<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 7, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
DYNAMEX INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4215 86-0712225
(State or other jurisdiction (Primary Standard (I.R.S. Employer
incorporation or organization) Industrial Classification Identification Number)
Code Number)
</TABLE>
1431 GREENWAY DRIVE
SUITE 345
IRVING, TEXAS 75038
(972) 756-8180
(Address, including zip code and telephone number, including
area code, of registrant's principal executive offices)
ROBERT P. CAPPS
VICE PRESIDENT-CHIEF FINANCIAL OFFICER
1431 GREENWAY DRIVE
SUITE 345
IRVING, TEXAS 75038
(972) 756-8184
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------------
Copies To:
<TABLE>
<S> <C>
CROUCH & HALLETT, L.L.P. AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
717 NORTH HARWOOD, SUITE 1400 1700 PACIFIC AVENUE, SUITE 4100
DALLAS, TEXAS 75201 DALLAS, TEXAS 75201
ATTN: BRUCE H. HALLETT ATTN: SETH R. MOLAY, P.C.
(214) 953-0053 (214) 969-2800
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
---------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
================================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED(1) REGISTERED(1)(2) PER SHARE(3) PRICE(1)(2)(3) REGISTRATION FEE(4)
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value....... 3,239,741 shares $11.63 $37,678,188 $11,418
================================================================================================================================
</TABLE>
(1) Includes 422,575 shares which the Underwriters have the option to purchase
to cover over-allotments, if any.
(2) Includes associated rights (the "Rights") to purchase one one-hundredth of a
share of Series A Junior Participating Preferred Stock, par value $.01 per
share. Rights initially are attached to and trade with the Common Stock of
the Registrant. The value attributable to such Rights, if any, is reflected
in the offering price of the Common Stock.
(3) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457(o).
(4) A filing fee of $11,754 was paid in advance of the filing of this
Registration Statement.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED APRIL 7, 1998
2,817,166 SHARES
DYNAMEX INC.
COMMON STOCK
($0.01 PAR VALUE)
Of the 2,817,166 shares of Common Stock being offered hereby (the
"Offering"), 2,500,000 shares are being sold by Dynamex Inc. ("Dynamex" or "the
Company") and 317,166 shares are being sold by the Selling Stockholders. See
"Principal and Selling Stockholders." The Company will not receive any proceeds
from the sale of shares by the Selling Stockholders.
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "DYMX." On April 3, 1998, the last reported sale price for the
Company's Common Stock on the Nasdaq National Market was $11.63 per share. See
"Price Range of Common Stock."
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE COMPANY, SEE "RISK FACTORS" COMMENCING ON PAGE 8.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<S> <C> <C> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------
UNDERWRITING
DISCOUNTS PROCEEDS TO PROCEEDS TO SELLING
PRICE TO PUBLIC AND COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
- - ------------------------------------------------------------------------------------------------------------------
Per Share......................... $ $ $ $
- - ------------------------------------------------------------------------------------------------------------------
Total(3).......................... $ $ $ $
- - ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) See "Underwriting" for indemnification arrangements.
(2) Before deducting estimated expenses of $400,000 payable by the Company.
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional 422,575 shares of Common Stock, on the same terms and
conditions as set forth above, solely to cover over-allotments, if any. If
this option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions, Proceeds to Company and Proceeds to Selling
Stockholders will be $ , $ , $ and $ ,
respectively. See "Underwriting."
The shares of Common Stock offered hereby are being offered by the
Underwriters, subject to prior sale and acceptance by the Underwriters and
subject to the right of the Underwriters to reject any order in whole or in
part. It is expected that the Common Stock will be available for delivery on or
about , 1998 at the offices of Schroder & Co. Inc., New York, New
York.
SCHRODER & CO. INC.
WILLIAM BLAIR & COMPANY
HOAK BREEDLOVE WESNESKI & CO.
, 1998
<PAGE> 3
[INSIDE COVER PAGE OF PROSPECTUS]
[MAP OF THE U.S. AND CANADA INDICATING LOCATIONS OF COMPANY OFFICES]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING AND
MAY BID FOR AND PURCHASE SHARES OF THE COMMON STOCK IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON
NASDAQ IN ACCORDANCE WITH RULE 103 UNDER REGULATION M. SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the financial statements, including the notes thereto, appearing
elsewhere in this Prospectus. Unless otherwise indicated, all information herein
assumes no exercise of the Underwriters' over-allotment option. References
herein to the "Company" or "Dynamex" mean Dynamex Inc., a Delaware corporation,
and its subsidiaries unless the context otherwise requires. The pro forma
financial information included in this Prospectus has been prepared to give
effect to the IPO Acquisitions and the Pro Forma Completed Acquisitions (each as
defined herein). See "Pro Forma Financial Information" included elsewhere in
this Prospectus.
THE COMPANY
Dynamex is a leading provider of same-day delivery and logistics services
in the United States and Canada. From its base as the largest nationwide
same-day transportation company in Canada, over the last three years Dynamex has
established a presence in 21 metropolitan markets in the United States and has
continued to expand its system in Canada. Through internal growth and
acquisitions, the Company has grown from $7.0 million in revenues and an
operating loss for the fiscal year ended July 31, 1994 to revenues of $193.3
million and operating income of $11.5 million for the fiscal year ended July 31,
1997 on a pro forma basis. For the fiscal year ended July 31, 1997, 63.2% of
these pro forma revenues were derived from the Company's U.S. operations.
Through its network of branch offices, the Company provides same-day,
door-to-door delivery services utilizing its ground couriers. For many of its
inter-city deliveries, the Company uses third party air or motor carriers in
conjunction with its ground couriers to provide same-day service. In addition to
traditional on-demand delivery services, the Company offers scheduled
distribution services, which encompass recurring, often daily, point-to-point
deliveries or multiple destination deliveries that often require intermediate
handling, and manages strategic stocking locations from which it makes on-demand
deliveries to meet its customers' just-in-time inventory requirements. The
Company also offers fleet and facilities management services. These services
include designing and managing systems to maximize efficiencies in transporting,
sorting and delivering customers' products on a local and multi-city basis. With
its fleet management service, the Company manages and may provide a fleet of
dedicated vehicles at single or multiple customer sites. The Company's on-demand
delivery capabilities are available to supplement scheduled distribution
arrangements or dedicated fleets as needed. Facilities management services
include the Company's operation and management of a customer's mailroom.
The Company believes that the same-day delivery segment of the
transportation industry is benefitting from several recent trends. For example,
the trend toward outsourcing has resulted in numerous shippers turning to third
party providers for a range of services including same-day delivery, strategic
stocking and management of in-house distribution. Many businesses that outsource
their distribution requirements prefer to purchase such services from one source
that can service multiple cities, thereby decreasing the number of vendors from
which they purchase services. By providing an array of services in numerous
branch offices, Dynamex has benefitted from this outsourcing trend and expects
such trend to continue. Dynamex has also benefitted from the growth of
"just-in-time" inventory practices designed to reduce inventory carrying costs.
Additionally, technological developments such as e-mail and facsimile have
increased the pace of business and other transactions, thereby increasing demand
for the same-day delivery of a wide array of items, ranging from voluminous
documents to critical manufacturing parts and medical devices. Consequently,
Dynamex has experienced increasing demand for the same-day transportation of
items that are not suitable for fax or electronic transmission, but for which
there is an immediate need.
Dynamex believes that the strong operational background of its senior
management is important to building a company with a strong brand identity
throughout the United States and Canada
3
<PAGE> 5
while simultaneously overseeing and encouraging individual managers to be
successful in their local markets. Dynamex has grown significantly both
internally and through acquisitions and intends to continue its focus on
internal growth opportunities, including the benefits presented by the
integration of recently acquired businesses, as well as selected acquisitions.
Since the Company's initial public offering in August 1996 (the "IPO"), it has
completed 18 acquisitions and believes it has many opportunities to make further
acquisitions.
Dynamex markets its services through a sales force comprised of national
and local sales representatives. As a same-day transportation provider with a
national network of branch offices in Canada and locations in 21 metropolitan
markets in the United States, Dynamex is positioned to pursue large accounts
whose same-day transportation requirements may encompass multiple city
locations. Historically, local accounts, which often include large companies
with multiple locations, have provided the bulk of the Company's sales. The
Company's sales force will seek to generate additional business from these
accounts in multiple locations. The Company's expansion of its national sales
program and continuing investment in technology to support the Company's
expanding operations, have been undertaken at a time when large companies are
increasing their demand for delivery providers who offer a range of delivery
services at multiple locations.
Substantially all of the Dynamex drivers are owner-operators who provide
their own vehicles, pay all expenses of operating their vehicles and receive a
percentage of the delivery charge as compensation. Management believes that this
creates a higher degree of responsiveness on the part of its drivers as well as
significantly lowering the capital required to operate the business and reducing
the Company's fixed costs. Management believes that its use of owner-operators
is a primary factor in the Company reporting a return on assets (measured as
operating income as a percentage of average assets) of 11.6% over the past two
fiscal years.
