AGREEMENT AND PLAN OF MERGER
BY AND AMONG
PRECEPT BUSINESS SERVICES, INC.,
A TEXAS CORPORATION,
AND
PRECEPT ACQUISITION CORPORATION,
A TEXAS CORPORATION,
AND
SOUTHERN SYSTEMS BUSINESS FORMS
& DATA SUPPLIES, INC.,
A SOUTH CAROLINA CORPORATION,
AND
XXXXXXXX X. XXXXXX,
SHAREHOLDER,
XXXXX X. XXXXXXXX,
SHAREHOLDER,
XXXXX X. XXXX,
SHAREHOLDER,
XXXXXX X. XXXXXX,
SHAREHOLDER,
SOUTHERN SYSTEMS BUSINESS FORMS
AND DATA SUPPLIES, INC. EMPLOYEE STOCK OWNERSHIP PLAN,
SHAREHOLDER,
ET AL.
TABLE OF CONTENTS
ARTICLE I.
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II.
THE MERGER, EFFECTIVE TIME, EXCHANGE AMOUNT . . . . . . . . . . . . . . . 6
2.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Effect of the Merger . . . . . . . . . . . . . . . . . . . . . . . . 6
2.3 Consummation of the Merger . . . . . . . . . . . . . . . . . . . . . 7
2.4 Articles of Incorporation; Bylaws; Directors and Officers. . . . . . 7
2.5 Aggregate Merger Consideration; Conversion of Securities . . . . . . 7
2.6 Adjustment of Merger Consideration . . . . . . . . . . . . . . . . . 8
2.7 Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE SHAREHOLDERS . . . . . . . . . . . . . . . . . . . 9
3.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.2 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.3 Minute Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.4 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.5 Title to the Shares. . . . . . . . . . . . . . . . . . . . . . . . . 10
3.6 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.7 Governmental Consents. . . . . . . . . . . . . . . . . . . . . . . . 11
3.8 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . 11
3.9 Accounts Receivable. . . . . . . . . . . . . . . . . . . . . . . . . 11
3.10 Absence of Undisclosed Liabilities . . . . . . . . . . . . . . . . . 12
3.11 Absence of Material Adverse Change . . . . . . . . . . . . . . . . . 12
3.12 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.13 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.14 Compliance with Laws and Regulations . . . . . . . . . . . . . . . . 14
3.15 Permits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.16 Employee Matters . . . . . . . . . . . . . . . . . . . . . . . . . . 14
3.17 Employee Benefit Plans.. . . . . . . . . . . . . . . . . . . . . . . 15
3.18 Title to Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . 17
3.19 Condition of Properties. . . . . . . . . . . . . . . . . . . . . . . 17
3.20 Material Agreements. . . . . . . . . . . . . . . . . . . . . . . . . 18
3.21 Customers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.22 Intellectual Property Rights . . . . . . . . . . . . . . . . . . . . 19
3.23 Subsidiaries and Investments . . . . . . . . . . . . . . . . . . . . 19
3.24 Competing Interests. . . . . . . . . . . . . . . . . . . . . . . . . 20
3.25 Illegal or Unauthorized Payments; Political Contributions. . . . . . 20
i
3.26 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . 20
3.27 Brokers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.28 Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3.29 Bank Accounts and Powers of Attorney . . . . . . . . . . . . . . . . 21
3.30 Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.31 Inventory. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.32 Affiliate Transactions . . . . . . . . . . . . . . . . . . . . . . . 21
3.33 Reorganization Matters . . . . . . . . . . . . . . . . . . . . . . . 22
3.34 Projections; Material Facts. . . . . . . . . . . . . . . . . . . . . 23
3.35 No Misrepresentations. . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PRECEPT AND MERGER SUB. . . . . . . . . 23
4.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.2 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.3 Precept Common Stock . . . . . . . . . . . . . . . . . . . . . . . . 24
4.4 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.5 Governmental Consents. . . . . . . . . . . . . . . . . . . . . . . . 24
4.6 SEC Documents. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.7 Finders' Fees. . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
4.8 Reorganization Matters . . . . . . . . . . . . . . . . . . . . . . . 24
4.9 Transferability. . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.10 Breach of Representations and Warranties . . . . . . . . . . . . . . 25
ARTICLE V.
ADDITIONAL COVENANTS AND AGREEMENTS . . . . . . . . . . . . . . . . . . . 25
5.1 Conduct of Business. . . . . . . . . . . . . . . . . . . . . . . . . 25
5.2 No-Shop Provisions . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.3 Access and Information . . . . . . . . . . . . . . . . . . . . . . . 26
5.4 Supplemental Disclosure. . . . . . . . . . . . . . . . . . . . . . . 26
5.5 Information for Filings. . . . . . . . . . . . . . . . . . . . . . . 26
5.6 Fulfillment of Conditions by the Company and the Shareholders. . . . 26
5.7 Fulfillment of Conditions By Merger Sub and Precept. . . . . . . . . 27
5.8 Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
5.9 Release by the Shareholders. . . . . . . . . . . . . . . . . . . . . 27
5.10 Covenants Relating to Taxes. . . . . . . . . . . . . . . . . . . . . 27
5.11 Tax Treatment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.12 Confidentiality. . . . . . . . . . . . . . . . . . . . . . . . . . . 29
5.13 Release of Guarantees. . . . . . . . . . . . . . . . . . . . . . . . 29
5.14 Shareholders Meeting. . . . . . . . . . . . . . . . . . . . . . . . 29
5.15 Shareholder Approval. . . . . . . . . . . . . . . . . . . . . . . . 30
5.16 Disclosure Schedules . . . . . . . . . . . . . . . . . . . . . . . . 30
ii
ARTICLE VI.
CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . 30
6.1 Conditions to Each Party's Obligation to Effect the Merger . . . . . 30
6.2 Conditions to Obligations of Merger Sub and Precept. . . . . . . . . 30
6.3 Conditions to Obligations of the Shareholders. . . . . . . . . . . . 32
ARTICLE VII.
INDEMNIFICATION; ESCROW . . . . . . . . . . . . . . . . . . . . . . . . . 34
7.1 Indemnification of Merger Sub and Precept. . . . . . . . . . . . . . 34
7.2 Notification of Claim; Set Off.. . . . . . . . . . . . . . . . . . . 34
7.3 Defense of Claims. . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.4 Escrow for Claims. . . . . . . . . . . . . . . . . . . . . . . . . . 35
7.5 No Claims by the Shareholders Against the Company. . . . . . . . . . 35
7.6 Survival.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.7 Survival of Tax, Employee Benefit Plan and Governmental
Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.8 Special Tax Indemnification of Shareholders. . . . . . . . . . . . . 36
7.9 Special Tax Indemnification of Precept and the Surviving
Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE VIII.
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
8.1 Termination of Agreement . . . . . . . . . . . . . . . . . . . . . . 38
8.2 Effect of Termination. . . . . . . . . . . . . . . . . . . . . . . . 39
8.3 Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.4 Expenses.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.5 Further Assurances. . . . . . . . . . . . . . . . . . . . . . . . . 41
8.6 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.7 Entire Agreement.. . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.8 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.9 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.10 Venue; Exclusive Jurisdiction. . . . . . . . . . . . . . . . . . . . 42
8.11 Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.12 Counterparts; Facsimile Signatures . . . . . . . . . . . . . . . . . 43
8.13 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
8.14 Construction. . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
iii
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this "Agreement") is made and entered
into as of August 26, 1998 by and among Precept Business Services, Inc., a Texas
corporation ("Precept"), Precept Acquisition Corporation, a Texas corporation
(the "Merger Sub"), on the one hand, and Southern Systems Business Forms & Data
Supplies, Inc., a South Carolina corporation (the "Company"), Xxxxxxxx X. Xxxxxx
("Xxxxxx"), Xxxxx X. Xxxxxxxx ("Xxxxxxxx"), Xxxxx X. Xxxx ("Xxxx"), Xxxxxx X.
Xxxxxx ("Xxxxxx"),, and Southern Systems Business Forms And Data Supplies, Inc.
Employee Stock Ownership Plan (the "ESOP") (Perrou, Williams, Aull, Duncan, and
the ESOP, collectively, the "Shareholders" and individually, a "Shareholder"),
on the other. In addition, Xxxxxx Xxxxxxx, Xxxxx Xxxxxxx, Xxxxxxx Xxxxxx,
Xxxxxx Xxxxxxx, Xxxxxx Xxxxxx, Xxxxx Xxxxxxxx, Xxxx Xxxxxx, Xxxx Xxxxxxxxx,
Xxxxxx Till, Xxx Xxxxxxx, Xxx Xxxxxxxx, Xxxxxxxxx Xxx, Xxxx Xxxxx, Xxx Xxxxx,
and Xxxx Street are made parties to this Agreement solely for the purposes of
making the representations, warranties and covenants set forth in SECTIONS 3.5,
5.9 and 5.15 hereof, and shall be deemed "Shareholders" as that term is used in
such provisions and for all purposes of such provisions.
RECITALS:
WHEREAS, Precept, as the sole shareholder of Merger Sub, and the respective
Boards of Directors of Merger Sub and the Company have each approved the merger
of the Company with and into Merger Sub (the "Merger") in accordance with the
South Carolina Business Corporation Act (the "South Carolina Law") and the Texas
Business Corporation Act (the "Texas Law") and the provisions of this Agreement.
The Boards of Directors of Merger Sub and the Company have directed that the
Merger be submitted for approval by their respective stockholders;
WHEREAS, it is intended for federal income tax purposes that the Merger
qualify as a reorganization within the meaning of Sections 368(a)(1)(A) and
368(a)(2)(D) of the Internal Revenue Code of 1986, as amended (the "Code").
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:
1
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 Agreement and Plan of Reorganization.
"Xxxx" shall mean Xxxxx X. Xxxx.
"Buyer Party" is defined in SECTION 7.1.
"Certificate" is defined in SECTION 2.5(c).
"CERCLA" is defined in SECTION 1.1 under "Environmental Laws."
