unless otherwise required by applicable legal requirements; PROVIDED, HOWEVER, such approval shall not be unreasonably withheld. 39 5.9 RELEASE BY THE STOCKHOLDERS. Effective upon the Closing, the Stockholders and their trustees, executors, administrators, successors and assigns, hereby fully and unconditionally releases and forever discharges and holds harmless the Company and its employees, officers, directors, successors and assigns from any and all claims, demands, losses, costs, expenses (including reasonable attorneys' fees and expenses), obligations, liabilities and/or damages of every kind and nature whatsoever, whether or not now existing or known, relating in any way, directly or indirectly, to the Company that the Stockholders may now have or may hereafter claim to have against the Company or any of such employees, officers, directors, successors or assigns. 5.10 COVENANTS RELATING TO TAXES. (a) Buyer shall file all Tax Returns for the Company for all periods ending on or prior to the Closing Date that are required to be filed after the Closing Date. (b) Notwithstanding anything to the contrary contained herein, Buyer shall file any necessary Tax Return or other documentation with respect to all transfer, sales, stamp, registration or other similar Taxes or fees incurred in connection with this Agreement and shall be responsible for payment of any such Tax; PROVIDED, HOWEVER, any federal, state or local tax audits relating to the Company that pertain to either the calendar year 1997 (if any) or the Company's fiscal year ended October 31, 1997 shall be the sole responsibility of the Stockholders, and the Stockholders hereby agree to pay any and all cost and expense of attorneys, accountants and other professionals employed by the Stockholders to assist with such audits, provided that the Stockholders shall determine and control their tax representative and any other cost sources. (c) Except as otherwise provided in the Agreement, the Stockholders, the Company and Buyer agree to cooperate fully with each other with respect to the preparation of all Tax Returns and with respect to all matters relating to Taxes, and to keep each other advised as to any issue relating to Taxes which could have a bearing on such other party's responsibilities hereunder. 5.11 POOLING; TAX TREATMENT. Each party hereto shall use all reasonable efforts to cause the transaction contemplated hereby to be treated for financial accounting purposes as a Pooling Transaction, and shall not take, and shall use all reasonable efforts to prevent any Affiliate of such party from taking, any actions that would prevent such transaction from being treated for financial accounting purposes as a Pooling Transaction. Additionally, each party hereto shall use all reasonable efforts to cause the transaction contemplated hereby to qualify, and shall not take, and use all reasonable efforts to prevent any Affiliate of such party from taking, any actions that would prevent such transaction as qualifying as a reorganization under the provisions of Section 368(a) of the Code. 5.12 CONFIDENTIALITY. From the date hereof to and including the Closing Date, the parties hereto shall maintain, and cause their directors, employees, agents and advisors to maintain, in confidence and not disclose or use for any purpose, except the evaluation of the transactions contemplated hereby and the accuracy of the respective representations and warranties of the parties hereto contained herein, information concerning the other parties hereto and obtained directly or 40 indirectly from such parties, or their directors, employees, agents or advisors, except such information as is or becomes (a) available to the non-disclosing party from third parties not subject to an undertaking of confidentiality or secrecy; (b) generally available to the public other than as a result of a breach by the non-disclosing party hereunder; or (c) required to be disclosed under applicable law; and except such information that was in the possession of such party prior to obtaining such information from such other party (as to which the fact of prior possession such possessing party shall have the burden of proof). In the event that the transactions contemplated hereby shall not be consummated, all such information that is in writing shall be returned to the party furnishing the same, including to the extent reasonably practicable, copies or reproductions thereof which may have been prepared. 5.13 CUSTOMER VISITS. Upon execution of this Agreement, Precept and/or Buyer shall conduct due diligence on the customers, suppliers and Governmental Bodies having dealings with the Company in such manner and with such customers, suppliers and Governmental Bodies as is mutually agreed upon by the parties hereto (the "Customer Due Diligence"). 5.14 REPORTING. Precept shall file in a timely manner any and all reports required to be filed and shall take all actions necessary to maintain its status as a reporting company under the Securities Exchange Act of 1934, as amended. 