BUSINESS STRATEGY
The Company intends to expand its operations in the U.S. and Canada to
capitalize on the demand of local, regional and national businesses for
innovative same-day transportation solutions. The key elements of the Company's
business strategy are as follows:
- Focus on Primary Services: The Company provides three primary services:
(i) same-day on-demand delivery services, (ii) same-day scheduled distribution
services and (iii) outsourcing services such as fleet management and facilities
management. The Company focuses its same-day on-demand delivery business on
transporting non-faxable, time sensitive items throughout metropolitan areas. By
delivering items of greater weight over longer distances and providing value
added on-demand services such as strategic stocking, the Company expects to
raise the yield per delivery relative to the yield that would be generated by
only delivering documents within a central business district. Additionally, the
Company intends to capitalize on the market trend towards outsourcing
transportation requirements by concentrating its logistics services in same-day
scheduled distribution and fleet management. The delivery transactions in a
fleet management, scheduled distribution or strategic stocking program are
recurring in nature, thus creating the potential for long term customer
relationships. Additionally, these value added services are generally less
vulnerable to price competition than traditional on-demand delivery services.
- Target National and Regional Accounts: The Company's sales force focuses
on pursuing and maintaining national and regional accounts. The Company
anticipates that its (i) existing multi-city network of locations combined with
new locations to be acquired, (ii) ability to offer value added services such as
strategic stocking and fleet management to complement its basic same-day
delivery services and (iii) experienced, operations oriented management team and
sales force will create further opportunities with many of its existing
customers and attract new national and regional accounts.
- Create Strategic Alliances: By forming alliances with strategic partners
that offer services that compliment those of the Company, the Company and its
partners can jointly market their services,
4
<PAGE> 6
thereby accessing one another's customer base and providing such customers with
a broader range of value added services. For example, the Company has formed an
alliance with Purolator Courier Ltd. ("Purolator"), the largest Canadian
overnight courier company, whereby on an exclusive basis the Company and
Purolator provide each other with certain delivery services and market each
other's delivery services to their respective customers. See "Business -- Sales
and Marketing."
- Pursue Acquisitions: The Company believes that the highly fragmented
nature of the delivery and logistics industry creates significant opportunities
for same-day delivery and logistics companies with national marketing and
operations. The Company will continue to seek to acquire high quality same-day
delivery businesses in new markets as well as in markets in which it has already
established a presence. Management expects that acquisitions in existing markets
will provide access to an acquired company's customer base while creating
operating efficiencies within these markets. Management believes that its
operating and acquisition experience and the Company's ability to offer cash or
Common Stock as purchase consideration are important advantages in pursuing
acquisition candidates. The Company plans to augment the services offered by the
companies it acquires with value added services such as fleet management and
strategic stocking and to integrate the acquired businesses into the Company's
operations.
The principal executive offices of the Company are located at 1431 Greenway
Drive, Suite 345, Irving, Texas 75038 and its telephone number is (972)
756-8180.
THE OFFERING
<TABLE>
<S> <C> <C>
Common Stock offered by:
The Company.............................. 2,500,000 shares
The Selling Stockholders................. 317,166 shares(1)
---------
Total............................ 2,817,166 shares
=========
Common Stock to be outstanding after the
Offering................................. 9,959,623(2)
Use of Proceeds to the Company To reduce outstanding indebtedness. See "Use of
Proceeds."
Nasdaq National Market Symbol.............. DYMX
</TABLE>
- - ---------------
(1) See "Principal and Selling Stockholders."
(2) Excludes 571,384 additional shares of Common Stock reserved for issuance
under the Company's Stock Option Plan, of which (i) 166,384 shares of Common
Stock are issuable upon exercise of options outstanding at a weighted
average exercise price of $3.72 per share, (ii) 257,000 shares of Common
Stock are issuable upon exercise of stock options outstanding at an exercise
price $8.00 per share, (iii) 10,000 shares of Common Stock are issuable upon
exercise of options outstanding at an exercise price of $7.25 per share, and
(iv) 138,000 shares of Common Stock are issuable upon exercise of options
outstanding at an exercise price of $10.375 per share. Of the 571,384
additional shares of Common Stock reserved for issuance under the Company's
Stock Option Plan, 181,907 are immediately exercisable and 389,477 become
exercisable over a period ranging from July 1998 through October 2002.
5
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED JULY 31, JANUARY 31,
---------------------------------------- ----------------------------
PRO PRO
FORMA(1) FORMA(1)
1995 1996 1997 1997 1997 1998 1998
------- ------- -------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales..................................... $21,032 $71,812 $131,867 $193,288 $56,846 $95,262 $100,153
Gross profit.............................. 6,696 21,794 44,674 65,847 18,747 31,125 33,130
Operating income (loss)................... (1,219) 2,707 7,813 11,465 2,666 5,381 5,756
Interest expense.......................... 403 1,655 1,481 3,986 508 1,899 2,143
Income (loss) before taxes(2)............. (1,622) 1,052 6,332 7,479 2,158 3,482 3,613
Income taxes.............................. 3 176 2,485 2,941 861 1,475 1,526
Net income (loss)(2)...................... $(1,625) $ 876 $ 3,847 $ 4,538 $ 1,297 $ 2,007 $ 2,087
======= ======= ======== ======== ======= ======= ========
Net income (loss) per common share(2)(3)
-- basic................................ $ (1.90) $ 0.34 $ 0.58 $ 0.61 $ 0.20 $ 0.27 $ 0.28
======= ======= ======== ======== ======= ======= ========
-- assuming dilution.................... $ (1.90) $ 0.23 $ 0.56 $ 0.60 $ 0.20 $ 0.27 $ 0.28
======= ======= ======== ======== ======= ======= ========
Weighted average shares:
Common shares outstanding............... 855 2,543 6,670 7,412 6,223 7,387 7,412
Adjusted common shares.................. 855 3,732 6,839 7,581 6,443 7,558 7,582
OTHER DATA:
Earnings (loss) before interest, taxes,
depreciation and amortization(4)........ $ (529) $ 4,249 $ 11,356 $17,352 $ 4,183 $ 8,238 $ 8,726
Operating Ratio(5)........................ 105.8% 96.2% 94.1% 94.1% 95.3% 94.4% 94.3%
EBITDA Margin(6).......................... (2.5%) 5.9% 8.6% 9.0% 7.4% 8.6% 8.7%
Return on Assets(7)....................... -- 10.4% 12.7% 13.3% 11.0% 10.8% 10.4%
</TABLE>
<TABLE>
<CAPTION>
AS OF JANUARY 31, 1998
--------------------------
ACTUAL AS ADJUSTED(8)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital............................................. $ 18,828 $ 18,828
Total assets................................................ 110,819 110,819
Long-term debt, excluding current portion................... 54,794 27,863
Stockholders' equity........................................ 42,788 69,719
</TABLE>
- - ---------------
(1) The pro forma income statement data for the fiscal year ended July 31, 1997
gives effect to the IPO, the IPO Acquisitions and the Pro Forma Completed
Acquisitions as if the IPO and such acquisitions had occurred at the
beginning of such period. The pro forma income statement data for the six
months ended January 31, 1998 gives effect to the Pro Forma Completed
Acquisitions that occurred during this period as if such acquisitions had
occurred at the beginning of such period. See "Pro Forma Financial
Information."
(2) Before extraordinary loss of $335 in the fiscal year ended July 31, 1997 and
the six months ended January 31, 1997.
(3) See Notes 1 and 14 of Notes to Consolidated Financial Statements.
(4) EBITDA is defined as income excluding interest, taxes, depreciation and
amortization of goodwill and other intangible assets (as presented on the
face of the income statement). EBITDA is supplementally presented because
management believes that it is a widely accepted financial indicator of a
company's ability to service and/or incur indebtedness, maintain current
operating levels of fixed assets and acquire additional operations and
businesses. EBITDA should not be considered as a substitute for the
statement of operations or cash flow data from the Company's financial
statements, which have been prepared in accordance with generally accepted
accounting principles. Cash flows provided by (used in) operating activities
for the three years ending July 31, 1997 and for the six months ended
January 31, 1997 and 1998 were ($951), $2,372, $4,473, $2,846 and $(514),
respectively. Cash flows used in investing activities for the three years
ended July 31, 1997 and for the six months ended January 31, 1997 and 1998
were $7,995, $13,192, $31,896, $14,888 and $20,820, respectively. Cash flows
provided by financing activities for the three years ended July 31, 1997 and
for the six months
6
<PAGE> 8
ended January 31, 1997 and 1998 were $8,587, $11,208, $27,855, $12,747 and
$21,491, respectively.
(5) Operating Ratio is defined as the sum of cost of sales and all operating
costs expressed as a percentage of revenues.
(6) EBITDA Margin is defined as EBITDA expressed as a percentage of revenues.
(7) Return on Assets is defined as operating income for the respective period
expressed as a percentage of average total assets over such period. Return
on Assets for the fiscal year ended July 31, 1995 was negative due to
operating losses in such period. Return on Assets for the six months ended
January 31, 1997 and 1998 (actual and as adjusted) has been annualized.
(8) Adjusted to reflect the sale by the Company of 2,500,000 shares of Common
Stock in the Offering at an assumed offering price of $11.63 per share and
the application of the net proceeds therefrom as set forth under "Use of
Proceeds."
7
<PAGE> 9
RISK FACTORS
Prospective investors should carefully review the following risk factors
together with the other information in this Prospectus in evaluating the Company
and its business prior to purchasing the Common Stock offered by this
Prospectus. Statements and information presented within this Prospectus contain
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). These
forward-looking statements can be identified by the use of predictive,
future-tense or forward-looking terminology, such as "believes," "anticipates,"
"expects," "estimates," "may," "will" or similar terms. Forward-looking
statements also include projections of financial performance, statements
regarding management's plans and objectives and statements concerning any
assumptions relating to the foregoing. Certain important factors which may cause
actual results to vary materially from these forward-looking statements are set
forth in the following risk factors and elsewhere in this Prospectus. All
subsequent written or oral forward-looking statements attributable to the
Company or persons acting on its behalf are expressly qualified by these
factors.