"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).
"Company" shall mean Southern Systems Business Forms & Data Supplies, Inc.,
a South Carolina corporation.
"Company Common Stock" is defined in SECTION 2.5.
"Confidentiality Agreement" is defined in SECTION 7.6.
"Constituent Corporations" is defined in SECTION 2.1.
"Disclosure Schedule" is defined in the introductory paragraph to
ARTICLE III.
2
"Dissenting Shareholder" is defined in SECTION 2.8.
"Xxxxxx" shall mean Xxxxxx X. Xxxxxx.
"Effective Date" is defined in SECTION 2.3.
"Effective Time" is defined in SECTION 2.3.
"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).
"ESOP" shall mean the Southern Systems Business Forms And Data Supplies,
Inc. Employee Stock Ownership Plan.
"Escrow Deposit Agreement" shall mean that certain Escrow Deposit Agreement
to be entered into by and among Precept, the Company and the Shareholders in
substantially the form attached hereto as EXHIBIT N.
"Exchange Agent" is defined in SECTION 2.6(a).
"Exchange Ratio" is defined in SECTION 2.5(a).
"Financial Statements" is defined in SECTION 3.8.
3
"401(K) Plan" shall mean the Southern Systems Business Forms & Data
Supplies 401(K) Plan.
"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.
"Knowledge" shall mean, (i) when used with respect to the Company and the
Shareholders, actual knowledge of the Company, its Shareholders, officers,
directors and key employees which the Company, its Shareholders, officers,
directors and key employees shall obtain after each such party has conducted a
reasonable investigation and familiarized itself and themselves with the
representations and warranties contained in this Agreement; PROVIDED, THAT, the
Company and its Shareholders shall take reasonable efforts to ensure that the
Company's officers, directors and key employees have conducted such
investigations and familiarized themselves with the representations and
warranties contained in this Agreement, and (ii) when used with respect to
Precept and Merger Sub, "knowledge" shall mean actual knowledge of such company,
its officers and directors which Precept, Merger Sub, its officers and directors
shall obtain after each such party has conducted a reasonable investigation and
familiarized itself and themselves with the representations and warranties
contained in this Agreement; PROVIDED, THAT, Precept and Merger Sub shall take
reasonable efforts to ensure that the Company's officers and directors have
conducted such investigations and familiarized themselves with the
representations and warranties contained in this Agreement.
"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.
"Merger" is defined in the Recitals.
"Merger Consideration" is defined in SECTION 2.5.
4
"Merger Sub" shall mean Precept Acquisition Corp., a Texas corporation.
"New Shares" is defined in SECTION 7.4(d)(i).
"Pension Plans" is defined in SECTION 3.17(a).
"Permits" is defined in SECTION 3.15.
"Xxxxxx" shall mean Xxxxxxxx X. Xxxxxx, the Company's Chief Executive
Officer.
"Person" is defined in SECTION 3.13.
"Plans" is defined in SECTION 3.17(e).
"Precept" shall mean Precept Business Services, Inc., a Texas corporation.
"Precept Common Stock" is defined in SECTION 2.5(a).
"Projections" is defined in SECTION 3.34.
"RCRA" is defined in SECTION 1.1 under "Environmental Laws."
"Registered Intellectual Property" is defined in SECTION 3.22.
"Reorganization" is defined in SECTION 7.8, 7.9.
"S-4 Registration Statement" is defined in SECTION 4.6.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" is defined in SECTION 2.6(d).
"Shareholders" is defined in the introductory paragraph to this Agreement.
"Shares" is defined in SECTION 2.5.
"South Carolina Law" is defined in the Recitals.
"Surviving Corporation" is defined in SECTION 2.1.
"Taxes" means all taxes, fees, assessments, levies, duties and similar
charges imposed by any federal, state, local or foreign governmental authority,
together with all interest, penalties, fines and other additions imposed in
respect thereof; including, without limitation, all income, gains, real
5
property gains, profits, gross receipts, payroll, employment, social security
(and similar), disability, health, hospitalization, unemployment
compensation, worker's compensation, Pension Benefit Guaranty Corporation,
severance, windfall profits, environmental, license, occupation, customs,
imposts, capital stock, franchise, ad valorem, excise, sales, use, transfer,
registration, value added, alternative minimum, add-on minimum, successor,
withholding and estimated taxes or other charges.
"Tax Returns" shall mean all original and amended returns, declarations,
certifications, statements, notices, elections, estimates, reports, claims for
refund and information returns relating to or required to be filed or maintained
in connection with any Tax, together with all schedules and attachments thereto.
"Transaction Documents" is defined in SECTION 3.2.
"Texas Law" is defined in the Recitals.
"Welfare Benefit Plans" is defined in SECTION 3.17(b).
"Xxxxxxxx" shall mean Xxxxx X. Xxxxxxxx.
ARTICLE II.
THE MERGER, EFFECTIVE TIME, EXCHANGE AMOUNT
2.1 THE MERGER. At the Effective Time, in accordance with this Agreement,
the South Carolina Law and the Texas Law, the Company shall be merged with and
into Merger Sub, the separate existence of the Company shall cease, and Merger
Sub shall continue as the surviving corporation. Merger Sub hereinafter
sometimes is referred to as the "Surviving Corporation." Merger Sub and the
Company are hereinafter collectively referred to as the "Constituent
Corporations," and each individually, a "Constituent Corporation."
2.2 EFFECT OF THE MERGER. When the Merger has been effected, the
Surviving Corporation shall thereupon and thereafter possess all of the public
and private rights, privileges, powers and franchises and be subject to all the
restrictions, disabilities and duties of each of the Constituent Corporations;
and all and each of the rights, privileges, powers and franchises of each of the
Constituent Corporations and all property, real, personal and mixed, and all
debts due to either of the Constituent Corporations on whatever account, as well
for stock subscriptions as all other things in action or belonging to each of
such corporations shall be vested in the Surviving Corporation; and all
property, rights, privileges, powers and franchises, and all and every other
interest shall be thereafter as effectually the property of the Surviving
Corporation as they were of the respective Constituent Corporations, and the
title to any real estate vested by deed or otherwise, in any of such Constituent
Corporations, shall not revert or be in any way impaired by reason of the
Merger; but all rights of creditors and all liens upon any property of any of
the Constituent Corporations shall be preserved unimpaired, and all debts,
liabilities and duties of the respective Constituent Corporations shall
thenceforth attach to the Surviving Corporation, and may be enforced
6
against it to the same extent as if such debts, liabilities and duties had
been incurred or contracted by it.
2.3 CONSUMMATION OF THE MERGER. As soon as is practicable after the
satisfaction or waiver of the conditions set forth in ARTICLE VI hereof and
provided that this Agreement shall not have been terminated as provided in
ARTICLE VIII, the parties hereto will cause the Merger to be consummated by
filing with the Secretary of State of South Carolina articles of merger in such
form as required by, and executed in accordance with, the relevant provisions of
the South Carolina Law and by filing with the Secretary of State of Texas
articles of merger in such form as required by, and executed in accordance with,
the relevant provisions of the Texas Law (the latest of (i) the later of the
time of such filings, (ii) the issuance of a certificate of merger by the
Secretary of State of Texas and (iii) the effective time set forth in such
filings being the "Effective Time" and the date of the Effective Time being the
"Effective Date"). Notwithstanding the foregoing, the closing of the Merger
contemplated by this Agreement (the "Closing") will take place at the offices of
Xxxxxxx Xxxxxx L.L.P., 000 Xxxx Xxxxxx, Xxxxx 0000, Xxxxxx, Xxxxx 00000 of on
September 18, 1998 (the "Closing Date"), or at such other place and on such
other date as the parties may agree.
2.4 ARTICLES OF INCORPORATION; BYLAWS; DIRECTORS AND OFFICERS. The
Articles of Incorporation and Bylaws of the Surviving Corporation shall be the
Articles of Incorporation and Bylaws of Merger Sub as in effect immediately
prior to the Effective Time. The directors of Merger Sub immediately prior to
the Effective Time shall be the initial directors of the Surviving Corporation
and shall serve until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the Surviving Corporation's Articles of Incorporation and bylaws and the
Texas Law. The officers of Merger Sub immediately prior to the Effective Time
shall be the initial officers of the Surviving Corporation and shall serve until
their successors have been duly elected or appointed and qualified or until
their earlier death, resignation or removal in accordance with the Surviving
Corporation's Articles of Incorporation and bylaws and the Texas Law.
2.5 AGGREGATE MERGER CONSIDERATION; CONVERSION OF SECURITIES. The
aggregate consideration to be received by the holders of shares (the "Shares")
of common stock, no par value, of the Company (the "Company Common Stock") in
connection with the Merger (upon conversion of the Shares as set forth below)
shall be $7,500,000 payable as follows (collectively, the "Merger
Consideration"):
(i) $1,380,000 payable in the form of cash;
(ii) $4,740,000 payable in the form of 1,809,160 shares of validly
issued, fully paid and non-assessable shares of common stock, par value
$0.10 per share, of Precept (the "Precept Common Stock"); and
7
(iii) $1,380,000 payable in the form of one or more convertible
promissory notes in the form attached hereto as EXHIBIT E (the "Note(s)")
having an aggregate initial principal amount equal to $1,380,000.
At the Effective Time, by virtue of the Merger and without any action on
the part of Precept, Merger Sub, the Company or the holders of any of the
Shares:
(a) Each Share issued and outstanding immediately prior to the
Effective Time (other than Shares held in treasury of the Company) shall be
canceled and retired and be converted into the right to receive an equal
portion of the total Merger Consideration, payable to the respective
holders of the Shares in the form (i.e., Precept Common Stock, cash and/or
Note(s)) set forth on Schedule 2.5(a) of the Disclosure Schedule (as
hereinafter defined).
(b) Each Share which is issued and outstanding immediately prior to
the Effective Time and which is held in the treasury of the Company shall
be canceled and retired, and no payment shall be made with respect thereto.