5.15 PRECEPT 8-K. Precept agrees to use commercially reasonable efforts to file its 8-K with respect to the transaction contemplated by this Agreement on or prior to August 31, 1998, but in no event later than September 15, 1998, that includes at least 30 days of combined operations, combined sales and net income figures for the Company and Buyer and any other financial information necessary as contemplated by and in accordance with the terms of SEC Accounting Series Release No. 135 and related accounting rules. 5.16 TERMINATION OF LEASES. The Stockholders acknowledge that five (5) tracts of real property located in Baton Rouge, Louisiana, Pineville, Louisiana, Lafayette, Louisiana, Monroe, Louisiana and Wichita Falls, Texas (each as described in SECTION 3.18(b) OF THE DISCLOSURE SCHEDULE) have been transferred to the Company in connection with the consummation of the transaction contemplated hereby, and the Stockholders and the Company hereby acknowledge that each of the Lease Agreements between the Stockholders and the Company, dated December 1, 1996, relating to such tracts of real property are hereby terminated and of no further force and effect, effective as of June 30, 1998, subject to payment by the Company of amounts due and payable to the Stockholders under such Lease Agreements through June 30, 1998. ARTICLE VI CONDITIONS TO CLOSING 6.1 CONDITIONS TO OBLIGATIONS OF BUYER AND PRECEPT. The obligations of Buyer and Precept under this Agreement are subject to the satisfaction at or prior to the Closing of the following conditions, but compliance with any such conditions may be waived by Buyer or Precept in writing: 41 (a) All representations and warranties of the Company and the Stockholders contained in this Agreement shall be true and correct at and as of the Closing Date with the same effect as though such representations and warranties were made at and as of the Closing Date. (b) The Company and the Stockholders shall have performed and complied with all the covenants and agreements and satisfied the conditions required by this Agreement to be performed, complied with or satisfied by them at or prior to the Closing Date, including without limitation the delivery of all items required to be delivered by them pursuant to SECTION 2.4. (c) There shall be no pending or threatened litigation in any court or any proceeding before or by any Governmental Body against the Stockholders, the Company, Precept or Buyer to restrain or prohibit or obtain damages or other relief with respect to this Agreement or the consummation of the transactions contemplated hereby. (d) All necessary contractual, governmental or other (including stockholder) consents, approvals, orders or authorizations, if any, necessary to permit the consummation of the transactions contemplated by this Agreement shall have been obtained and all necessary contractual, governmental or other notices, if any, necessary to permit the consummation of the transactions contemplated by this Agreement shall have been given. (e) No supplemental disclosure to the Disclosure Schedules pursuant to SECTION 5.4 of this Agreement shall have been made by the Stockholders or the Company that discloses any fact or event that, in Buyer's reasonable opinion, could have a material adverse effect on the assets, liabilities, financial condition or prospects of the Company. (f) The Company and Buyer shall have completed the Customer Due Diligence and Buyer shall be satisfied (in Buyer's sole discretion), based on such visits, that the Company's customer and other business relationships are satisfactory. (g) There shall have been no material adverse change in the assets, liabilities or financial condition of the Company prior to Closing as reflected in the Financial Statements. (h) Precept and Buyer shall have been advised in writing by Ernst & Young LLP prior to the Closing Date that the transaction contemplated hereby shall be treated for financial accounting purposes as a Pooling Transaction. 6.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY AND THE STOCKHOLDERS. The obligations of the Company and the Stockholders under this Agreement are subject to the satisfaction at or prior to the Closing of the following conditions, but compliance with any such conditions may be waived by the Company or the Stockholders in writing: 42 (a) All representations and warranties of Buyer and Precept contained in this Agreement shall be true and correct at and as of the Closing Date with the same effect as though such representations and warranties were made at and as of the Closing Date. (b) Buyer and Precept shall have performed and complied with the covenants and agreements and satisfied the conditions required by this Agreement to be performed, complied with or satisfied by them at or prior to the Closing Date, including without limitation the delivery of all items required to be delivered by Buyer pursuant to SECTION 2.4. (c) There shall