ACQUISITION STRATEGY; POSSIBLE NEED FOR ADDITIONAL FINANCING
In order to expand its network of facilities, the Company plans to acquire
local delivery businesses in new geographic regions as well as in the
metropolitan areas in which the Company currently operates. Due to ongoing
consolidation within the same-day delivery and logistics industry, there is
significant competition in acquiring such businesses. There can be no assurance
that the Company will be able to acquire or profitably manage additional
companies or successfully integrate such additional companies into the Company's
existing operations. In addition, there can be no assurance that businesses
acquired in the future either will be beneficial to the successful
implementation of the Company's overall strategy or will ultimately produce
returns that justify the investment therein, or that the Company will be
successful in achieving meaningful economies of scale through the acquisition
thereof. See "Business -- Business Strategy" and "-- Recent Acquisitions."
The Company's acquisition strategy may require the Company to incur
additional debt in the future, may result in potentially dilutive issuances of
securities and may result in increased goodwill, intangible assets and
amortization expense. Additionally, the Company must obtain the consent of its
primary lenders to consummate any acquisition for which the purchase price
exceeds $6.0 million and for any acquisition consummated in any rolling twelve
month period commencing after August 1997 in which the aggregate acquisition
consideration paid during such period exceeds $10.0 million. The Company has
completed six acquisitions subsequent to August, 1997 for an aggregate purchase
price of approximately $26.8 million in cash and the issuance of 74,118 shares
of Common Stock. Consequently, any acquisition completed prior to October 1998
will require the primary lenders' consent. There can be no assurance that the
Company's primary lenders will consent to such acquisitions or that if
additional financing is necessary, it can be obtained on terms the Company deems
acceptable. As a result, the Company might be unable to implement successfully
its acquisition strategy. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
LIMITED COMBINED OPERATING HISTORY
Recent acquisitions have greatly expanded the size and scope of the
operations of the Company. The process of integrating acquired businesses often
involves unforeseen difficulties and may require a disproportionate amount of
the Company's financial and other resources, including management time. There
can be no assurance that the Company will be able to profitably manage recently
acquired companies or successfully integrate their operations into the Company.
8
<PAGE> 10
HIGHLY COMPETITIVE INDUSTRY
The market for same-day delivery and logistics services has been and is
expected to remain highly competitive. Competition is often intense,
particularly for basic delivery services. The industry is characterized by high
fragmentation and low barriers to entry and there is a recent trend toward
consolidation. Other companies in the industry compete with the Company not only
for provision of services but also for acquisition candidates and qualified
drivers. Some of these companies have longer operating histories and greater
financial and other resources than the Company. Additionally, companies that do
not currently operate delivery and logistics businesses may enter the industry
in the future to capitalize on the consolidation trend. See
"Business -- Competition."
CLAIMS EXPOSURE
As of March 31, 1998, the Company utilized the services of approximately
5,000 drivers and messengers. From time to time such persons are involved in
accidents or other activities that may give rise to liability claims. The
Company currently carries liability insurance with a per claim and an aggregate
limit of $15.0 million. Owner-operators are required to maintain liability
insurance of at least the minimum amounts required by applicable state or
provincial law (generally such minimum requirements range from $35,000 to
$75,000). The Company also has insurance policies covering property and
fiduciary trust liability, which coverage includes all drivers and messengers.
There can be no assurance that claims against the Company, whether under the
liability insurance or the surety bonds, will not exceed the applicable amount
of coverage, that the Company's insurer will be solvent at the time of
settlement of an insured claim, or that the Company will be able to obtain
insurance at acceptable levels and costs in the future. If the Company were to
experience a material increase in the frequency or severity of accidents,
liability claims, workers' compensation claims or unfavorable resolutions of
claims, the Company's business, financial condition and results of operations
could be materially adversely affected. In addition, significant increases in
insurance costs could reduce the Company's profitability.
CERTAIN TAX MATTERS RELATED TO DRIVERS
Substantially all of the Company's drivers own their own vehicles and as of
March 31, 1998, approximately 82% of these owner-operators were independent
contractors as opposed to employees of the Company. The Company does not pay or
withhold any federal, state or provincial employment tax with respect to or on
behalf of independent contractors. From time to time, taxing authorities in the
U.S. and Canada have sought to assert that independent owner-operators in the
transportation industry, including those utilized by the Company, are employees,
rather than independent contractors. The Company believes that the independent
owner-operators utilized by the Company are not employees under existing
interpretations of federal (U.S. and Canadian), state and provincial laws.
However, there can be no assurance that federal (U.S. and Canadian), state or
provincial authorities will not challenge this position, or that other laws or
regulations, including tax laws, or interpretations thereof, will not change.
If, as a result of any of the foregoing, the Company is required to pay
withholding taxes and pay for and administer added employee benefits to these
drivers, the Company's operating costs would increase. Additionally, if the
Company is required to pay back-up withholding with respect to amounts
previously paid to such drivers, it may also be required to pay penalties or be
subject to other liabilities as a result of incorrect classification of such
drivers. If the drivers are deemed to be employees rather than independent
contractors, then the Company may be required to increase their compensation
since they will no longer be receiving commission-based compensation. Any of the
foregoing circumstances could have a material adverse impact on the Company's
financial condition and results of operations, and/or to restate financial
information from prior periods. See "Business -- Services" and "-- Employees."
In addition to the drivers that are independent contractors, certain of the
Company's drivers are employed by the Company and own and operate their own
vehicles during the course of their
9
<PAGE> 11
employment. The Company reimburses these employees for all or a portion of the
operating costs of those vehicles. The Company believes that these reimbursement
arrangements do not represent additional compensation to those employees.
However, there can be no assurance that federal (U.S. and Canadian), state or
provincial taxing authorities will not seek to recharacterize some or all of
such payments as additional compensation. If such amounts were so
recharacterized, the Company would have to pay additional employment related
taxes on such amounts, and may also be required to pay penalties, which could
have an adverse impact on the Company's financial condition and results of
operations, and/or to restate financial information from prior periods. See
"Business -- Services" and "-- Employees."
FOREIGN EXCHANGE
A significant portion of the Company's operations are conducted in Canada.
Exchange rate fluctuations between the U.S. and Canadian dollar result in
fluctuations in the amounts relating to the Canadian operations reported in the
Company's consolidated financial statements. The conversion rate between the
U.S. dollar and the Canadian dollar has declined significantly during the first
six months of fiscal year ending July 31, 1998 as compared to the same period in
fiscal year ended July 31, 1997. As the Canadian dollar is the functional
currency for the Company's Canadian operations, this decline has had a negative
effect on the Company's reported revenues for such period. The Company
historically has not entered into hedging transactions with respect to its
foreign currency exposure, but may do so in the future. There can be no
assurance that fluctuations in foreign currency exchange rates will not have a
material adverse effect on the Company's business, financial condition or
results of operations. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Note 9 of Notes to Consolidated
Financial Statements.
PERMITS AND LICENSING
Although recent legislation has significantly deregulated certain aspects
of the transportation industry, the Company's delivery operations are still
subject to various federal (U.S. and Canadian), state, provincial and local
laws, ordinances and regulations that in many instances require certificates,
permits and licenses. Failure by the Company to maintain required certificates,
permits or licenses, or to comply with applicable laws, ordinances or
regulations could result in substantial fines or possible revocation of the
Company's authority to conduct certain of its operations. Furthermore, delays in
obtaining approvals for the transfer or grant of certificates, permits or
licenses, or failure to obtain such approvals, could impede the implementation
of the Company's acquisition program. See "Business -- Regulation."
DEPENDENCE ON KEY PERSONNEL
The Company's success is largely dependent on the skills, experience and
performance of certain key members of its management, including Richard K.
McClelland, the Company's Chairman of the Board, President and Chief Executive
Officer. The loss of the services of any of these key employees could have a
material adverse effect on the Company's business, financial condition and
results of operations. The Company has entered into an employment contract with
Mr. McClelland. See "Management -- Employment Agreement." The Company's future
success and plans for growth also depend on its ability to attract, train and
retain skilled personnel in all areas of its business. There is strong
competition for skilled personnel in the same-day delivery and logistics
businesses. See "Management."
RISKS ASSOCIATED WITH THE LOCAL DELIVERY INDUSTRY; GENERAL ECONOMIC CONDITIONS
The Company's revenues and earnings are especially sensitive to events that
affect the delivery services industry, including extreme weather conditions,
economic factors affecting the Company's significant customers and shortages of
or disputes with labor, any of which could result in the
10
<PAGE> 12
Company's inability to service its clients effectively or the inability of the
Company to profitably manage its operations. In addition, demand for the
Company's services may be negatively impacted by downturns in the level of
general economic activity and employment in the U.S. or Canada.
Technological advances in the nature of facsimile and electronic mail have
affected the market for on-demand document delivery services. Although the
Company has shifted its focus to the distribution of non-faxable items and
logistics services, there can be no assurance that these or other technologies
will not have a material adverse effect on the Company's business, financial
condition and results of operations in the future.