(c) As a result of the Merger and without action on the part of the
holder thereof, all Shares shall cease to be outstanding and shall be
canceled and returned and shall cease to exist, and each holder of a
certificate (a "Certificate") formerly representing any Shares shall
thereafter cease to have any rights with respect to such Shares, except the
right to receive, without interest, a pro-rata portion of the Merger
Consideration in accordance with Section 2.5(a) upon the surrender of such
Certificates.
(d) No fractional shares of Precept Common Stock shall be issued in
connection with the Merger. In lieu thereof, one additional share of
Precept Common Stock will be issued for any fractional share that would
have otherwise been issued.
(e) At the Effective Time, each share of Common Stock, par value
$0.01 per share, of Merger Sub issued and outstanding immediately prior to
the Effective Time as a result of the Merger shall be automatically
converted into one newly and validly issued, fully paid and nonassessable
share of Common Stock of the Surviving Corporation.
2.6 ADJUSTMENT OF MERGER CONSIDERATION. In the event that, subsequent to
the date of this Agreement but prior to the Effective Time, the outstanding
shares of Precept Common Stock or Company Common Stock, respectively, shall have
been changed into a different number of shares or a different class as a result
of a stock split, reverse stock split, stock dividend, subdivision,
reclassification, split, combination, exchange, recapitalization or other
similar transaction, the shares of Precept Common Stock included in the Merger
Consideration shall be appropriately adjusted.
2.7 DISSENTERS' RIGHTS. Any shareholder of the Company exercising
appraisal rights under Section 00-00-000 et. seq. of the South Carolina Law (the
"Dissenting Shareholders") who
8
shall be entitled to "fair value" of his Shares as provided in Section
00-00-000 et. seq. of the South Carolina Law shall not be entitled to the
Merger Consideration, unless and until the holder thereof shall have failed
to perfect or shall have effectively withdrawn or lost his dissenter's rights
with respect to the Merger under the South Carolina Law and shall be entitled
to receive from Precept only the payment to the extent provided for in
connection with Section 00-00-000 et. seq. of the South Carolina Law with
respect to such Shares. If any Dissenting Shareholder shall fail to perfect
or shall have effectively withdrawn his dissenter's rights, the Shares held
by such Dissenting Shareholder shall thereupon be treated as though such Shares
had been converted into the Merger Consideration pursuant to Section 2.5.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY AND THE SHAREHOLDERS
The Company (until the Closing) and the Shareholders (including, without
limitation, Xxxxxx Xxxxxxx, Xxxxx Xxxxxxx, Xxxxxxx Xxxxxx, Xxxxxx Xxxxxxx,
Xxxxxx Xxxxxx, Xxxxx Xxxxxxxx, Xxxx Xxxxxx, Xxxx Xxxxxxxxx, Xxxxxx Till, Xxx
Xxxxxxx, Xxx Xxxxxxxx, Xxxxxxxxx Xxx, Xxxx Xxxxx, Xxx Xxxxx, and Xxxx Street as
to the representation and warranty set forth in Section 3.5), jointly and
severally, hereby represent and warrant to Precept and Merger Sub 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 Shareholders to Precept
and Merger Sub on the date hereof (the "Disclosure Schedule"). Nothing in the
Disclosure Schedule shall be deemed adequate to disclose an exception to a
representation or a warranty made herein, however, unless the Disclosure
Schedule identifies the exception with particularity and describes the relevant
facts in detail. Without limiting the generality of the foregoing, the mere
listing (or inclusion of a copy) of a document or other item shall not be deemed
adequate to disclose an exception to a representation or warranty made herein
(unless the representation or warranty has to do with the existence of a
document or other item itself.) 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 South Carolina 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; such
jurisdictions are listed in SECTION 3.1 OF THE DISCLOSURE SCHEDULE.
3.2 AUTHORITY. The Company has all requisite corporate power and
authority, and each Shareholder has all requisite power and authority, to
execute, deliver and perform under this
9
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 the Shareholders, as the case may be, have been
duly authorized by all necessary action, corporate or otherwise, on the part
of the Company and the Shareholders. This Agreement has been, and the other
Transaction Documents at Closing will be, duly executed and delivered by the
Company and the Shareholders and, where applicable, each of the Transaction
Documents will be legal, valid and binding agreements of the Company and the
Shareholders, 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 Merger Sub true, correct
and complete copies of the Company's charter, bylaws, minute books, stock
certificate books and stock record 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
solely of 750,000 shares of Class A Common Stock, no par value per share, of
which 104,388 shares are issued and outstanding and all of which are held
beneficially and of record by the Shareholders as set forth in EXHIBIT A
attached hereto and 250,000 shares of Class B Common Stock, no par value per
share, of which none are issued or outstanding. All of the Shares are validly
issued, fully paid and non-assessable and are held by the Shareholders 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, any shareholders of the Company (including
the Shareholders) 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 shareholders' agreements, voting agreements,
voting trusts or similar agreements or restrictions binding on any of the
Shareholders or applicable in any way to the Shares. 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 Shareholders 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 shareholder agreements (a "Lien"). On the Closing Date, the Shareholders
will own the Shares, of record and beneficially, free and clear of any Lien.
3.6 NO VIOLATION. Except as set forth in SECTION 3.6 OF THE DISCLOSURE
SCHEDULE, neither the execution nor the delivery of the Transaction Documents
nor the consummation of the
10
transactions contemplated thereby, including without limitation, the transfer
of the Shares to Merger Sub, 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 (including those
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 Shareholders is a party or by which the
Company, any of the Shareholders or any of their assets is in any way bound
or obligated.
3.7 GOVERNMENTAL CONSENTS. No consent, approval, order or authorization
of, or registration, qualification, designation, declaration or filing with, any
governmental or quasigovernmental agency, authority, commission, board or other
body (collectively, a "Governmental Body") is required on the part of the
Company or any of the Shareholders in connection with the transactions
contemplated by this Agreement.
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 for the Company's fiscal years ending October 31, 1996 and 1997, and the
unaudited statements of income, retained earnings and cash flows for the
Company's fiscal years ending October 31, 1996 and 1997, each of which have been
reviewed by Hogenboon & Associates and (ii) the unaudited balance sheet (the
"Latest Balance Sheet") and related unaudited statements of income, retained
earnings and cash flows of the Company for the period ending May 31, 1998 (the
"Latest Income Statements") (collectively, all financial information referred to
in this SECTION 3.8 is hereinafter referred to as 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. The Financial
Statements do not contain any items of a special or nonrecurring nature, except
as expressly stated therein. The Financial Statements (a) 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, and (b) that the Latest Balance
Sheet and the Latest Income Statement do not contain footnotes.
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 July 31, 1998 (the "Accounts Receivable"), and the payments and rights to
receive payments related thereto. 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 will
constitute valid claims against third parties not affiliated with any of the
Shareholders 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 under the Company's current
policies and procedures in the
11
ordinary course of business, at the face amount thereof, less any reserve
reflected in the Latest Balance Sheet, and in all cases are not subject to
counterclaim, set-off or other reduction.
3.10 ABSENCE OF UNDISCLOSED LIABILITIES. At the Closing, the aggregate
amount of the Company's indebtedness for borrowed money (which excludes accounts
payable arising in the ordinary course of business) will not exceed $1,000,000.
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 unasserted, known or
unknown (collectively, "Liabilities"), except for (a) Liabilities specifically
identified in the Latest Balance Sheet that are required under GAAP to be
disclosed, and (b) obligations to be performed in the ordinary course of
business or under the Material Agreements (as defined in SECTION 3.20 below).
3.11 ABSENCE OF MATERIAL ADVERSE CHANGE. Except as set forth on SCHEDULE
3.11 OF THE DISCLOSURE SCHEDULE, since the date of the Latest Balance Sheet,
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 or with respect to the manner in which the Company conducts its
business or operations; (b) any payment (including without limitation any
dividend or other distribution or repayment of indebtedness) to any shareholder
of the Company (including the Shareholders), 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
threatened termination under any Material 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 transaction, agreement or commitment entered
into by the Company or its shareholders 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) All Tax Returns required to have been filed by the Company have
been timely filed (taking into account duly granted extensions) and are
true, correct and complete in all respects. Except as disclosed in
SCHEDULE 3.12(a) OF THE DISCLOSURE SCHEDULE, (i) the Company is not
currently the beneficiary of any extension of time within which to file any
Tax Return, and (ii) no claim has ever been made by any governmental
authority in a jurisdiction where the Company does not file Tax Returns
that the Company is or may be subject to taxation by that jurisdiction.
12
(b) All Taxes of the Company which have become due (without regard to
any extension of the time for payment and whether or not shown on any Tax
Return) have been paid. The Company has withheld and paid over all Taxes
required to have been withheld and paid over and has complied with all
information reporting and back-up withholding requirements relating to
Taxes. There are no liens with respect to Taxes on any of the assets of
the Company, other than liens for Taxes not yet due and payable.
(c) The unpaid Taxes of the Company for all periods ending on or
before the date of the Latest Balance Sheet did not exceed the amount of
the current liability accruals for Taxes (exclusive of reserves for
deferred Taxes established to reflect timing differences) reflected on the
Latest Balance Sheet, and the unpaid Taxes of the Company for all periods
ending on or before the Closing Date will not exceed the amount of such
current liability accruals as adjusted for Company operations in the
ordinary course of business through the Closing Date in accordance with
GAAP (except as set forth in SECTION 3.8 OF THE DISCLOSURE SCHEDULE) and,
to the extent consistent therewith, the most recent custom and practices of
the Company.
(d) No deficiencies exist or have been asserted or are expected to be
asserted (verbally or in writing) with respect to Taxes of the Company and
the Company has not received notice nor does it expect to receive notice
(verbally or in writing) that it has not filed a Tax Return or paid any
Taxes required to be filed or paid by it. No audit, examination,
investigation, action, suit, claim or proceeding relating to the
determination, assessment or collection of any Tax of the Company is
currently in process, pending or threatened (verbally or in writing). No
waiver or extension of any statute of limitations relating to the
assessment or collection of any Tax of the Company is in effect. There are
no outstanding requests for rulings with any Tax authority relating to
Taxes of the Company.