be no pending or threatened litigation in any court or any proceeding before or by any Governmental Body against the Stockholders, the Company, Precept or Buyer to restrain or prohibit or obtain damages or other relief with respect to this Agreement or the consummation of the transactions contemplated hereby. (d) All necessary contractual, governmental, or other consents, approvals, orders or authorizations shall have been obtained and all necessary governmental notices shall have been given. (e) No supplemental disclosure to the Disclosure Schedules pursuant to SECTION 5.4 of this Agreement shall have been made by Precept or Buyer that discloses any fact or event that, in the Stockholders' reasonable opinion, could have material adverse effect on the assets, liabilities, financial condition or prospects of Precept or Buyer. (f) There shall have been no material adverse change in the assets, liabilities or financial condition of Buyer or Precept prior to the Closing. ARTICLE VII INDEMNIFICATION; HOLDBACK 7.1 INDEMNIFICATION OF BUYER AND PRECEPT. The Company (until the Closing) and the Stockholders (after the Closing), hereby agree to indemnify, defend and hold Precept, Buyer and their subsidiaries (including the Company after the Closing) and their respective directors, officers, employees and agents (each a "Buyer Party" and collectively, the "Buyer Parties") harmless from any and all liabilities, obligations, claims, contingencies, damages, costs and expenses, including all court costs and reasonable attorneys' fees (collectively, "Losses"), that any Buyer Party may suffer or incur as a result of or relating to a breach of any agreement, representation, warranty or covenant made by the Company or the Stockholders in this Agreement or pursuant hereto, or in any exhibit, Disclosure Schedule, certificate or financial statement delivered hereunder or in any document required to be delivered on the Closing Date, but only to the extent such Losses exceed $50,000 individually or in the aggregate, provided that the Buyer Parties shall be indemnified against the full amount of such Losses once the Losses equal or exceed $50,000. The maximum amount of Losses for which the Buyer Parties shall be entitled to indemnification hereunder shall be an amount equal to $500,000, except with respect to intentional misrepresentations or fraud by the Stockholders or the Company (if applicable), in 43 which case the limitation on indemnification set forth in the preceding sentence shall not apply. The indemnification obligations under this Article VII shall expire one (1) year from the Closing Date except with respect to any Claims (as defined below) of the Buyer Parties pending as of such date (which Claims shall continue until the final resolution thereof but, in no event, shall such Claims remain unresolved past the first anniversary of the Closing Date). Accordingly, each party hereto agrees to fully and finally resolve any pending Claims for indemnification on or before the first anniversary of the Closing Date. 7.2 NOTIFICATION OF CLAIM; SET OFF. Any of the Buyer Parties seeking indemnification under this Article VII will promptly give notice to the Stockholders (or the Company, if applicable) of any Losses or claims as to which it asserts a right to indemnification (a "Claim"), and within thirty (30) days thereafter, further notify the Stockholders (or the Company, if applicable) of the details of such Claim and the amount thereof; PROVIDED, HOWEVER, that the failure to give such notification shall not relieve the Stockholders (or the Company, if applicable) from any liability that they may have pursuant to the provisions of this Article VII as long as the failure to give such notice within such time is not prejudicial to the Stockholders or the Company. Notice to one of the Buyer Parties for the purpose of this SECTION 7.2 shall mean the filing of the service upon such of the Buyer Parties of any legal action, receipt of any claim in writing or similar form of actual notice. 7.3 DEFENSE OF CLAIMS. If any Claim by one of the Buyer Parties arises out of a claim by a person other than one of the Buyer Parties, Buyer will promptly give notice to the Stockholders (or the Company, if applicable) of any such Claim, and thereafter the Stockholders (or the Company, if applicable) may, by written notice, undertake to conduct any proceedings or negotiations in connection therewith or necessary to defend the Buyer Parties and take all other steps or proceedings to settle or contest such claim, including, without limitation, the employment of counsel; PROVIDED, HOWEVER, that (a) the Stockholders (or the Company, if applicable) shall not enter into any agreement in compromise or settlement of any claim that could affect the Taxes attributable to any taxable period of the Company beginning on or after the Closing Date without the prior written consent of Buyer, and (b) the Stockholders (or the Company, if applicable) shall reasonably consider the