DEPENDENCE ON AVAILABILITY OF QUALIFIED COURIER PERSONNEL
The Company is dependent upon its ability to attract, train and retain, as
employees or through independent contractor or other arrangements, qualified
courier personnel who possess the skills and experience necessary to meet the
needs of its operations. The Company competes in markets in which unemployment
is relatively low and the competition for couriers and other employees is
intense. The Company must continually evaluate, train and upgrade its pool of
available couriers to keep pace with demands for delivery services. There can be
no assurance that qualified courier personnel will continue to be available in
sufficient numbers and on terms acceptable to the Company. The inability to
attract and retain qualified courier personnel would have a material adverse
impact on the Company's business, financial condition and results of operations.
SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE ADVERSE EFFECT ON FUTURE MARKET PRICES
Upon completion of the Offering, the Company will have outstanding
9,959,623 shares of Common Stock, an aggregate of approximately 4,500,000 of
which were issued by the Company in private offerings that were not registered
under the Securities Act. The Company, and the Company's executive officers and
directors and the Selling Stockholders who after the Offering will beneficially
own in the aggregate approximately 1,750,000 shares of Common Stock, have agreed
not to offer, sell, contract to sell or otherwise dispose of any shares of
Common Stock or any securities exercisable for or convertible into Common Stock
for a period of 120 days after the date of this Prospectus without the prior
written consent of Schroder & Co. Inc. The unregistered shares also include an
aggregate of approximately 1,300,000 shares of Common Stock issued to certain
owners or affiliates of delivery businesses acquired by the Company in the IPO
Acquisitions and the Pro-Forma Completed Acquisitions. As of March 31, 1998,
approximately 900,000 of these shares remain eligible for public resale in
compliance with Rule 144 under the Securities Act or pursuant to and in the
manner described in a currently effective registration statement filed by the
Company on Form S-3, as the case may be (although approximately 130,000 of such
shares will be subject to the executive officer lockup agreement described
above). The Company may issue additional shares of Common Stock as consideration
for future acquisitions and may register such shares for resale in the manner
described above. Further, an aggregate of 571,384 additional shares of Common
Stock are issuable upon exercise of outstanding options, 181,907 of which are
immediately exercisable (subject to the 120 day lockup period for executive
officers, directors and Selling Stockholders discussed above as applicable), and
389,477 of which vest over a period ranging from July 1998 through October 2002.
No predictions can be made as to the effect, if any, that market sales of
such shares will have on the market price of shares of Common Stock prevailing
from time to time. However, sales of substantial amounts of Common Stock in the
open market or the availability of such shares for sale following the Offering
could adversely affect the market price for the Common Stock. See "Description
of Capital Stock" and "Principal and Selling Stockholders."
11
<PAGE> 13
VOLATILITY OF STOCK PRICE
The Company's Common Stock began trading on the Nasdaq National Market on
August 13, 1996. Prices for the Common Stock will be determined in the
marketplace and may be influenced by many factors, including the depth and
liquidity of the market for the Common Stock, investor perception of the Company
and general economic and market conditions. Variations in the Company's
operating results, general trends in the industry and other factors could cause
the market price of the Common Stock to fluctuate significantly. In addition,
general trends and developments in the industry, government regulation and other
factors could have a significant impact on the price of the Common Stock. The
stock market has, on occasion, experienced extreme price and volume fluctuations
that have often particularly affected market prices for smaller companies and
that often have been unrelated or disproportionate to the operating performance
of the affected companies, and the price of the Common Stock could be affected
by such fluctuations.
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Restated Certificate of Incorporation
(the "Restated Certificate of Incorporation"), the Company's Bylaws (the
"Bylaws") and the Rights Agreement between Dynamex Inc. and Harris Trust and
Savings Bank (the "Rights Agreement") may delay, defer, discourage or prevent a
merger, proxy contest, tender offer or takeover attempt that a stockholder might
consider to be in such stockholder's best interest, including attempts that
might result in a premium over the market price for the shares held by
stockholders.
The Bylaws provide that the number of directors shall be as fixed, from
time to time, by resolution of the Board of Directors of the Company. Neither
the Bylaws nor the Restated Certificate of Incorporation permit stockholders to
call special meetings or to take actions by written consent in lieu of a
meeting, unless such action and the taking of such action by written consent
have been approved in advance by the Board of Directors. The Restated
Certificate of Incorporation provides that the Board of Directors may amend the
Bylaws, subject to the rights of the stockholders to amend such Bylaws. An
amendment to the provision of the Restated Certificate of Incorporation which
prohibits action by stockholders by written consent in lieu of a meeting
requires the affirmative vote of two-thirds of the Company's capital stock then
outstanding. Pursuant to the Restated Certificate of Incorporation, additional
shares of Common Stock may be issued in the future without further stockholder
approval. Furthermore, the Restated Certificate of Incorporation permits the
Board of Directors to establish by resolution one or more series of preferred
stock ("Preferred Stock") and to establish the powers, designations, preferences
and relative, participating, optional or other special rights of each series of
Preferred Stock. The Preferred Stock could be issued on terms that are
unfavorable to the holders of Common Stock or that could make a takeover or
change in control of the Company more difficult.
In June 1996, the Board of Directors of the Company approved the Rights
Agreement which is designed to protect stockholders should the Company become a
target of coercive and unfair takeover tactics but may discourage takeover
attempts that are not approved by the Board of Directors. The preferred stock
purchase rights (the "Rights") granted pursuant to the Rights Agreement could
cause substantial dilution to a person or group that attempts to acquire the
Company without conditioning the offer on redemption of the Rights or on
substantially all of the Rights also being acquired. In addition, the Company is
subject to Section 203 of the Delaware General Corporation Law, which places
restrictions on certain business combinations with certain stockholders of the
Company that could render more difficult a change in control of the Company. See
"Description of Capital Stock."
NO DIVIDENDS
The Company has not declared or paid any cash dividends on its Common Stock
since its inception. The Company currently intends to retain all earnings for
the operation and expansion of
12
<PAGE> 14
its business and does not anticipate paying any dividends in the foreseeable
future. In addition, the Company's revolving credit facility (the "Credit
Facility") restricts the payment of dividends. See "Dividend Policy" and Note 6
of Notes to Consolidated Financial Statements.
USE OF PROCEEDS
The net proceeds to be received by the Company from the sale of 2,500,000
shares of Common Stock in the Offering are estimated to be approximately $26.9
million, assuming an offering price of $11.63 per share (the last reported sales
price for the Common Stock on the Nasdaq National Market on April 3, 1998) and
after deducting the estimated underwriting discounts and offering expenses. The
Company will not receive any proceeds from the sale of 400,000 shares of Common
Stock by the Selling Stockholders in the Offering.
The Company will apply all of the net proceeds of the Offering to reduce
its outstanding bank indebtedness, which totaled $59.7 million at March 31,
1998. The Company's bank indebtedness was incurred under the Credit Facility
which provides for total borrowings of up to $75.0 million and bears interest at
a variable rate (7.75% per annum as of March 31, 1998) based on prime or certain
rate elections based on LIBOR plus an applicable margin. Amounts outstanding
under the Credit Facility are due August 31, 2000. Borrowings under the Credit
Facility have been used principally for acquisitions and general corporate
purposes. See Note 6 of Notes to Consolidated Financial Statements.
PRICE RANGE OF COMMON STOCK
On August 13, 1996, the Company's Common Stock was admitted for trading on
the Nasdaq National Market under the symbol "DYMX." The following table sets
forth, for the periods indicated, the high and low closing sale prices per share
of Common Stock, as reported by the Nasdaq National Market on and after August
13, 1996.
<TABLE>
<CAPTION>
HIGH LOW
------- ------
<S> <C> <C>
FISCAL 1997
First Quarter (from August 13, 1996)........................ $11.750 8.000
Second Quarter.............................................. 11.625 8.375
Third Quarter............................................... 11.250 5.750
Fourth Quarter.............................................. 8.875 5.750
FISCAL 1998
First Quarter............................................... 11.000 6.500
Second Quarter.............................................. 11.625 9.375
Third Quarter (through April 3, 1998)....................... 13.125 10.813
</TABLE>
The last reported closing sale price for the Common Stock on the Nasdaq
National Market on April 3, 1998 was $11.63 per share. As of April 3, 1998,
there were approximately 100 record owners of the Company's Common Stock.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its Common Stock
since its inception. The Company currently intends to retain all earnings for
the operation and expansion of its business and does not anticipate paying any
dividends in the foreseeable future. In addition, the Credit Facility restricts
the payment of dividends. See Note 6 to Notes to Consolidated Financial
Statements.
13
<PAGE> 15
CAPITALIZATION
The following table sets forth the consolidated short-term debt and
capitalization of the Company as of January 31, 1998 and as adjusted to reflect
the sale by the Company of 2,500,000 shares of Common Stock offered hereby at an
assumed offering price of $11.63 per share and the application of the net
proceeds therefrom as described under "Use of Proceeds." This table should be
read in conjunction with the Company's consolidated financial statements and
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JANUARY 31, 1998
----------------------
ACTUAL AS ADJUSTED
------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt........................... $ 525 $ 525
======= =======
Long-term debt and capital leases, excluding current
maturities................................................ $54,794 $27,863
------- -------
Stockholders' equity:
Preferred Stock, $0.01 par value 10,000,000 shares
authorized, no shares issued........................... -- --
Common Stock, $0.01 par value, 50,000,000 shares
authorized; 7,411,623 shares issued and outstanding,
9,959,623 shares issued and outstanding as
adjusted(1)............................................ 74 100
Additional paid-in capital................................ 41,646 68,755
Note receivable from officer(2)........................... -- (204)
Retained earnings......................................... 2,257 2,257
Unrealized foreign currency translation adjustment........ (1,189) (1,189)
------- -------
Total stockholders' equity........................ 42,788 69,719
------- -------
Total capitalization.............................. $97,582 $97,582
======= =======
</TABLE>
- - ---------------
(1) Excludes 571,384 shares of Common Stock reserved for issuance under the
Company's Stock Option Plan, of which (i) 166,384 shares of Common Stock are
issuable upon exercise of options outstanding at a weighted average exercise
price of $3.72 per share, (ii) 257,000 shares of Common Stock are issuable
upon exercise of options outstanding at an exercise price $8.00 per share,
(iii) 10,000 shares of Common Stock are issuable upon exercise of options
outstanding at an exercise price of $7.25 per share, and (iv) 138,000 shares
of Common Stock are issuable upon exercise of options outstanding at an
exercise price of $10.375 per share. Of the 571,384 additional shares of
Common Stock reserved for issuance under the Company's Stock Option Plan,
181,907 are immediately exercisable and 389,477 become exercisable over a
period ranging from July 1998 through October 2002.