(e) The Company is not and has never been (i) a party to any Tax
sharing agreement or arrangement (formal or informal, verbal or in
writing), or (ii) a member of an affiliated group of corporations (within
the meaning of Code Section 1504) filing a consolidated federal income Tax
Return, or any similar group under analogous provisions of other law.
(f) None of the Shareholders is a "foreign person" as defined in Code
Section 1445(f)(3).
(g) The Company (i) has not filed a consent under Code Section 341(f)
concerning collapsible corporations; (ii) has not made any payments,
obligated itself to make any payments or become a party to any agreement
that under any circumstance could obligate it or any successor or assignee
of it to make any payments that are not or will not be deductible under
Code Section 280G, or that would be subject to excise Tax under Code
Section 4999; (iii) is not and has not been a United States real property
holding corporation within the meaning of Code Section 897(c)(2) during the
applicable period specified in Code
13
Section 897(c)(1)(A)(ii); (iv) does not own and has not owned any interest
in any "controlled foreign corporation" as defined in Code Section 957 or
"passive foreign investment company" as defined in Code Section 1296;
(v) is not and has not been a party to any agreement or arrangement for
which partnership Tax Returns are required to be filed; (vi) does not own
any asset that is subject to a "safe harbor lease" within the meaning of
Code Section 168(f)(8), as in effect prior to amendment by the Tax Equity
and Fiscal Responsibility Act of 1982; (vii) does not own any "tax-exempt
use property" within the meaning of Code Section 168(h) or "exempt bond
financed property" within the meaning of Code Section 168(g)(5); and
(viii) has not agreed to and is not required to make any adjustment under
Code Section 481(a) by reason of a change in accounting method or
otherwise.
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
or the Shareholders, threatened claims, actions, lawsuits, administrative
proceedings or reviews, or formal or informal complaints 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. 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 (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. Each of such Permits is described in
SECTION 3.15 OF THE DISCLOSURE SCHEDULE. No loss or expiration of any such
Permit is pending or, to the knowledge of the Company or the Shareholders,
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,
14
contacts or other arrangements with any group of employees, labor union or
employee representative. Neither the Company nor the Shareholders 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
or the Shareholders' knowledge, threatened against or involving the Company;
(d) no representation question exists respecting the employees of the
Company; (e) no grievance that might have a material adverse effect upon the
Company or the conduct of its respective business exists, no arbitration
proceeding arising out of or under any collective bargaining agreement is
pending, and to the Company's or the Shareholders' knowledge, no such claim
has been asserted; (f) no collective bargaining agreement is currently being
negotiated by the Company; (g) the Company has not experienced any material
labor difficulty or organizing activity during the last three years; (h)
there has not been any material adverse change in relations with employees of
the Company as a result of any announcement of the transaction contemplated
by this Agreement; and (i) to the Company's and the Shareholders' 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 employment with the Company. The Company has noncompetition agreements
with each of the Company's employees listed in SECTION 3.16 OF THE DISCLOSURE
SCHEDULE, which, to the Company's and the Shareholders' knowledge, are valid
and enforceable and no employee has breached or, to the Company's and the
Shareholders' knowledge threatened to breach, such employee's respective
noncompetition agreement.
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 3.16 OF THE DISCLOSURE SCHEDULE lists each "employee
welfare benefit plan" (as defined in Section 3(l) 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'
15
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 (5) 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. To
the knowledge of the Company and the Shareholders, 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 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 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 Shareholders, 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 any of the Shareholders has
received notice that any of the Plans is being audited or investigated by
any Governmental Body. With respect to such Plans, neither the Company nor
any of the Shareholders has received notice that there are actions, suits
or claims (other than routine claims for benefits in the ordinary course)
16
pending or, to the knowledge of the Company or the Shareholders,
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 Precept and Merger Sub: (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. Set forth in SECTION 3.18 OF THE DISCLOSURE
SCHEDULE is a complete list of (a) all real property owned by the Company;
(b) all real property leased by the Company; (c) each vehicle owned or leased
by the Company; and (d) 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 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 course of business and consistent with past practices since the date
of the Latest Balance Sheet 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
OF THE DISCLOSURE SCHEDULE.
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, will not likely require major overhaul or repair in the
foreseeable future, are adequate and sufficient for the Company's business
and 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.
17
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 shareholder of the Company (including the Shareholders), 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. SECTION 3.20 OF THE DISCLOSURE SCHEDULE indicates each
agreement that is subject to laws, rules or regulations relating to the
Small Business Administration, Minority Business Enterprises or Women Owned
Business Enterprises.
(b) The Company has performed all 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 any of the Shareholders 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.
(c) The Company has delivered to Precept and Merger Sub 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 July 31, 1998, which also shows for each
such customer (a) revenues, if any, actually received by the Company during
the Company's fiscal year ended October 31, 1997, (b) the
18
expiration date of the contract or agreement, and (c) projected revenues for
the Company's fiscal year ending October 31, 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. 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 any of the Shareholders is obligated 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
Shareholders, 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 the
Merger Sub or the use thereof by the Merger Sub 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 or the Shareholders' knowledge, the other parties thereto, with
respect to the Company's licenses of the 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.
19
3.24 COMPETING INTERESTS. Except as disclosed in SECTION 3.24 OF
DISCLOSURE SCHEDULE, neither the Company, the Shareholders' 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 or directors, or, to the knowledge of the
Company or the Shareholders, the Company's employees, agents, other
representatives or any other business entity or enterprise with which the
Company is or has been affiliated or associated, has, directly or indirectly,
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. 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) 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 Shareholders, threatened action, suit,
claim, investigation, inquiry or proceeding by or before any governmental
entity under any Environmental Laws (c) 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) 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) there has been no material release of
hazardous substances or any pollutant or contaminant into the environment by
the Company; and (f) the Company has made available to the Merger Sub 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.
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 Shareholders.
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
20
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 any of
the Shareholders 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 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
Shareholders, 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 July 31, 1998, all inventory of the Company that is (a) owned by the
Company, and (b) owned by customers of the Company. Except as set forth in
SECTION 3.31 OF THE DISCLOSURE SCHEDULE, 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
amount. Such inventory is owned by the Company and 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 Shareholders 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 Shareholders
nor any Affiliate has any direct or indirect interest in any competitor,
supplier or customer of the Company or in any person, from or entity from
whom or to whom the Company leases any property, or in any other person, firm
or entity with whom the 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.
21
3.33 REORGANIZATION MATTERS.
(a) The fair market value of the Precept Common Stock and other
consideration received by each Shareholder will be approximately equal to
the fair market value of the Shares surrendered by such Shareholder in the
Merger.
(b) Pursuant to the Merger, the Surviving Corporation will acquire at
least 90 percent of the fair market value of the net assets and at least 70
percent of the fair market value of the gross assets held by the Company at
the time discussions were initiated which led to execution of this
Agreement. For purposes of this representation, amounts paid by the
Company to dissenters, Company assets used to pay its reorganization
expenses, and all redemptions and distributions (except for regular, normal
dividends) made by the Company at any time after discussions were initiated
which led to execution of this Agreement will be included as assets of the
Company.
(c) The fair market value of the assets of the Company immediately
prior to and immediately following the Merger will equal or exceed the sum
of the liabilities of the Company, including, without limitation, any
liabilities to which such assets are subject.
(d) There is no intercorporate indebtedness existing between Precept
and the Company or between Merger Sub and the Company that was issued,
acquired, or will be settled at a discount.
(e) None of the Precept Common Stock to be received by any
Shareholder who will also be an employee of the Surviving Corporation will
be separate consideration for, or allocable to, any employment agreement,
and the compensation paid by the Surviving Corporation to each such
employee will be for services actually rendered and will be commensurate
with the amount which would be paid to third parties bargaining at arm's
length for similar services.
(f) In contemplation of the Merger, (i) neither the Company nor any
party related to the Company within the meaning of Treasury regulations
Section 1.368-1(e)(3) has redeemed or acquired any of the Shares and (ii)
the Company has not made any extraordinary distribution within the meaning
of Treasury regulations Section 1.368-1(e)(1)(ii)(A) with respect to the
Shares.
(g) The Company is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
(h) 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.
22
3.34 PROJECTIONS; MATERIAL FACTS. In connection with the transactions
contemplated by this Agreement, the Company has furnished to Precept and
Merger Sub certain projections and estimates relating to the Company (the
"Projections"). The Company and the Shareholders represent and warrant that
the assumptions and projections in the Projections were prepared by the
Company and the Shareholders in good faith based on their best knowledge,
information and belief The Company and the Shareholders 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 Precept and Merger Sub. Since the date of the
Projections, the Company and the Shareholders know of no material adverse
change in the business, business prospects, property, condition or results of
operations of the Company.
3.35 NO MISREPRESENTATIONS. Neither the Company nor any of the
Shareholders 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 materials
assets. The representations, warranties and statements made by the Company
and the Shareholders 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.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES OF PRECEPT AND MERGER SUB
Precept and Merger Sub, respectively, represent and warrant to the
Company (until the Closing) and the Shareholders as follows:
4.1 ORGANIZATION. Precept is a corporation, validly existing and in
good standing under the laws of the State of Texas, and Merger Sub is a
corporation, validly existing and in good standing under the laws of the
State of Texas.
4.2 AUTHORITY. Precept and Merger Sub 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 Merger Sub and Precept have been duly authorized by all
necessary action, corporate or otherwise, on the part of Merger Sub and
Precept. This Agreement has been, and the Transaction Documents at Closing
will be, duly executed and delivered by Merger Sub and Precept and are legal,
valid and binding agreements of Merger Sub 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.