advice of the Buyer Parties as to the defense and settlement of such claim and the Buyer Parties shall have the right to participate, at their own expense, in such defense. Except as otherwise provided herein, control of such litigation and settlement shall remain with the Stockholders (or the Company, if applicable). The Buyer Parties shall provide all reasonable cooperation in connection with any such defense by the Stockholders (or the Company, if applicable). Counsel and auditor fees, filing fees and court fees of all proceedings, contests or lawsuits with respect to any such claim shall be borne by the Stockholders (or the Company, if applicable). If any such Claim is made hereunder and the Stockholders (or the Company, if applicable) elects not to undertake the defense thereof by written notice to the Buyer Parties, the Buyer Parties shall be entitled to indemnification with respect thereto pursuant to the terms of this Article VII. If any Claim for indemnification by Buyer arises out of a Claim by Buyer and not a third party, then Buyer shall be entitled to immediate indemnification hereunder. 44 7.4 HOLDBACK FOR CLAIMS. (a) RECOURSE TO HOLDBACK ACCOUNT. At the Closing, 28,971 shares of Parent Class A Common Stock to be issued to the Stockholders at Closing under this Agreement (plus any additional New Shares (as defined below) as may be issued in respect thereof after the Closing) (collectively, the "Holdback Shares"), will be issued in the name of the Stockholders (in proportion to each Stockholder's respective share ownership in the Company) and held by Buyer to partially secure the indemnification obligations of the Stockholders under SECTION 7.1. (b) HOLDBACK PERIOD; DISTRIBUTION UPON TERMINATION OF HOLDBACK PERIOD. Subject to the following requirements, the Holdback Shares shall be retained by Buyer for the duration of the indemnification obligations of the Stockholders and the Company, if applicable (the "Holdback Period"). Upon the expiration of the Holdback Period, Buyer will deliver to the Stockholders the remaining Holdback Shares, if any; PROVIDED, HOWEVER, that the number of Holdback Shares with a value (assuming a per share value of $2.784) equal to the amount of the Losses or other indemnification obligations as to which the Buyer has properly made a Claim under SECTION 7.2 shall be retained by Buyer until such Claims have been resolved, subject, however, to SECTION 7.4(h) below. Within five (5) business days following resolution of such Claims, Buyer shall deliver to each respective Stockholders all Holdback Shares retained by Buyer and not required to satisfy such Claims. (c) PROTECTION OF HOLDBACK SHARES. Buyer shall hold and safeguard the Holdback Shares during the term of the Holdback Period, shall treat such Holdback Shares as a trust fund in accordance with the terms of this Agreement and not as the property of Buyer and shall hold and dispose of the Holdback Shares only in accordance with the terms hereof. (d) DISTRIBUTIONS; VOTING. (i) Any shares of Parent Class A Common Stock or other equity securities issued or distributed by Precept (including shares issued upon a stock split) (the "New Shares") in respect of Holdback Shares that have not been released to the Stockholders shall be added to the Holdback Shares and become a part thereof. New Shares issued in respect of Holdback Shares that have been released shall not be added to the Holdback Shares, but shall be distributed to the holders thereof. When and if cash dividends on Holdback Shares shall be declared and paid, they shall not be added to the Holdback Shares but shall be paid to the holders thereof. (ii) The Stockholders shall be the record owner of the Holdback Shares and shall have voting rights with respect to the Holdback Shares (including any New Shares that are voting securities) so long as such Holdback Shares are retained by Buyer. 45 (e) CLAIM UPON HOLDBACK SHARES. (i) Upon written notification by Buyer to the Stockholders at any time on or before the last day of any Holdback Period: (A) that Buyer has paid or properly accrued Losses in an aggregate stated amount to which Buyer is entitled to indemnity pursuant to this Agreement, and (B) in the case of such Losses, specifying in reasonable detail the individual items of Losses included in the amount so stated, the date each such item was paid or properly accrued and the nature of the misrepresentation or breach of warranty, if any, or claim to which such item is related; then Buyer shall, unless the Stockholders object in accordance with the provisions of SECTION 7.4(f) hereof, cancel the number of shares of Parent Class A Common Stock having a value equal to such Losses. (ii) For the purposes of determining the number of shares of Parent Class A Common Stock to be cancelled from the Holdback Shares pursuant to SECTION 7.4(E)(i), the shares of Parent Class A Common Stock shall be valued at $2.784 per share. (f) OBJECTIONS TO CLAIMS. At the time of receipt of any notification as