(2) Represents loan in connection with the exercise of stock options. See
"Certain Transactions."
14
<PAGE> 16
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following selected historical consolidated financial data for the three
years ended July 31, 1997 have been derived from the audited consolidated
financial statements of the Company appearing elsewhere herein. The following
selected historical consolidated financial data for the two years ended July 31,
1994 have been derived from the audited consolidated financial statements of the
Company not included herein. The following selected historical consolidated
financial data for the six months ended January 31, 1997 and 1998, have been
derived from the Company's unaudited consolidated financial statements appearing
elsewhere herein. The unaudited consolidated financial statements, in the
opinion of management, include all adjustments, consisting of normal recurring
accruals, which the Company considers necessary for a fair presentation of the
results of operations for that period. Operating results for the six months
ended January 31, 1998 are not necessarily indicative of the results that may be
expected for the entire fiscal year ended July 31, 1998. The following selected
pro forma financial data for the fiscal year ended July 31, 1997 and for the six
months ended January 31, 1998 have been derived from the unaudited pro forma
financial information appearing elsewhere herein. The selected financial data
are qualified in their entirety, and should be read in conjunction with, the
Company's financial statements, including the notes thereto appearing elsewhere
herein, "Pro Forma Financial Information" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED JULY 31, JANUARY 31,
---------------------------------------------------------- ----------------------------
PRO PRO
FORMA FORMA
1993 1994 1995 1996 1997 1997(1) 1997 1998 1998(1)
------ ------- ------- ------- -------- -------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales.......................... $ 728 $ 7,023 $21,032 $71,812 $131,867 $193,288 $56,846 $95,262 $100,153
Cost of sales.................. 419 5,212 14,336 50,018 87,193 127,441 38,099 64,137 67,023
------ ------- ------- ------- -------- -------- ------- ------- --------
Gross profit.................. 309 1,811 6,696 21,794 44,674 65,847 18,747 31,125 33,130
Selling, general and
administrative expenses....... 752 2,449 7,225 17,545 33,318 48,495 14,564 22,887 24,404
Depreciation and
amortization.................. 54 322 690 1,542 3,543 5,887 1,517 2,857 2,970
------ ------- ------- ------- -------- -------- ------- ------- --------
Operating income (loss)....... (497) (960) (1,219) 2,707 7,813 11,465 2,666 5,381 5,756
Interest expense............... 25 157 403 1,655 1,481 3,986 508 1,899 2,143
------ ------- ------- ------- -------- -------- ------- ------- --------
Income (loss) before taxes.... (508) (1,067) (1,622) 1,052 6,332 7,479 2,158 3,482 3,613
Income taxes................... -- -- 3 176 2,485 2,941 861 1,475 1,526
------ ------- ------- ------- -------- -------- ------- ------- --------
Income before extraordinary
item........................ $ (508) $(1,067) $(1,625) $ 876 $ 3,847 $ 4,538 $ 1,297 $ 2,007 $ 2,087
====== ======= ======= ======= ======== ======== ======= ======= ========
Net income (loss) per common
share before extraordinary
item(2)(3)
-- basic...................... $(1.29) $ (2.02) $ (1.90) $ 0.34 $ 0.58 $ 0.61 $ 0.20 $ 0.27 $ 0.28
====== ======= ======= ======= ======== ======== ======= ======= ========
-- assuming dilution.......... $(1.29) $ (2.02) $ (1.90) $ 0.23 $ 0.56 $ 0.60 $ 0.20 $ 0.27 $ 0.28
====== ======= ======= ======= ======== ======== ======= ======= ========
Common shares outstanding...... 393 528 855 2,543 6,670 7,412 6,223 7,387 7,412
Adjusted common shares......... 393 528 855 3,732 6,839 7,581 6,443 7,558 7,582
OTHER DATA:
Earnings (loss) before
interest, taxes, depreciation
and amortization(4).......... $ (429) $ (638) $ (529) $ 4,249 $ 11,356 $ 17,352 $ 4,183 $ 8,238 $ 8,726
Operating Ratio(5)............. 168.2% 113.7% 105.8% 96.2% 94.1% 94.1% 95.3% 94.4% 94.3%
EBITDA Margin(6)............... (58.9)% (9.1)% (2.5)% 5.9% 8.6% 9.0% 7.4% 8.6% 8.7%
Return on Assets(7)............ -- -- -- 10.4% 12.7% 13.3% 11.0% 10.8% 10.4%
</TABLE>
<TABLE>
<CAPTION>
AS OF JULY 31, AS OF JANUARY 31, 1998
--------------------------------------------- -------------------------
1993 1994 1995 1996 1997 ACTUAL AS ADJUSTED(8)
------ ------ ------- ------- ------- -------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital..................................... $ 36 $ 638 $ 1,484 $ 4,086 $11,428 $ 18,828 $ 18,828
Total assets........................................ 1,286 8,134 17,194 34,999 88,151 110,819 110,819
Long-term debt, excluding current maturities........ 1,037 1,999 5,924 20,036 32,388 54,794 27,863
Stockholders' equity (deficit)...................... (106) 3,389 4,650 6,158 41,100 42,788 69,719
</TABLE>
15
<PAGE> 17
- - ---------------
(1) The pro forma income statement data for the fiscal year ended July 31, 1997
gives effect to the IPO, the IPO Acquisitions and the Pro Forma Completed
Acquisitions as if the IPO and such acquisitions had occurred at the
beginning of such period. The pro forma income statement data for the six
months ended January 31, 1998 gives effect to the Pro Forma Completed
Acquisitions that occurred during this period as if such acquisitions had
occurred at the beginning of such period. Such pro forma data are presented
for illustrative purposes only and do not purport to represent what the
Company's results actually would have been if such acquisitions had occurred
on the dates indicated, nor do such data purport to project results of
operations for any future periods. See "Pro Forma Financial Information."
(2) Before extraordinary loss of $335 in the fiscal year ended July 31, 1997 and
the six months ended January 31, 1997.
(3) See Notes 1 and 14 of the Notes to Consolidated Financial Statements.
(4) EBITDA is defined as income excluding interest, taxes, depreciation and
amortization of goodwill and other intangible assets (as presented on the
face of the income statement). EBITDA is supplementally presented because
management believes that it is a widely accepted financial indicator of a
company's ability to service and/or incur indebtedness, maintain current
operating levels of fixed assets and acquire additional operations and
businesses. EBITDA should not be considered as a substitute for the
statement of operations or cash flow data from the Company's financial
statements, which have been prepared in accordance with generally accepted
accounting principles. Cash flows provided by (used in) operating activities
for the three years ending July 31, 1997 and for the six months ended
January 31, 1997 and 1998 were ($951), $2,372, $4,473, $2,846 and $(514),
respectively. Cash flows used in investing activities for the three years
ended July 31, 1997 and for the six months ended January 31, 1997 and 1998
were $7,995, $13,192, $31,896, $14,888 and $20,820, respectively. Cash flows
provided by financing activities for the three years ended July 31, 1997 and
for the six months ended January 31, 1997 and 1998 were $8,587, $11,208,
$27,855, $12,747 and $21,491, respectively.
(5) Operating Ratio is defined as the total cost of sales and all operating
costs as a percentage of revenues.
(6) EBITDA Margin is defined as EBITDA expressed as a percentage of revenues.
(7) Return on Assets is defined as operating income for the respective period
expressed as a percentage of average total assets over such period. Return
on Assets for periods prior to the fiscal year ended July 31, 1996 was
negative due to operating losses in such periods. Return on Assets for the
six months ended January 31, 1997 and 1998 (actual and as adjusted) has been
annualized.
(8) Adjusted to reflect the sale by the Company of 2,500,000 shares of Common
Stock in the Offering at an assumed offering price of $11.63 per share and
the application of the net proceeds therefrom as set forth under "Use of
Proceeds."
16
<PAGE> 18
PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma consolidated condensed financial
information consists of the unaudited Pro Forma Consolidated Condensed
Statements of Operations for the fiscal year ended July 31, 1997 and the six
months ended January 31, 1998 (collectively, the "Pro Forma Statements"). On
August 16, 1996, using a portion of the proceeds from the IPO, the Company
purchased five same-day delivery businesses in three U.S. and two Canadian
cities (collectively, the "IPO Acquisitions"). Subsequent to the IPO and through
January 31, 1998, the Company purchased 14 additional same-day delivery
businesses in nine U.S. and two Canadian cities (the "Pro Forma Completed
Acquisitions"). Acquisitions consummated by the Company subsequent to January
31, 1998 (the "Recent Acquisitions") have not been included in these Pro Forma
Statements because their aggregate effect on such statements is not material.