23
4.3 PRECEPT COMMON STOCK. The Precept 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.
4.4 NO VIOLATION. The execution, delivery and performance of the
Transaction Documents by Merger Sub 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 material agreement,
instrument, order, law or regulation to which Merger Sub or Precept is a
party or by which Merger Sub or Precept is in any way bound or obligated.
4.5 GOVERNMENTAL CONSENTS. To the knowledge of Merger Sub 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 Merger Sub or Precept in connection with the
transactions contemplated by this Agreement.
4.6 SEC DOCUMENTS. Precept has furnished or made available to the
Company or the Shareholders 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 (the "S-4 Registration Statement").
4.7 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 Precept or Merger Sub who might be entitled to any fee or
commission from the Shareholders or the Company upon consummation of the
transactions contemplated by this Agreement.
4.8 REORGANIZATION MATTERS.
(a) Merger Sub has been formed solely for the purposes of effecting
the Merger and, immediately prior to the Merger, Precept will "control"
Merger Sub within the meaning of Section 368(c) of the Code.
(b) Neither Precept nor any party related to Precept within the
meaning of Treasury regulations Section 1.368-1(e)(3) has any present plan
or intention to redeem or acquire any of the Precept Common Stock issued in
the Merger.
(c) Precept has no present plan or intention to sell or otherwise
dispose of any of the assets or stock of the Surviving Corporation, except
for dispositions made in the ordinary course of business or transfers
described in Section 368(a)(2)(C) of the Code.
(d) Following the Merger, the Surviving Corporation will continue the
Company's historic business or use a significant portion of the Company's
historic business assets in a business.
24
(e) Precept is not an investment company as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code.
(f) Precept 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.
(g) To the knowledge of Precept and Merger Sub, the Merger will
qualify as a reorganization within the meaning of Sections 368(a)(1)(A) and
(a)(2)(D) of the Code.
4.9 TRANSFERABILITY. Precept Common Stock has been registered pursuant
to a Registration Statement under the Securities Act, and is freely
transferable except to the extent such transfer is limited under Rule 145 of
the Securities Act.
4.10 BREACH OF REPRESENTATIONS AND WARRANTIES. No executive
officer of Precept has knowledge of any breach or the inaccuracy of any of
the representations and warranties of the Company or the Shareholders set
forth in this Agreement. If an executive officer obtains knowledge of a
breach or the inaccuracy of any representation or warranty of the Company or
the Shareholders prior to Closing, Precept shall notify the Company;
provided, such knowledge shall not limit Precept's remedies under ARTICLE VII
of this Agreement, unless required notice is not timely delivered to the
Company or the Shareholders.
ARTICLE V.
ADDITIONAL COVENANTS AND AGREEMENTS
5.1 CONDUCT OF BUSINESS. Prior to the Closing, the Company will, and
the Shareholders 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 any of the
Shareholders 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 Shareholders agree to negotiate exclusively and in good faith with
Precept and Merger Sub with respect to the sale of the Shares or the
Company's assets, and neither the Company nor any of the Shareholders will,
25
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 of the Shareholders will promptly communicate to
Precept or Merger Sub 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 Precept, Merger
Sub and their 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
Precept and Merger Sub such information, financial records and other
documents relating to the Company and their respective operations and
business as Precept and Merger Sub may reasonably request. The Company and
each Shareholder will permit Precept, Merger Sub and their 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 Precept or Merger Sub, reasonable
access to the Company's customers for validation of financial information
furnished to Precept or Merger Sub on or prior to the date of execution and
delivery of this Agreement, and will use their respective best efforts to
cause such Persons to cooperate with Precept or Merger Sub and their
representatives in such consultation and in verifying such information.
5.4 SUPPLEMENTAL DISCLOSURE. The Company and each Shareholder 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 Company and each Shareholder under this SECTION 5.4, any
such supplemental or amended disclosure will be deemed to have been disclosed
to Precept and Merger Sub for purposes of SECTION 7.1 hereof and Precept and
Merger Sub reserve the right, in the event of any such supplemental
disclosure, to terminate this Agreement pursuant to SECTION 8.1(b) of this
Agreement if such supplemental disclosure, in Precept's or Merger Sub's
reasonable opinions, could have a material adverse effect on the assets,
liabilities, financial condition or prospects of the Company.
5.5 INFORMATION FOR FILINGS. Each Shareholder and the Company will
furnish Precept and Merger Sub with all information concerning the Company as
is required for inclusion in any application or filing made by Precept or
Merger Sub to any Governmental Body in connection with the transactions
contemplated by this Agreement.
5.6 FULFILLMENT OF CONDITIONS BY THE COMPANY AND THE SHAREHOLDERS. The
Company and the Shareholders 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 Shareholders herein not to be true
and correct as of the
26
Closing. The Company and the Shareholders will take all reasonable steps to
cause to be fulfilled the conditions precedent to Merger Sub's and Precept's
obligations to consummate the transactions contemplated hereby that are
dependent on the actions of the Company or the Shareholders, respectively.
5.7 FULFILLMENT OF CONDITIONS BY MERGER SUB AND PRECEPT. Merger Sub
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
Merger Sub or Precept herein not to be true and correct as of the Closing.
Merger Sub Precept will take all reasonable steps to cause to be fulfilled
the conditions precedent to the Company's and the Shareholders' obligations
to consummate the transactions contemplated hereby that are dependent on the
actions of Merger Sub or Precept, respectively.
5.8 PUBLICITY. Merger Sub, Precept, the Company and the Shareholders
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 Merger Sub or Precept, on the one
hand, nor the Company or the Shareholders, 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.
5.9 RELEASE BY THE SHAREHOLDERS. Effective upon the Closing, the
Shareholders (including, without limitation, Xxxxxx Xxxxxxx, Xxxxx Xxxxxxx,
Xxxxxxx Xxxxxx, Xxxxxx Xxxxxxx, Xxxxxx Xxxxxx, Xxxxx Xxxxxxxx, Xxxx Xxxxxx,
Xxxx Xxxxxxxxx, Xxxxxx Till, Xxx Xxxxxxx, Xxx Xxxxxxxx, Xxxxxxxxx Xxx, Xxxx
Xxxxx, Xxx Xxxxx, and Xxxx Street), jointly and severally, for themselves and
their heirs, executors, administrators, successors and assigns, hereby fully
and unconditionally release and forever discharge and hold harmless the
Company, Merger Sub and their respective 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 or its business (other than with respect to this Agreement or the
transactions contemplated hereby), that the Stockholders may now have or may
hereafter claim to have against the Company, Merger Sub or any of their
employees, officers, directors, successors or assigns.
5.10 COVENANTS RELATING TO TAXES.
(a) The Company shall duly, accurately and timely (with regard to any
duly granted extensions) file all Tax Returns required to be filed, and pay
all Taxes required to be paid, by it on or before the Closing Date. Except
with the prior written consent of
27
Precept, the Company will not (i) make, adopt or change any material Tax
election or Tax accounting method, (ii) enter into any closing agreement
with respect to Taxes of the Company or settle any asserted Tax claim or
assessment, or (iii) consent to any Tax claim or assessment or to any
waiver or extension of the statute of limitations for any Tax claim or
assessment.
(b) Precept shall cause the Surviving Corporation to duly, accurately
and timely (with regard to any duly granted extensions) file all Tax
Returns of the Company required to be filed after the Closing Date and pay
all Taxes due thereon. The Shareholders shall reimburse the Surviving
Corporation within fifteen (15) days after payment by the Surviving
Corporation or Precept of such Taxes to the extent such Taxes (i) relate to
any taxable period ending on or before the Closing Date (for any taxable
period beginning before and ending after the Closing Date to the extent
allocable to the portion of such period beginning before and ending on the
Closing Date) and (ii) exceed the amount of the current liability accruals
for Taxes (exclusive of reserves for deferred Taxes established to reflect
timing differences) reflected on the Latest Balance Sheet as adjusted for
Company operations in the ordinary course of business through the Closing
Date in accordance with GAAP and, to the extent consistent therewith, the
most recent custom and practices of the Company; provided that if the
Surviving Corporation is entitled to a Tax refund for the periods described
in (i) above, the Surviving Corporation shall pay the amount of the Tax
refund to the Shareholders on a pro rata basis within fifteen (15) days
after the Surviving Corporation's receipt thereof. The amount of the Tax
refund shall be payable in shares of Precept Common Stock valued as of the
date the Tax refund is received by the Surviving Corporation. For purposes
of this SECTION 5.10(b), the portion of any Tax attributable to a taxable
year or period beginning before and ending after the Closing Date shall be
determined by apportioning the Tax for the entire year or period based upon
the number of days in the year or period, except that any such Tax measured
by income or receipts shall be apportioned based upon actual results of
operations through the end of the Closing Date. Notwithstanding the
foregoing, the Shareholders shall not be obligated to reimburse the
Surviving Corporation for excess taxes resulting from a decision made,
action taken or position taken by Precept unless such decision, action or
position was taken to correct a prior decision, action or position which
was not in compliance with applicable Tax laws.
(c) The Shareholders, the Company, Precept and the Surviving
Corporation shall reasonably cooperate with each other in connection with
the filing of Tax Returns pursuant to this SECTION 5.10 and any audit,
litigation, or other proceeding with respect to Taxes of the Company. Such
cooperation shall include the provision of copies, at the requesting
party's expense, of records and information relevant to any such Tax Return
or proceeding and making employees available on a mutually convenient basis
to provide additional information and explanation of any material provided
hereunder.
28
5.11 TAX TREATMENT.
(a) From and after the date of this Agreement, none of Precept,
Merger Sub, the Company, or any Shareholder shall take, or cause or permit
any of their Affiliates to take, any action that would preclude
qualification of the transactions contemplated by this Agreement as a
reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(D)
of the Code.