set forth in SECTION 7.4(e)(i), the Stockholders shall have a period of thirty (30) days after such delivery to object in a written statement to the claim made in the notification, and such statement shall have been delivered to Buyer prior to the expiration of such thirty (30) day period. If Buyer does not receive any such objection from the Stockholders within such thirty (30) day period, Buyer may cancel the shares of Parent Class A Common Stock from the Holdback Shares equal to the amount of Losses paid or properly accrued. (g) NO LIMITATION. The existence of this SECTION 7.4 and the rights set forth herein are not intended to limit any other claims by Buyer for indemnification against the Stockholders (or the Company, if applicable). (h) ONE YEAR LIMITATION. Notwithstanding anything to the contrary herein, each party hereto agrees to fully and finally resolve any pending Claims on or before the first anniversary of the Closing Date and, therefore, the Holdback Shares, if any, shall be either cancelled or returned to the Stockholders on or before the first anniversary of the Closing Date. 7.5 SURVIVAL. All representations and warranties made in or pursuant to this Agreement will survive the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby for a period of one (1) year after the Closing Date and the right to indemnification with respect thereto shall expire on such date (unless there is a Claim pending on such date, in which case the indemnification obligations, hereunder shall continue until the final resolution of such Claim but, in no event, shall such indemnification obligations 46 extend beyond the first anniversary of the Closing Date). All statements contained in any Schedule to this Agreement will constitute representations and warranties under this Agreement. 7.6. EXCLUSIVE REMEDY. Subject to the terms and conditions of SECTION 7.1, the indemnification provisions of this Article VII shall be the sole and exclusive remedy of Precept or Buyer for a breach of any representation, warranty, covenant or agreement of the Company or the Stockholders under this Agreement, except with respect to intentional misrepresentations or fraud by the Stockholders or the Company. ARTICLE VIII MISCELLANEOUS 8.1 TERMINATION OF AGREEMENT. Certain of the parties to this Agreement may terminate this Agreement as follows: (a) Buyer, Precept, the Company and the Stockholders may terminate this Agreement by mutual written consent at any time prior to the Closing. (b) Buyer and Precept may terminate this Agreement by giving written notice to the Company and the Stockholders at any time prior to the Closing Date in the event the Company or the Stockholders have materially breached any representation or warranty pursuant to Article III of this Agreement or otherwise materially breached any covenant or agreement herein. (c) Buyer and Precept may terminate this Agreement by giving written notice to the Company and the Stockholders at any time prior to the Closing Date if the Closing shall not have occurred on or before June 30, 1998, by reason of the failure of any condition precedent set forth in Article VI hereof (unless the failure results primarily from Buyer or Precept breaching any representation, warranty or covenant contained in this Agreement as contemplated in Subsection (b) of this SECTION 8.1). (d) The Company and the Stockholders may terminate this Agreement by giving written notice to Buyer and Precept at any time prior to the Closing Date if the Closing shall not have occurred on or before June 30, 1998, by reason of the failure of any condition precedent set forth in Article VI hereof (unless the failure results primarily from the Stockholders breaching any representation, warranty or covenant contained in this Agreement as contemplated in Subsection (e) of this SECTION 8.1). (e) The Company and the Stockholders may terminate this Agreement by giving written notice to Buyer and Precept at any time prior to the Closing Date in the event Buyer or Precept have materially breached any representation or warranty pursuant to Article IV of this Agreement or otherwise materially breached any covenant or agreement herein. 47 (f) The Company and the Stockholders may terminate this Agreement if the per share closing price of the Parent Class A Common Stock is below $2.50 at any time prior to the Closing Date, and Precept and Buyer may terminate this Agreement if the per share closing price of the Parent Class A Common Stock exceeds $3.50 at any time prior to the Closing Date. 8.2 EFFECT OF TERMINATION. In the event of termination of this Agreement as provided in SECTION 8.1, this Agreement shall forthwith become void, there shall be no liability on the part of Buyer and Precept, on the one hand, and the Company and the Stockholders, on the other, and all rights and obligations of any party hereto shall cease, except that nothing herein shall relieve any party of any liability for (i) any breach of such party's covenants or agreements contained in this Agreement, or (ii) any willful breach of such party's representations or warranties contained in this Agreement. 