See "Business -- Recent Acquisitions."
Each of these acquisitions has been accounted for using the purchase method
of accounting and therefore is included in the Company's historical results of
operations from the date such acquisition was consummated. The Pro Forma
Statements for the fiscal year ended July 31, 1997 give effect to the IPO, the
IPO Acquisitions and the Pro Forma Completed Acquisitions as if the IPO and such
acquisitions had occurred at the beginning of such period. The Pro Forma
Statements for the six months ended January 31, 1998 give effect to the Pro
Forma Completed Acquisitions that occurred during this period as if such
acquisitions had occurred at the beginning of such period.
The two largest Pro Forma Completed Acquisitions, in terms of purchase
price paid and revenues acquired, were the Company's acquisition of Road Runner
Transportation, Inc. ("Road Runner") on May 16, 1997 and New York Document
Exchange Corporation and certain related entities (collectively, the "Nydex
Companies") on October 1, 1997. Audited financial statements for Road Runner for
the nine months ended February 28, 1997 (the "Road Runner Financials") and for
the Nydex Companies for the fiscal year ended May 31, 1997 (the "Nydex
Financials") were prepared in connection with the consummation of these two
acquisitions and appear elsewhere herein. The Pro Forma Statements for the
fiscal year ended July 31, 1997 include the nine-month period reflected in the
Road Runner Financials which are presented under a separate column. Adjustments
have been made to the Road Runner Financials to exclude Road Runner's results of
operations for the two-month period ended July 31, 1996 and to include Road
Runner's results of operations for the period commencing on February 28, 1997
and ending on May 15, 1997 (the day prior to the Company's acquisition of Road
Runner). These adjustments, which are presented under a separate column
captioned "Pro Forma Adjustments," have been made so that Road Runner's results
of operations may be presented for the same 12-month period that is presented
for the Company. No pro forma adjustments were required to be made to Road
Runner's results of operations presented in the Pro Forma Statements for the
six-months ended January 31, 1998 because the acquisition of Road Runner was
completed prior to the beginning of that period.
The Pro Forma Statements for the fiscal year ended July 31, 1997 also
include a full 12 months of operations of the Nydex Companies consisting of the
Nydex Financials which are included under a separate column. Although the period
presented does not reflect the operations of the Nydex Companies for the 12
consecutive months ended July 31, 1997, management believes that the results
presented are comparable to the results achieved by the Nydex Companies during
that period. The Pro Forma Statements for the six months ended January 31, 1998
include a full six months of operations of the Nydex Companies consisting of (i)
the two-month period ended September 30, 1997 which are included under a
separate column and (ii) the four-month period following the Company's
acquisition of the Nydex Companies (October 1, 1997 through January 31, 1998)
during which period the Nydex Companies' operations were included in the
Company's historical results.
The operating results of the IPO Acquisitions and Pro Forma Completed
Acquisitions other than Road Runner and the Nydex Companies for the periods not
included in the Company's historical results of operations are presented
collectively under the columns headed "Other Acquisitions."
17
<PAGE> 19
Unaudited pro forma adjustments are based upon historical information,
preliminary estimates and certain assumptions regarding the ongoing operations
of the acquired businesses that the Company deems appropriate.
The pro forma data included in these Pro Forma Statements are presented for
illustrative purposes only and do not purport to represent what the Company's
results actually would have been if such acquisitions had occurred on the dates
indicated, nor do such data purport to project results of operations for any
future periods. The Pro Forma Statements should be read in conjunction with the
historical audited and unaudited other financial statements and notes thereto of
the Company, Road Runner and the Nydex Companies appearing elsewhere in this
Prospectus.
18
<PAGE> 20
DYNAMEX INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
FISCAL YEAR ENDED JULY 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THE
COMPANY
THE ROAD THE NYDEX PRO FORMA
COMPANY RUNNER COMPANIES FISCAL
FISCAL NINE MONTHS FISCAL YEAR
YEAR ENDED ENDED YEAR ENDED ENDED
JULY 31, FEBRUARY 28, MAY 31, OTHER PRO FORMA JULY 31,
1997 1997 1997 ACQUISITIONS ADJUSTMENTS 1997
---------- ------------ ---------- ------------ ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Sales............................. $131,867 $17,058 $21,835 $20,851 $ 755(a) $193,288
(625)(b)
1,547(c)
Cost of sales..................... 87,193 9,613 16,657 13,523 460(a) 127,441
-------- ------- ------- ------- --------
(832)(b)
827(c)
--------
Gross profit...................... 44,674 7,445 5,178 7,328 1,222 65,847
Selling, general and
administrative expenses......... 33,318 6,312 4,541 6,014 236(a) 48,495
398(c)
(2,324)(d)
Depreciation and amortization..... 3,543 752 52 -- 1,540(e) 5,887
-------- ------- ------- ------- -------- --------
Operating income.................. 7,813 381 585 1,314 1,372 11,465
Interest expense.................. 1,481 144 46 81 2,234(f) 3,986
Other (income) expense............ -- 137 1,500 -- (1,637)(d) --
-------- ------- ------- ------- -------- --------
Income before taxes............... 6,332 100 (961) 1,233 775 7,479
Income taxes...................... 2,485 -- 114 -- 342(g) 2,941
-------- ------- ------- ------- -------- --------
Net income before extraordinary
item............................ 3,847 100 (1,075) 1,233 433 4,538
Extraordinary loss on early
retirement of debt (net of
income tax benefit of $222)..... (335) -- -- -- 335(h) --
-------- ------- ------- ------- -------- --------
Net income........................ $ 3,512 $ 100 $(1,075) $ 1,233 $ 768 $ 4,538
======== ======= ======= ======= ======== ========
Earnings per common share --
basic:
Income before extraordinary
item.......................... $ 0.58 $ 0.61
Extraordinary loss.............. (0.05) --
-------- --------
Net income...................... $ 0.53 $ 0.61
======== ========
Earnings per common share --
assuming dilution:
Income before extraordinary
item.......................... $ 0.56 $ 0.60
Extraordinary loss.............. (0.05) --
-------- --------
Net income...................... $ 0.51 $ 0.60
======== ========
Weighted average shares:
Common shares outstanding....... 6,670 7,412
Adjusted common shares --
assuming exercise of stock
options....................... 6,839 7,581
</TABLE>
The accompanying Notes to Unaudited Pro Forma Consolidated Condensed
Financial Statements are an integral part of these statements.
19
<PAGE> 21
DYNAMEX INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
SIX MONTHS ENDED JANUARY 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THE
THE THE NYDEX COMPANY
COMPANY COMPANIES PRO FORMA
SIX TWO SIX
MONTHS MONTHS MONTHS
ENDED ENDED ENDED
JANUARY 31, SEPTEMBER 30, OTHER PRO FORMA JANUARY 31,
1998 1997 ACQUISITIONS ADJUSTMENTS 1998
----------- ------------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Sales.......................... $95,262 $3,646 $1,245 $ -- $100,153
Cost of sales.................. 64,137 2,167 719 -- 67,023
------- ------ ------ ----- --------
Gross profit................... 31,125 1,479 526 -- 33,130
Selling, general and
administrative expenses...... 22,887 2,013 403 (899)(d) 24,404
Depreciation and
amortization................. 2,857 -- -- 113(e) 2,970
------- ------ ------ ----- --------
Operating income (loss)........ 5,381 (534) 123 786 5,756
Interest expense............... 1,899 -- -- 244(f) 2,143
------- ------ ------ ----- --------
Income before taxes............ 3,482 (534) 123 542 3,613
Income taxes................... 1,475 -- -- 51(g) 1,526
------- ------ ------ ----- --------
Net income (loss).............. $ 2,007 $ (534) $ 123 $ 491 $ 2,087
======= ====== ====== ===== ========
Net income per common share
-- basic..................... $ 0.27 $ 0.28
======= ========
-- assuming dilution......... $ 0.27 $ 0.28
======= ========
Weighted average shares:
Common shares outstanding.... 7,387 7,412
Adjusted common shares --
assuming exercise of stock
options................... 7,558 7,582
</TABLE>
The accompanying Notes to Unaudited Pro Forma Consolidated Condensed
Financial Statements are an integral part of these statements.
20
<PAGE> 22
DYNAMEX INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED CONDENSED
STATEMENTS OF OPERATIONS
Adjustments to the Unaudited Pro Forma Consolidated Condensed Statements of
Operations:
(a) To add the results of operations of the businesses acquired in the
IPO Acquisitions for the period from August 1, 1996 through August 15,
1996.
(b) To eliminate the effect of certain historical business operations
of the acquired companies which were not acquired by the Company.
(c) To adjust, as set forth below, the operating results of Road
Runner for the audited nine months ended February 28, 1997 to (i) include
the results of operations for the period beginning March 1, 1997 and ending
May 15, 1997 (the day immediately preceding the Company's acquisition of
Road Runner) and (ii) eliminate the results of operations for the two
months ended July 31, 1996.
<TABLE>
<CAPTION>
INCLUDE: ELIMINATE:
TWO-MONTH, TWO-MONTH
15 DAY PERIOD PERIOD NET
ENDED ENDED PRO FORMA
MAY 15, 1997 JULY 31, 1996 ADJUSTMENT
------------- ------------- ----------
<S> <C> <C> <C>
Sales............................... $5,125 $(3,578) $1,547
Cost of sales....................... 2,589 (1,762) 827
Selling, general and administrative
expenses.......................... 1,889 (1,491) 398
</TABLE>
(d) To eliminate costs and expenses for certain items, primarily owner
compensation, not related to ongoing operations of the acquired companies.