(b) Each of the Company and Precept shall comply with the reporting
requirements of Treasury regulations Section 1.368-3 and shall not take any
position on any Tax Return inconsistent with qualification of the
transactions contemplated by this Agreement as a reorganization with the
meaning of the Sections 368(a)(1)(A) and 368(a)(2)(D) 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 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 RELEASE OF GUARANTEES. Precept shall use reasonable efforts to
obtain the release of the Shareholders from those guarantees and contingent
obligations with respect to obligations of the Company set forth in SECTION
5.13 OF THE DISCLOSURE SCHEDULE as soon as practicable after the Closing
Date. If Precept is unable to obtain the releases from the guarantees and
contingent obligations set forth in SECTION 5.13 OF THE DISCLOSURE SCHEDULE,
Precept shall indemnify, defend and hold such Shareholders harmless from any
and all losses directly arising from such guarantees or obligations.
5.14 SHAREHOLDERS MEETING. The Company will take, in accordance with
applicable law, its certificate of incorporation and its bylaws, all action
necessary to convene a meeting of shareholders (the "Shareholders Meeting")
of the Company as promptly as practicable after the date of this Agreement to
consider and vote upon the adoption and approval of this Agreement and the
Merger. The Shareholders Meeting will be held on or before September 16,
1998. The Board of
29
Directors of the Company shall recommend such adoption and approval and the
Company shall take all lawful action to solicit such approval by its
shareholders.
5.15 SHAREHOLDER APPROVAL. By executing this Agreement, each
Shareholder other than the ESOP (including, without limitation, Xxxxxx
Xxxxxxx, Xxxxx Xxxxxxx, Xxxxxxx Xxxxxx, Xxxxxx Xxxxxxx, Xxxxxx Xxxxxx, Xxxxx
Xxxxxxxx, Xxxx Xxxxxx, Xxxx Xxxxxxxxx, Xxxxxx Till, Xxx Xxxxxxx, Xxx
Xxxxxxxx, Xxxxxxxxx Xxx, Xxxx Xxxxx, Xxx Xxxxx, and Xxxx Street) evidences
his irrevocable agreement to vote all shares of Company Common Stock owned by
him or with respect to which he has the right to vote in favor of the Merger.
5.16 DISCLOSURE SCHEDULES. The Company and the Shareholders shall
deliver to Precept the Disclosure Schedules by 5:00 p.m. Central time on
September 4, 1998.
ARTICLE VI.
CONDITIONS TO CLOSING
6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger shall be subject to
the fulfillment in all material respects at or prior to the Effective Time of
the following conditions:
(a) The Merger pursuant to this Agreement and this Agreement shall
have been approved in the manner required by law by the holders of the
issued and outstanding shares of Merger Sub's and the Company's common
stock entitled to vote thereon.
(b) The waiting period applicable to the consummation of the Merger
under the Xxxx-Xxxxx-Xxxxxx Act shall have expired or been terminated.
(c) There shall be no pending or threatened litigation in any court
or any proceeding before or by any Governmental Body against the
Shareholders, the Company, Precept or Merger Sub to restrain or prohibit or
obtain damages or other relief with respect to this Agreement or the
consummation of the transactions contemplated hereby.
6.2 CONDITIONS TO OBLIGATIONS OF MERGER SUB AND PRECEPT. The
obligations of Merger Sub 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 Precept or Merger Sub in
writing:
(a) All representations and warranties of the Company and the
Shareholders 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.
30
(b) The Company and the Shareholders 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 in all material respects at or prior to the Closing Date, including
without limitation the delivery to Merger Sub and Precept of all items
required to be delivered by them as provided below:
a. Employment Agreement substantially in the form of EXHIBIT B
hereto executed by and between Merger Sub and Xxxxxx;
b. Employment Agreement substantially in the form of EXHIBIT C
hereto executed by and between Merger Sub and Xxxxxxxx;
c. Confidentiality and Noncompetition Agreement substantially
in the form of EXHIBIT D hereto executed by and among Precept, the
Company and each of Xxxxxx and Xxxx;
d. Affiliate Agreement substantially in the form of EXHIBIT F
hereto executed by and between Merger Sub and each Shareholder;
e. Closing Certificate substantially in the form of EXHIBIT G
hereto executed by and between Shareholders and the Company;
f. Secretary's Certificate substantially in the form of EXHIBIT
H hereto executed by the Company;
g. Nonforeign Affidavit substantially in the form of EXHIBIT I
hereto executed by the Company;
h. Stock power endorsed in blank from each Shareholder with
respect to the Holdback Shares;
i. If and to the extent requested by Precept or Merger Sub,
each director and officer of the Company will deliver to Precept or
Merger Sub a written resignation;
j. The Company and the Shareholders will deliver to Precept and
Merger Sub a legal opinion of their counsel substantially in the form
of EXHIBIT J hereto.
k. The Escrow Deposit Agreement substantially in the form of
EXHIBIT N hereto executed by Precept and each of the Shareholders.
(c) All necessary contractual, governmental or other (including board
and shareholder) consents, approvals, orders or authorizations, if any,
necessary to permit the
31
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.
(d) No supplemental disclosure to the Disclosure Schedules pursuant
to SECTION 5.4 of this Agreement shall have been made by the Company or any
of the Shareholders that discloses any fact or event that, in Precept's or
Merger Sub's reasonable opinion, could have a material adverse effect on
the assets, liabilities, financial condition or prospects of the Company.
(e) The Company, Precept and Merger Sub shall have completed mutually
agreed upon customer reference visits and Precept and Merger Sub shall be
satisfied (in their sole discretion), based on such visits, that the
Company's customer relationships are satisfactory.
(f) 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 and the Latest Balance Sheet.
(g) Shareholders' equity of the Company shall not be less than
$1,000,000 and working capital of the Company shall not be less than
$700,000 on the Closing Date.
(h) This Agreement and the transactions contemplated hereby
including, but not limited to, the Merger, shall have been approved and
adopted by the requisite vote of the shareholders of the Company in
accordance with the laws of the State of South Carolina, the certificate of
incorporation and the bylaws of the Company, and shareholders holding
Company Common Stock representing in the aggregate the right to receive 5%
or more of the Merger Consideration upon effectiveness of the Merger shall
not have exercised dissenters' rights.
(i) The Disclosure Schedules shall be in form and substance
satisfactory to Precept.
6.3 CONDITIONS TO OBLIGATIONS OF THE SHAREHOLDERS. The obligations of
the Shareholders 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 Shareholders in writing:
(a) All representations and warranties of Precept and Merger Sub 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) Precept and Merger Sub shall have performed and complied with the
covenants and agreements and satisfied the conditions required by this
Agreement to be
32
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 Precept and Merger Sub as provided below:
a. Subject to SECTION 7.4 below, Precept will deliver (or cause
to be delivered) to each Shareholder a stock certificate representing
the Precept Common Stock to be delivered to the respective Shareholder
at Closing, together with such cash and/or Note(s) as the respective
Shareholder shall be entitled to receive in the Merger;
b. Employment Agreement substantially in the form of EXHIBIT B
hereto executed by and between Merger Sub and Xxxxxx;
c. Employment Agreement substantially in the form of EXHIBIT C
hereto executed by and between Merger Sub and Xxxxxxxx;
d. Confidentiality and Noncompetition Agreement substantially
in the form of EXHIBIT D hereto executed by and between Merger Sub and
each of Xxxxxx and Xxxx;
e. [Intentionally omitted.]
f. Affiliate Agreement substantially in the form of EXHIBIT F
hereto executed by and between Merger Sub and each Shareholder;
g. Closing Certificate substantially in the form of EXHIBIT K
hereto executed by and between Precept and Merger Sub;
h. Secretary's Certificate substantially in the form of EXHIBIT
L hereto executed by Merger Sub; and
i. Precept and Merger Sub will deliver to the Company and the
Shareholders a legal opinion of its counsel substantially in the form
of EXHIBIT M hereto.
(c) All necessary contractual, governmental, or other consents,
approvals, orders or authorizations shall have been obtained and all
necessary governmental notices shall have been given, provided that receipt
of third party consents by the Shareholders shall not be deemed a condition
to Closing on the part of the Shareholders if Precept or Merger Sub
provides satisfactory indemnification to the Shareholders against any
liabilities related to failure to obtain such consents.
33
ARTICLE VII.
INDEMNIFICATION; ESCROW
7.1 INDEMNIFICATION OF MERGER SUB AND PRECEPT. The Company (until the
Closing) and the Shareholders, jointly and severally, hereby agree to
indemnify, defend and hold Precept, Merger Sub 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 (i) a breach of any agreement,
representation, warranty or covenant made by the Company or the Shareholders
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; PROVIDED, HOWEVER, that if
Precept or Merger Sub shall have knowledge of any such breach prior to the
Closing Date, the Company and the Shareholders shall have no indemnification
obligations hereunder with respect to such breach, PROVIDED FURTHER, HOWEVER,
that the limitation in the preceding clause shall not apply and the Company
and the Shareholders shall have indemnification obligations with respect to
breaches of representations and warranties contained in Sections 3.16
(Employee Matters), 3.17 (Employee Benefit Plans), and 3.14 (Compliance with
Laws and Regulations) to the extent breaches of Section 3.14 relate to
employee matters or employee benefit plans, whether or not Precept or Merger
Sub have knowledge of such breaches; (ii) any Tax liability of the Company or
the Shareholders with respect to the divestiture of the shares of Laser Print
Plus, Inc.; (iii) the exercise by Dissenting Shareholders of their rights
under Section 00-00-000 et. seq. under South Carolina Law; or (iv) any
Employee Benefit Plan that is a shareholder of the Company as of the Closing
Date with respect to the transactions contemplated by this Agreement; but
only to the extent such Losses exceed $100,000 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 $100,000;
provided, however, such limitations shall not apply to breaches of the
representations and warranties contained in SECTIONS 3.9 AND 3.18. The
maximum amount of Losses for which Buyer Parties shall be entitled to
indemnification hereunder shall the value of the Merger Consideration issued
to the Shareholders in connection with the transactions contemplated by this
Agreement (valued using the last sale price of Precept Common Stock on the
Effective Date); provided, however, with respect to (a) ownership by the
Shareholders of the Shares or (b) intentional misrepresentation or fraud by
the Shareholders or the Company (if applicable), the limitations on
indemnification set forth herein shall not apply. Unless otherwise provided,
the indemnification obligations under this ARTICLE VII shall expire 18 months
from the Closing Date except for any Claims (as defined below) of the Buyer
Parties pending as of such date (which Claims shall continue until the final
resolution thereof).