8.3 NOTICES. All notices that are required or may be given pursuant to this Agreement must be in writing and delivered personally, by a recognized courier service, by a recognized overnight delivery service, by facsimile or by registered or certified mail, postage prepaid, to the parties at the following addresses (or to the attention of such other person or such other address as any party may provide to the other parties by notice in accordance with this SECTION 8.3): IF TO BUYER: Precept Business Services, Inc. 1909 Woodall Rodgers Freeway, Suite 500 Dallas, Texas 75201 Attention: General Counsel Facsimile No.: 214/220-1082 WITH A COPY TO: Munsch Hardt Kopf Harr & Dinan, P.C. 5000 Plaza on the Lake, Suite 270 Austin, Texas 78746 Attention: William L. Deckelman, Jr., Esq. Facsimile No.: 512/306-6201 IF TO THE STOCKHOLDERS: Mail/Source, Inc. 4951 Central Avenue Monroe, Louisiana 71203 Attention: James L. Sanderlin WITH A COPY TO: Kutak Rock 1101 Connecticut Avenue, NW Washington, DC 20036-4374 Attention: Paul D. Borja, Esq. Facsimile No.: 202/828-2488 Any such notice or other communication will be deemed to have been given and received (whether actually received or not) on the day it is personally delivered or delivered by courier or overnight delivery service or by facsimile or, if mailed, when actually received. 48 8.4 EXPENSES. Buyer and each Stockholder will each bear their own respective costs and expenses in connection with the transactions contemplated by this Agreement. The Stockholders shall bear any costs, expenses or fees payable to any financial advisors, attorneys, accountants or other representatives retained by the Company or the Stockholders on their behalf and on behalf of the Company, with regard to the transactions contemplated by this Agreement. Buyer and its Affiliates shall bear any costs, expenses or fees payable to any financial advisors, attorneys, accountants or other representatives retained by Buyer or its Affiliates with regard to the transaction contemplated by this Agreement. If attorneys', accountants' or financial advisors' fees or other fees or costs are incurred to secure performance of any obligations under this Agreement or any agreement contemplated hereby, or to establish damages for the breach thereof or to obtain any other appropriate relief, whether by way of prosecution or defense, the prevailing party will be entitled to recover reasonable attorneys' fees and costs incurred in connection therewith. 8.5 FURTHER ASSURANCES. Each party agrees to execute any and all documents and to perform such other acts as may be necessary or expedient to further the purposes of this Agreement and the transactions contemplated hereby. 8.6 ASSIGNMENT. Neither this Agreement nor any of the rights, interests or obligations hereunder will be assigned or delegated by the Company, the Stockholders, Precept or Buyer, without the prior written consent of the other parties hereto; except that Buyer may assign its rights and obligations under this Agreement to any direct or indirect subsidiary of Precept (provided that Buyer shall remain obligated to perform Buyer's obligations hereunder) and except that the rights of the Stockholders shall inure to the benefit of their executors, administrators and beneficiaries. This Agreement is not intended to confer any rights or benefits to any Person (including without limitation any employees of the Company) other than the parties hereto. 8.7 ENTIRE AGREEMENT. This Agreement, the other Transaction Documents, and the documents contained as Exhibits and Disclosure Schedules hereto contain the entire understanding of the parties relating to the subject matter hereof and supersede all prior written or oral and all contemporaneous oral agreements and understandings relating to the subject matter hereof. This Agreement cannot be modified or amended except in writing signed by the party against whom enforcement is sought. The Exhibits and Disclosure Schedules to this Agreement are hereby incorporated by reference into and made a part of this Agreement for all purposes. 8.8 SEVERABILITY. If any provision of this Agreement is declared or found to be illegal, unenforceable or void, in whole or in part, then the parties will be relieved of all obligations arising under such provision, but only to the extent it is illegal, unenforceable or void. The intent and agreement of the parties to this Agreement is that this Agreement will be deemed amended by modifying any such illegal, unenforceable or void provision to the extent necessary to make it legal and enforceable while preserving its intent, or if that is not possible, by substituting another provision that is legal and enforceable and achieves the same objectives as the provisions. Notwithstanding the foregoing, if the remainder of this Agreement will not be affected by such declaration or finding and is capable of substantial performance, then each provision not so affected will be enforced to the extent permitted by law. 49 8.9 GOVERNING LAW. This Agreement will be governed by and construed and interpreted in accordance with the substantive laws of the State of Texas, without giving effect to any conflicts of law rule or principle that might require the application of the laws of another jurisdiction. 