(e) To adjust depreciation and amortization to reflect the effect of
allocations of purchase price.
(f) To adjust interest expense to reflect additional borrowings
related to the IPO Acquisitions and the Pro Forma Completed Acquisitions.
(g) To adjust provision for income taxes.
(h) To eliminate extraordinary loss resulting from early retirement of
debentures with proceeds from the IPO.
21
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the information
contained in the Company's consolidated financial statements, including the
notes thereto, and the other financial information appearing elsewhere in this
Prospectus. Statements regarding future economic performance, management's plans
and objectives, and any statements concerning its assumptions related to the
foregoing contained in Management's Discussion and Analysis of Financial
Condition and Results of Operations constitute forward-looking statements.
Certain factors which may cause actual results to vary materially from these
forward-looking statements accompany such statements or appear elsewhere in this
report, including without limitation, the factors disclosed under "Risk
Factors."
GENERAL
In May 1995, the Company acquired Dynamex Express, the ground courier
operations of Air Canada ("Dynamex Express"), which was led by Richard K.
McClelland, the Company's Chief Executive Officer, and which had a national
network of 20 locations across Canada. In December 1995, the Company acquired
the on-demand ground courier operations of Mayne Nickless Incorporated and Mayne
Nickless Canada Inc. (together, "Mayne Nickless") which had operations in eight
U.S. cities and two Canadian cities. In August 1996, the Company completed the
IPO Acquisitions and thereby acquired five same-day delivery businesses in three
U.S. and two Canadian cities. Subsequent to the IPO and through January 31,
1998, the Company completed the Pro Forma Completed Acquisitions and thereby
acquired an additional 14 same-day delivery businesses in nine U.S. and two
Canadian cities. Subsequent to January 31, 1998, the Company consummated the
Recent Acquisitions, and thereby acquired four same-day delivery businesses in
three U.S. cities and one Canadian city. The IPO Acquisitions, the Pro Forma
Completed Acquisitions and the Recent Acquisitions are referred to collectively
herein as the "Acquisitions." See "Business -- Recent Acquisitions." Each of
these acquisitions has been accounted for using the purchase method of
accounting. Accordingly, the Company's historical results of operations reflect
the results of acquired operations from the date of acquisition. As a result of
these various acquisitions, the historical operating results of the Company for
the periods presented are not necessarily comparable.
Sales consist primarily of charges to customers for individual delivery
services and weekly or monthly charges for recurring services, such as fleet
management. Sales are recognized when the service is performed. The yield
(revenue per transaction) for a particular service is dependent upon a number of
factors including size and weight of articles transported, distance transported,
special handling requirements, requested delivery time and local market
conditions. Generally, articles of greater weight transported over longer
distances and those that require special handling produce higher yields.
Cost of sales consists of costs relating directly to performance of
services, including driver and messenger costs and third party delivery charges,
if any. Substantially all of the drivers used by the Company own their own
vehicles, and approximately 82% of these owner-operators are independent
contractors as opposed to employees of the Company. Drivers and messengers are
generally compensated based on a percentage of the delivery charge.
Consequently, the Company's driver and messenger costs are variable in nature.
To the extent that the drivers and messengers are employees of the Company,
employee benefit costs related to them, such as payroll taxes and insurance, are
also included in cost of sales.
Selling, general and administrative expenses include costs incurred at the
branch level related to taking orders and dispatching drivers and messengers, as
well as administrative costs related to such functions. Also included in
selling, general and administrative expenses are regional and corporate level
marketing and administrative costs and occupancy costs related to branch and
corporate locations.
22
<PAGE> 24
Generally, the Company's on-demand services provide higher gross profit
margins than do scheduled distribution or fleet management services because
driver compensation for on-demand services is generally lower as a percentage of
sales from such services. However, scheduled distribution and fleet management
services generally have fewer administrative requirements related to order
taking, dispatching drivers and billing. As a result of these variances, the
Company's margins are dependent in part on the mix of business for a particular
period.
As the Company has no significant investment in transportation equipment,
depreciation and amortization expense relates to depreciation of office,
communication and computer equipment and the amortization of intangible assets
acquired in the Company's various acquisitions, each of which has been accounted
for using the purchase method of accounting. The Company expects to continue to
make acquisitions and anticipates that such acquisitions will be accounted for
using the purchase method of accounting. As a consequence, it is likely that in
the future the Company will incur additional expense from amortization of
acquired intangible assets, including goodwill.
A significant portion of the Company's revenues are generated in Canada.
For the fiscal years ended July 31, 1995, 1996 and 1997, for the six months
ended January 31, 1998, and on a pro forma basis for fiscal year ended July 31,
1997, approximately 71.8%, 72.8%, 52.1%, 39.3%, and 36.8%, respectively, of the
Company's revenues were generated in Canada. The decrease in the proportion of
revenues generated in Canada is attributable to the high proportion of U.S.
businesses acquired in the Acquisitions. Before deduction of corporate costs,
the majority of which are incurred in the U.S., the cost structure of the
Company's operations in the U.S. and in Canada is very similar. Consequently,
when expressed as a percentage of U.S. or Canadian sales, as appropriate, the
operating profit generated in each such country (before deduction of corporate
costs) is not materially different.
The conversion rate between the U.S. dollar and Canadian dollar has
declined significantly during the first six months of the fiscal year ending
July 31, 1998 as compared to the first six months of the fiscal year ended July
31, 1997. As the Canadian dollar is the functional currency for the Company's
Canadian operations, this decline has had a negative effect on the Company's
reported revenues. The effect of this decline on the Company's net income for
the six months ended January 31, 1998 has not been material, although there can
be no assurance that fluctuations in such currency exchange rate will not in the
future have material adverse effect on the Company's business, financial
condition or results of operations.
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated certain items from
the Company's consolidated statement of operations, expressed as a percentage of
sales:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED JULY 31, JANUARY 31,
-------------------------- ----------------
1995 1996 1997 1997 1998
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Sales........................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................... 68.2 69.7 66.1 67.0 67.3
------ ------ ------ ------ ------
Gross profit.................. 31.8 30.3 33.9 33.0 32.7
Selling, general and
administrative expenses....... 34.3 24.4 25.3 25.6 24.0
Depreciation and amortization... 3.3 2.1 2.7 2.7 3.0
------ ------ ------ ------ ------
Operating income.............. (5.8) 3.8 5.9 4.7 5.7
Interest expense................ 1.9 2.3 1.1 0.9 2.0
------ ------ ------ ------ ------
Income (loss) before taxes
........................... (7.7%) 1.5% 4.8% 3.8% 3.7%
====== ====== ====== ====== ======
</TABLE>
23
<PAGE> 25
Six Months Ended January 31, 1998 Compared to Six Months Ended January 31,
1997
Sales for the six months ended January 31, 1998 increased $38.4 million, or
67.6%, to $95.3 million from $56.8 million for the six months ended January 31,
1997 primarily due to the Pro Forma Completed Acquisitions, as well as increased
sales from the Company's existing operations. Due to a decline in the conversion
rate between the U.S. dollar and the Canadian dollar, the Company's reported
sales for the six months ended January 31, 1998 were approximately $1.4 million
less than would have been reported for such period had the conversion rate been
the same as in the six months ended January 31, 1997.
Cost of sales for the six months ended January 31, 1998 increased $26.0
million, or 68.3%, to $64.1 million from $38.1 million for the six months ended
January 31, 1997, primarily due to the Pro Forma Completed Acquisitions. As a
percentage of sales, such costs increased to 67.3% from 67.0%. This increase
reflects the generally lower gross profit associated with certain services,
specifically outsourcing or fleet management services and scheduled distribution
services. Due in part to the Company's acquisition of the Nydex Companies in
October 1997, these lower gross margin services comprised an increased
proportion of the Company's business in the six months ended January 31, 1998
relative to the six months ended January 31, 1997.
Selling, general and administrative expenses for the six months ended
January 31, 1998 increased $8.3 million, or 57.1%, to $22.9 million from $14.6
million for the six months ended January 31, 1997, primarily reflecting the
expenses of the acquired operations and increased spending for marketing,
technology and administrative support. As a percentage of sales, selling,
general and administrative expenses decreased to 24.0% from 25.6% which reflects
the spreading of certain fixed costs over a larger revenue base, as well as the
generally lower administrative costs required for outsourcing and scheduled
distribution services.
Depreciation and amortization for the six months ended January 31, 1998
increased $1.3 million, or 88.3%, to $2.9 million from $1.5 million in the six
months ended January 31, 1997 and, as a percentage of sales, to 3.0% from 2.7%.
These increases primarily resulted from depreciation and amortization of assets
acquired in the Pro Forma Completed Acquisitions.
Interest expense for the six months ended January 31, 1998 increased $1.4
million, or 273.8%, to $1.9 million from $508,000 for the six months ended
January 31, 1997 primarily as a result of the additional borrowings required to
finance the Pro Forma Completed Acquisitions.