7.2 NOTIFICATION OF CLAIM; SET OFF. Any of the Buyer Parties seeking
indemnification under this ARTICLE VII will promptly give notice to the
Shareholders (or the Company, if applicable) of any Losses or claims as to
which it asserts a right to indemnification ("Claim"), and within thirty (30)
days thereafter, further notify the Shareholders (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
Shareholders (or the Company, if applicable) from any liability that the
Shareholders may have pursuant to the provisions of this ARTICLE VII as long
as the failure to give
34
such notice within such time is not prejudicial to the Shareholders 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. Precept and Merger Sub shall be entitled, but not required, to set
off the amount of any Claim or Claims in respect of which Buyer Parties are
entitled to indemnification against any payments becoming due to the
Shareholders (or the Company, if applicable) pursuant to this Agreement, the
Transaction Documents or otherwise. Precept and Merger Sub shall also be
entitled, but not required, to cancel Holdback Shares (as defined in SECTION
7.4 hereof in accordance with SECTION 7.4(e) below.
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, Precept or
Merger Sub will promptly give notice to the Shareholders (or the Company, if
applicable) of any such Claim, and thereafter the Shareholders (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 Shareholders (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
Precept or Merger Sub, and (b) the Shareholders (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 Shareholders (or the Company, if applicable). The Buyer
Parties shall provide all reasonable cooperation in connection with any such
defense by the Shareholders (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 Shareholders
(or the Company, if applicable). If any such Claim is made hereunder and the
Shareholders (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 Precept or
Merger Sub arises out of a Claim by Precept or Merger Sub and not a third
party, then Precept or Merger Sub shall be entitled to immediate
indemnification hereunder.
7.4 ESCROW FOR CLAIMS. At the Closing, fifteen (15%) of the Precept
Common Stock to be issued to the Shareholders at Closing under this Agreement
(collectively, the "Escrowed Shares"), will be issued in the name of the
Shareholders and held by the Escrow Agent pursuant to the term of the Escrow
Deposit Agreement to partially secure the indemnification obligations of the
Company and the Shareholders under SECTION 7.1. At the Closing, each
Shareholder shall execute and deliver to the Escrow Agent a stock power,
endorsed in blank, with respect to the Escrowed Shares.
7.5 NO CLAIMS BY THE SHAREHOLDERS AGAINST THE COMPANY. The parties
acknowledge that inasmuch as the Company will be a wholly-owned subsidiary of
Precept after the Closing Date, in the event that Precept and Merger Sub
makes a claim for indemnification against the Shareholders
35
pursuant to this ARTICLE VII, the Shareholders shall have no right to make
any claim, cross claim or counterclaim against the Company for
indemnification, contribution or otherwise.
7.6 SURVIVAL. Except as provided in SECTION 7.7 and except for the
Confidentiality Agreement entered into by and between the Company and Precept
Business Products, Inc. dated May 8, 1997 (the "Confidentiality Agreement"),
which agreement shall survive [indefinitely], 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 eighteen (18) months after the Closing
Date and the right to indemnification with respect thereto shall expire on
such date (unless there is a Claim pending on such date, in which case the
indemnification obligations, hereunder shall continue until the final
resolution of such Claim). All statements contained in any Schedule to this
Agreement will constitute representations and warranties under this Agreement.
7.7 SURVIVAL OF TAX, EMPLOYEE BENEFIT PLAN AND GOVERNMENTAL PROVISIONS.
All representations, warranties and covenants in this Agreement relating to
Taxes, employee benefit plans and Environmental Laws, including those
contained in SECTIONS 3.12, 3.17, 3.26, 3.33, 4.8, 5.10, 5.11 and 7.8 and 7.9
will survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby until the expiration of
the applicable statute of limitations period.
7.8 SPECIAL TAX INDEMNIFICATION OF SHAREHOLDERS.
(a) Precept and the Surviving Corporation, jointly and severally,
shall indemnify and hold harmless the Shareholders with respect to any Tax
liability resulting from the failure of the Merger to qualify as a
reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(D)
of the Code (for purposes of this SECTION 7.8, a "Reorganization") if such
failure is caused by any intentional action taken by Precept or the
Surviving Corporation after the Closing Date. If any action taken by one
or more of the Shareholders after the Closing Date contributes to the
failure of the Merger to qualify as a Reorganization or any action taken by
one or more of the Shareholders after the Closing Date would have caused
such failure without regard to any action taken by Precept or the Surviving
Corporation after the Closing Date, for purposes of this SECTION 7.8(a),
such failure is not caused by any action taken by Precept or the Surviving
Corporation after the Closing Date.
(b) The amount otherwise payable to a Shareholder pursuant to this
SECTION 7.8(a) shall be reduced (but not below zero) by the amount of any
reduction in Taxes that is realized by such Shareholder on or before the
date that the indemnification payment is due and that is (or was)
attributable to the Merger failing to qualify as a Reorganization (e.g., a
reduction in Tax attributable to a reduction in gain on the prior sale of
Precept Common Stock to the extent such reduction in gain was attributable
to an increased basis in such Precept Common Stock as a result of the
failure of the Merger to qualify as a Reorganization).
36
(c) Any Shareholder making a claim for indemnification pursuant to
this SECTION 7.8 shall deliver written notice of the claim to Precept or
the Surviving Corporation in accordance with SECTION 8.3 hereof together
with an opinion of counsel stating that the Shareholder is entitled to
indemnification in accordance with all of the requirements of this SECTION
7.8.
(d) Each Shareholder shall notify Precept and the Surviving
Corporation in writing within 10 days of the date on which the Shareholder
is first notified (whether in writing or otherwise) by a Tax authority that
the Merger does, or may, fail to qualify as a Reorganization. Precept and
the Surviving Corporation shall have the right to participate in any audit
or other dispute with the Tax authority relating to the qualification of
the Merger as a Reorganization. Additionally, if Precept and the Surviving
Corporation agree in writing that they will be obligated under this SECTION
7.8 to indemnify a Shareholder if such dispute with a Tax authority is
ultimately resolved in the Tax authority's favor, Precept and the Surviving
Corporation shall be entitled to assume control over the dispute with the
relevant Tax authority (in which case the relevant Shareholder shall grant
Precept and the Surviving Corporation a power of attorney to so control the
dispute and otherwise reasonably cooperate with Precept and the Surviving
Corporation in handling the dispute). In no event shall any Shareholder
agree to settle or otherwise concede all or a portion of any Tax liability
attributable to a claim that the Merger fails to qualify as a
Reorganization without the express written consent of Precept and the
Surviving Corporation.
(e) Notwithstanding the foregoing, neither Precept nor the Surviving
Corporation shall be required to indemnify any Shareholder under this
SECTION 7.8 if, (i) at any time on or after the Closing Date, the Internal
Revenue Service or any other finder of fact recharacterizes any payment or
other consideration paid pursuant to this Agreement or any transaction
contemplated by this Agreement as property other than Precept Common Stock
received by a Shareholder in exchange for such Shareholder's Shares and the
recharacterization causes the Merger to fail to qualify as a Reorganization
or (ii) the Company and Shareholders have breached any of the
representations and warranties contained in SECTION 3.33.
7.9 SPECIAL TAX INDEMNIFICATION OF PRECEPT AND THE SURVIVING CORPORATION.
(a) The Shareholders, jointly and severally, shall indemnify and hold
harmless Precept and the Surviving Corporation with respect to any Tax
liability resulting from the failure of the Merger to qualify as a
reorganization within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(D)
of the Code (for purposes of this SECTION 7.9, a "Reorganization") if such
failure is caused by any intentional action taken by any of the
Shareholders after the Closing Date. If any action taken by Precept or the
Surviving Corporation after the Closing Date contributes to the failure of
the Merger to qualify as a Reorganization or any action taken by Precept or
the Surviving Corporation after the Closing Date would have caused such
failure without regard to any action taken by any of the
37
Shareholders after the Closing Date, for purposes of this SECTION 7.9(a),
such failure is not caused by any action taken by any of the Shareholders
after the Closing Date.
(b) The amount otherwise payable to Precept or the Surviving
Corporation pursuant to this SECTION 7.9(a) shall be reduced (but not below
zero) by the amount of any reduction in Taxes that is realized by such
corporation on or before the date that the indemnification payment is due
and that is (or was) attributable to the Merger failing to qualify as a
Reorganization.
(c) In the event that Precept and/or the Surviving Corporation shall
make a claim for indemnification pursuant to this SECTION 7.9, it shall
deliver written notice of the claim to the Shareholders in accordance with
SECTION 8.3 hereof together with an opinion of counsel stating that such
corporation(s) is entitled to indemnification in accordance with all of the
requirements of this SECTION 7.9.
(d) Each of Precept and the Surviving Corporation shall notify each
Shareholder in writing within 10 days of the date on which such corporation
is first notified (whether in writing or otherwise) by a Tax authority that
the Merger does, or may, fail to qualify as a Reorganization. The
Shareholders shall have the right to participate in any audit or other
dispute with the Tax authority relating to the qualification of the Merger
as a Reorganization. In no event shall Precept or the Surviving
Corporation agree to settle or otherwise concede all or a portion of any
Tax liability attributable to a claim that the Merger fails to qualify as a
Reorganization without the express written consent of a majority of the
Shareholders.
(e) Notwithstanding the foregoing, none of the Shareholders shall be
required to indemnify Precept or the Surviving Corporation under this
SECTION 7.9 if, (i) at any time on or after the Closing Date, the Internal
Revenue Service or any other finder of fact recharacterizes any payment or
other consideration paid pursuant to this Agreement or any transaction
contemplated by this Agreement as property other than Precept Common Stock
received by a Shareholder in exchange for such Shareholder's Shares and the
recharacterization causes the Merger to fail to qualify as a Reorganization
or (ii) Precept or Merger Sub have breached any of the representations and
warranties contained in SECTION 4.8.