8.10 ARBITRATION PROCEEDINGS. (a) NEGOTIATION PERIOD. Any dispute, controversy or claim arising out of or relating to this Agreement, or any alleged breach hereof, will be subject to binding arbitration in accordance with this SECTION 8.10. If such a dispute, controversy or claim exists, the parties shall attempt for a 30-day period (the "Negotiation Period") from the date any party gives any one or more of the other parties notice (a "Dispute Notice") pursuant to this Section, to negotiate in good faith, a resolution of the dispute. The Dispute Notice shall set forth with specificity the basis of the dispute. During the Negotiation Period, representatives of each party involved in the dispute who have authority to settle the dispute shall meet at mutually convenient times and places and use their best efforts to resolve the dispute. (b) COMMENCEMENT OF ARBITRATION. If a resolution is not reached by the parties prior to the end of the Negotiation Period, either party may provide a written request to the American Arbitration Association within ten (10) days from the end of such period requesting the selection of three (3) arbitrators (the "Panel") to arbitrate the parties' respective rights and obligations with respect to the matter set forth in the Dispute Notice. Each arbitrator on the Panel shall be experienced in the arbitration of complex commercial disputes. (c) DISCOVERY. Each party to an arbitration shall be entitled to such discovery as the Panel shall determine is appropriate. (d) EXPENSES OF ARBITRATORS. The expenses of the Panel shall be paid by the party that does not substantially prevail on the merits in the arbitration (as determined by the award of the Panel). (e) LOCATION OF ARBITRATION. The arbitration shall take place in Ouachita Parish, Louisiana. (f) AAA RULES. Except as expressly provided in this SECTION 8.10, the arbitration shall be conducted in accordance with the Commercial Rules of the American Arbitration Association as then in effect. (g) FEES AND EXPENSES. The party that substantially prevails on the merits of the arbitration (as determined by the Panel) shall be entitled to reasonable attorneys' fees, costs, expenses and necessary disbursements in addition to any other relief to which such party may be entitled. 50 8.11 INTERPRETATION. When used in this Agreement, the masculine, feminine or neuter gender and the singular or plural number shall each be deemed to include the others whenever the context so indicates or permits. 8.12 COUNTERPARTS; FACSIMILE SIGNATURES. One or more counterparts of this Agreement may be delivered by facsimile transmission, with the intention that they shall have the same effect as an original counterpart hereof. This Agreement may be executed by the parties on one or more counterparts, all of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. 8.13 HEADINGS. The section headings contained in this Agreement are included for convenience only and shall not affect in any way the meaning or interpretation of this Agreement. 8.14 CONSTRUCTION. The parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any of the provisions of this Agreement. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] 51 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. BUYER: COMPANY: PRECEPT BUSINESS PRODUCTS, INC., MAIL/SOURCE, INC. a Delaware corporation (F/K/A MBF DATA/GRAPHICS, INC.), a Louisiana corporation By: By: ------------------------------ ------------------------------ David L. Neely, James L. Sanderlin, Chief Executive Officer President PRECEPT: STOCKHOLDERS: PRECEPT BUSINESS SERVICES, INC., JOSEPH D. GRECO, II TRUST a Texas corporation U/A DTD. 8/3/92 By: By: ------------------------------ ------------------------------ David L. Neely, James L. Sanderlin, Trustee Chief Executive Officer LAURIE JAN GRECO TRUST U/A DTD. 8/3/92 By: ------------------------------ James L. Sanderlin, Trustee NATALIE ANN GRECO TRUST U/A DTD. 8/3/92 By: ------------------------------ James L. Sanderlin, Trustee EX-23.1 3 EXHIBIT 23.1 EXHIBIT 23.1 We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-59815) pertaining to the Precept Business Services, Inc. 1998 Stock Incentive Plan and Precept Business Services, Inc. 1996 Stock Option Plan of our report dated August 31, 1998, with respect to the combined financial statements of MBF Corporation and Mail/Source, Inc. included in Precept Business Services, Inc.'s Current Report (Form 8-K/A) dated September 11, 1998 for the year ended June 30, 1998. /s/ Ernst & Young LLP Dallas, Texas September 10, 1998 -----END PRIVACY-ENHANCED MESSAGE-----