ARTICLE VIII.
MISCELLANEOUS
8.1 TERMINATION OF AGREEMENT. Certain of the parties to this Agreement
may terminate this Agreement as follows:
(a) Merger Sub, Precept, the Company and the Shareholders may
terminate this Agreement by mutual written consent at any time prior to the
Closing;
38
(b) Merger Sub and Precept may terminate this Agreement by giving
written notice to the Company and the Shareholders at any time prior to the
Closing Date in the event the Company or the Shareholders have breached any
representation or warranty pursuant to ARTICLE III of this Agreement or
otherwise materially breached any covenant or agreement herein;
(c) Merger Sub and Precept may terminate this Agreement by giving
written notice to the Company and the Shareholders at any time prior to the
Closing Date if the Closing shall not have occurred on or before September
20, 1998, by reason of the failure of any condition precedent set forth in
ARTICLE VI hereof (unless the failure results primarily from Merger Sub or
Precept breaching any representation, warranty or covenant contained in
this Agreement);
(d) The Company and the Shareholders may terminate this Agreement by
giving written notice to Merger Sub and Precept at any time prior to the
Closing Date if the Closing shall not have occurred on or before September
20, 1998; or
(e) The Company and the Stockholders may terminate this Agreement if
the per share closing price of the Precept Common Stock falls below $2.25,
and Precept and Merger Sub may terminate this Agreement if the per share
closing price of the Precept Common Stock exceeds $3.50.
8.2 EFFECT OF TERMINATION. In the event of termination of this Agreement
as provided in SECTION 8.2, this Agreement shall forthwith become void, there
shall be no liability on the part of Merger Sub and Precept, on the one hand,
and the Company and the Shareholders, 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 (a) any breach of such party's covenants
or agreements contained in this Agreement, or (b) 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 PRECEPT OR MERGER SUB: Precept Business Services, Inc.
0000 Xxxxxxx Xxxxxxx Xxxxxxx, Xxxxx 000
Xxxxxx, Xxxxx 00000
Attention: General Counsel
Facsimile No. 214/220-1082
39
WITH A COPY TO: Xxxxxxx Xxxxxx, L.L.P.
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Attention: Xxxxxxx X. Xxxxxxx, Xx.
Facsimile No. 214/953-5822
IF TO THE COMPANY: Southern Systems Business Forms & Data
Supplies, Inc.
0000 Xxxxx Xxxxxx
Xxxxxxxx, Xxxxx Xxxxxxxx 00000
Attention: Xxxxxxxx X. Xxxxxx
Facsimile No. 803/662-3050
WITH A COPY TO: J. Xxxxxxx Xxxxx
0000 Xxxxxxxx Xxxx
Xxxxxxxx, Xxxxx Xxxxxxxx 00000
Facsimile No. 803/662-1999
IF TO XXXXXX: Xxxxxxxx X. Xxxxxx
0000 Xxxxx Xxxxxx
Xxxxxxxx, Xxxxx Xxxxxxxx 00000
Facsimile No. 803/662-3050
IF TO XXXXXXXX: Xxxxx X. Xxxxxxxx
0000 Xxxxx Xxxxxx
Xxxxxxxx, Xxxxx Xxxxxxxx 00000
Facsimile No. 803/662-3050
IF TO XXXX: Xxxxx X. Xxxx
0000 Xxxxx Xxxxxx
Xxxxxxxx, Xxxxx Xxxxxxxx 00000
Facsimile No. 803/662-3050
IF TO XXXXXX: Xxxxxx X. Xxxxxx
0000 Xxxxx Xxxxxx
Xxxxxxxx, Xxxxx Xxxxxxxx 00000
Facsimile No. 803/662-3050
IF TO ESOP: Southern Systems Business Forms And Data
Supplies, Employee Stock Ownership Plan
0000 Xxxxx Xxxxxx
Xxxxxxxx, Xxxxx Xxxxxxxx 00000
Facsimile No. 803/662-3050
40
IF TO ANY OTHER SHAREHOLDER: c/o Southern Systems Business Forms & Data
Supplies, Inc.
0000 Xxxxx Xxxxxx
Xxxxxxxx, Xxxxx Xxxxxxxx 00000
Attention: Xxxxxxxx X. Xxxxxx
Facsimile No. 803/662-3050
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.
8.4 EXPENSES. Precept, Merger Sub, and each Shareholder will each bear
their own respective costs and expenses in connection with the transactions
contemplated by this Agreement. The Company shall bear any costs, expenses or
fees payable to financial advisors, attorneys, accountants and other
representatives retained by the Company or the Shareholders on their behalf and
on behalf of the Company with regard to the transactions contemplated by this
Agreement prior to the date of this Agreement; provided that such costs,
expenses and fees are reasonable in light of the transactions contemplated by
this Agreement and that such costs, expenses and fees do not exceed $35,000 in
the aggregate. The Shareholders shall bear any costs, expenses or fees payable
to any financial advisors, attorneys, accountants or other representatives
retained by the Company or the Shareholders on their behalf and on behalf of the
Company, with regard to the transactions contemplated by this Agreement for
services provided after the date of this Agreement. Precept, Merger Sub and
their Affiliates shall bear any costs, expenses or fees payable to any financial
advisors, attorneys, accountants or other representatives retained by Precept,
Merger Sub or their 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
Shareholders or Merger Sub, without the prior written consent of the other
parties hereto; except that Merger Sub may assign its rights and obligations
under this Agreement to any direct or indirect subsidiary of Precept (provided
that Merger Sub shall remain obligated to perform Merger Sub's obligations
hereunder). 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.
41
8.7 ENTIRE AGREEMENT. Except for the Confidentiality 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,
Disclosure Schedules to this Agreement, and Confidentiality 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.
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 VENUE; EXCLUSIVE JURISDICTION.
(a) Any judicial proceeding brought by or against any of the parties
to this Agreement on any dispute arising out of this Agreement or any
matter related hereto shall be brought in any Federal or State court
sitting in the County of Dallas, State of Texas, and by execution and
delivery of this Agreement, each of the parties to this Agreement accepts
for itself the exclusive jurisdiction and venue of the aforesaid courts as
trial courts, and irrevocably agrees to be bound by any final
non-appealable judgment rendered in connection with this Agreement.
(b) Each party hereto hereby expressly and irrevocably agrees and
consents that any suit, action or proceeding arising out of this Agreement
or any matter related hereto shall be instituted exclusively in any State
or Federal court sitting in the County of Dallas, State of Texas, and, by
the execution and delivery of this Agreement, each party hereto expressly
waives any objection which any party may have now or hereafter to the
laying of the venue or to the jurisdiction of any such suit, action or
proceeding, and irrevocably submits generally and unconditionally to the
jurisdiction of any such court in any such suit, action or proceeding.
42
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.
43
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
MERGER SUB: COMPANY:
PRECEPT ACQUISITION CORPORATION SOUTHERN SYSTEMS BUSINESS
a Texas corporation FORMS & DATA XXXXXXX, INC.,
a South Carolina corporation
By: By:
------------------------------- -----------------------------------
Xxxxx X. Xxxxx, Xxxxxxxx X. Xxxxxx,
Chief Executive Officer Chief Executive Officer
PRECEPT: XXXXXX:
PRECEPT BUSINESS SERVICES, INC.,
a Texas corporation ---------------------------------------
Xxxxxxxx X. Xxxxxx, individually
By:
-------------------------------
Xxxxx X. Xxxxx,
Chief Executive Officer XXXXXXXX:
---------------------------------------
Xxxxx X. Xxxxxxxx, individually
XXXX:
---------------------------------------
Xxxxx X. Xxxx, individually
XXXXXX:
---------------------------------------
Xxxxxx X. Xxxxxx, individually
---------------------------------------
Xxxxxx Xxxxxxx, individually
44
---------------------------------------
Xxxxx Xxxxxxx, individually
---------------------------------------
Xxxxxxx Xxxxxx, individually
---------------------------------------
Xxxxxx Xxxxxxx, individually
---------------------------------------
Xxxxxx Xxxxxx, individually
---------------------------------------
Xxxxx Xxxxxxxx, individually
---------------------------------------
Xxxx Xxxxxx, individually
---------------------------------------
Xxxx Xxxxxxxxx, individually
---------------------------------------
Xxxxxx Till, individually
---------------------------------------
Xxx Xxxxxxx, individually
---------------------------------------
Xxx Xxxxxxxx, individually
45
---------------------------------------
Xxxxxxxxx Xxx, individually
---------------------------------------
Xxxx Xxxxx, individually
---------------------------------------
Xxx Xxxxx, individually
---------------------------------------
Xxxx Street, individually
ESOP:
SOUTHERN SYSTEMS BUSINESS
FORMS AND DATA SUPPLIES,
INC. EMPLOYEE STOCK
OWNERSHIP PLAN
By:
-----------------------------------
Its:
----------------------------------
46
EXHIBIT A
SHAREHOLDERS
SHAREHOLDERS NO. OF SHARES
------------ -------------
Xxxxxxxx X. Xxxxxx
Xxxxx X. Xxxxxxxx
Xxxxx X. Xxxx
Xxxxxx X. Xxxxxx
Southern Systems Business Forms And
And Data Supplies, Inc. Employee Stock
Ownership Plan
Xxxxxx Xxxxxxx
Xxxxx Xxxxxxx
Xxxxxxx Xxxxxx
Xxxxxx Xxxxxxx
Xxxxxx Xxxxxx
Xxxxx Xxxxxxxx
Xxxx Xxxxxx
Xxxx Xxxxxxxxx
Xxxxxx Till
Xxx Xxxxxxx
Xxx Xxxxxxxx
Xxxxxxxxx Xxx
Xxxx Xxxxx
Xxx Xxxxx
Xxxx Xxxxxx
00