Fiscal Year Ended July 31, 1997 Compared to Fiscal Year Ended July 31, 1996
The fiscal year ended July 31, 1997 includes the results of the operations
acquired from Mayne Nickless for the entire period as compared to the fiscal
year ended July 31, 1996 which includes such results only from December 29,
1995, the date of the Mayne Nickless acquisition. The results of the IPO
Acquisitions are included from August 16, 1996, the date such acquisitions were
completed. The operating results related to each of the Pro Forma Completed
Acquisitions are included from the date each such acquisition was completed. See
"Business -- Recent Acquisitions."
Sales for the fiscal year ended July 31, 1997 increased $60.1 million, or
83.6%, to $131.9 million from $71.8 million for the fiscal year ended July 31,
1996. This increase resulted from the full year effect of the Mayne Nickless
operations, the IPO Acquisitions and the effect of the Pro Forma Completed
Acquisitions that were completed prior to fiscal year end as well as increased
sales from existing operations. The increase in sales from existing operations
was in spite of a decline of approximately $1.6 million in sales from certain
unprofitable business in Western Canada and Arizona which was terminated at the
Company's election during the fiscal year ended July 31, 1996.
Cost of sales for the fiscal year ended July 31, 1997 increased $37.2
million, or 74.3%, to $87.2 million from $50.0 million for the fiscal year ended
July 31, 1996. This increase was a direct result of the increased sales in
fiscal 1997 as discussed above. As a percent of sales, such costs
24
<PAGE> 26
decreased to 66.1% for the fiscal year ended July 31, 1997 as compared to 69.7%
for the previous year. This decline and the corresponding increase in gross
profit margin resulted from a higher proportion of on-demand services (which
have a higher gross profit margin) provided by the businesses acquired. In
addition, the termination of certain unprofitable business as discussed above
resulted in a higher overall gross profit.
Selling, general and administrative expenses for the fiscal year ended July
31, 1997 increased $15.8 million, or 89.9%, to $33.3 million from $17.5 million
for the fiscal year ended July 31, 1996. As a percent of sales, such costs
increased to 25.3% for the fiscal year ended July 31, 1997 from 24.4% for the
fiscal year ended July 31, 1996. The increase in absolute costs related
primarily to the acquired operations (including the increased on-demand services
provided thereby), as well as corporate general and administrative costs related
to the Company's new status as a public company.
Depreciation and amortization expense for the fiscal year ended July 31,
1997 increased $2.0 million, or 129.8%, to $3.5 million from $1.5 million for
the fiscal year ended July 31, 1996. This increase related to the depreciation
of fixed assets and the amortization of intangible assets, including goodwill,
associated with the Mayne Nickless operations, the IPO Acquisitions and the Pro
Forma Completed Acquisitions that were completed prior to the fiscal year end.
Interest expense for the fiscal year ended July 31, 1997 decreased
$174,000, or 10.5%, to $1.5 million from $1.7 million for the fiscal year ended
July 31, 1996. The decrease resulted primarily from lower average borrowings
and, to a lesser extent, lower average interest rates during the fiscal year
ended July 31, 1997. In August 1996, the Company retired approximately $13.6
million of outstanding debt with from the proceeds of its IPO. During the fiscal
year ended July 31, 1997, the Company borrowed additional amounts under the
Credit Facility to fund the cash portion of the purchase price of certain of the
Pro Forma Completed Acquisitions.
Fiscal Year Ended July 31, 1996 Compared to Fiscal Year Ended July 31, 1995
The fiscal year ended July 31, 1996 includes the results of Dynamex
Express, which was acquired by the Company on May 31, 1995, for the entire
period. In addition, the fiscal year ended July 31, 1996 includes the results
from the operations acquired from Mayne Nickless from December 29, 1995 (the
acquisition date) through July 31, 1996.
Sales for the fiscal year ended July 31, 1996 increased $50.8 million, or
241.4%, to $71.8 million from $21.0 million for the fiscal year ended July 31,
1995. Approximately $37.4 million of this increase was attributable to the
acquired operations of Dynamex Express and approximately $14.6 million was
attributable to the acquired operations of Mayne Nickless. Sales attributable to
the previously existing operations of the Company declined by approximately $1.2
million from the fiscal year ended July 31, 1995 to the fiscal year ended July
31, 1996 primarily due to a decline in sales in Arizona that was partially
offset by increases in sales in Western Canada. In January and February 1996,
severe winter storms in the Eastern United States resulted in a general
disruption of commerce and therefore a decline in sales for the Company's
operations in those areas.
Cost of sales for the fiscal year ended July 31, 1996 increased $35.7
million, or 248.9%, to $50.0 million from $14.3 million for the fiscal year
ended July 31, 1995. Cost of sales for the fiscal year ended July 31, 1996
included approximately $27.2 million attributable to the operations of Dynamex
Express and approximately $9.3 million attributable to the operations of Mayne
Nickless. This increase was partially offset by a decrease in the cost of sales
from the existing operations of the Company. The Company's gross profit margin
declined to 30.3% in the fiscal year ended July 31, 1996 from 31.8% in the
fiscal year ended July 31, 1995. The decrease was primarily caused by two
factors: (i) the higher proportion of lower margin scheduled distribution and
fleet management business arising from the inclusion of Dynamex Express
operations in fiscal year ended July 31, 1996 (which decrease was partially
offset by the additional higher margin on-demand business arising from the
inclusion of Mayne Nickless operations during seven months of such period) and
25
<PAGE> 27
(ii) the decline in gross margin attributable to the Company's operations in
Western Canada and Arizona due to competitive pressures and certain unprofitable
business. To a lesser extent, the increased cost of providing service during the
winter storms which occurred during the fiscal year ended July 31, 1996 also had
a negative impact on the Company's gross profit margin during such period.
Selling, general and administrative expenses for the fiscal year ended July
31, 1996 increased $10.3 million, or 142.8%, to $17.5 million from $7.2 million
for the fiscal year ended July 31, 1995, primarily because (i) the 1996 period
included a full year of costs related to Dynamex Express operations and, to a
lesser extent, costs related to Mayne Nickless operations which were included
for seven months of such period, and (ii) the Company continued to invest in and
to incur significant costs related to its national and regional marketing
program. As a percentage of sales, selling, general and administrative expenses
for the fiscal year ended July 31, 1996 decreased to 24.4% from 34.3% for the
fiscal year ended July 31, 1995. This decrease resulted from a larger revenue
base which enabled the Company to spread such fixed costs over more sales, and
the absence of certain revisions to accounting estimates made in the 1995 period
relating to uncollectible accounts, accrued insurance costs and other accrued
liabilities. As a result of these revisions, the Company recognized additional
selling, general and administrative expenses of approximately $715,000 during
the fiscal year ended July 31, 1995.
Depreciation and amortization expense for the fiscal year ended July 31,
1996 increased $852,000, or 123.5%, to $1.5 million from $690,000 for the fiscal
year ended July 31, 1995. Of this increase, approximately $461,000 related to
depreciation and amortization of assets related to Dynamex Express and
approximately $389,000 related to depreciation and amortization of assets
related to Mayne Nickless.
Interest expense for the fiscal year ended July 31, 1996 increased $1.3
million, or 310.7%, to $1.7 million from $403,000 for the fiscal year ended July
31, 1995. Increased debt of approximately $4.7 million incurred in connection
with the acquisition of Dynamex Express created approximately $471,000 of this
increase while additional debt of approximately $12.3 million incurred in
connection with the acquisition of Mayne Nickless resulted in increased interest
expense of approximately $869,000. These increases were partially offset by
lower average balances of other debt and reduced interest rates on certain debt
refinanced at the time of the Mayne Nickless acquisition.
LIQUIDITY AND CAPITAL RESOURCES
The Company's capital needs arise primarily from its acquisition program
and, to a lesser extent, its capital expenditures and working capital needs.
During the fiscal year ended July 31, 1997, the Company completed 16
Acquisitions for aggregate consideration of approximately $42.6 million
(excluding assumed liabilities of approximately $4.8 million). Of this aggregate
consideration, approximately $10.6 million was paid by the issuance of 1,264,045
shares of the Company's Common Stock to the sellers of the acquired businesses,
approximately $700,000 was paid with promissory notes issued by the Company to
the sellers and approximately $31.3 million was paid in cash. In August 1996,
the Company completed its IPO and received net proceeds of approximately $21.4
million. Of these proceeds, $7.0 million was utilized to pay the cash portion of
the consideration for the IPO Acquisitions and the balance of $14.4 million was
used to retire outstanding debt. The balance of the cash consideration paid for
the acquisitions completed during the fiscal year ended July 31, 1997 was
provided by cash flow from operations and proceeds from the Credit Facility.
During the six months ended January 31, 1998, the Company completed three
Acquisitions for aggregate consideration of approximately $19.6 million,
consisting of $19.0 million in cash and the issuance of 74,118 shares of Common
Stock. In March 1998, the Company completed four additional Acquisitions for
approximately $7.8 million in cash. The cash portion of the consideration
26
<PAGE> 28
for the Acquisitions consummated after July 31, 1997 was provided by borrowings
under the Credit Facility.
In addition, in connection with certain Acquisitions, the Company agreed to
pay the sellers additional consideration if the acquired operations meet certain
performance goals related to their earnings before interest, taxes, depreciation
and amortization, as adjusted for certain factors. The maximum amount of
additional consideration payable, if all performance goals are met, is
approximately $14.9 million, of which $14.0 million is payable in cash and
$900,000 is payable in shares of the Company's Common Stock (valued at the time
such stock is to be issued). These payments of additional consideration are to
be made on specified dates through October 2000, and generally commence at the
end of the twelve-month period following the completion of the relevant
Acquisition. Management intends to fund the cash portion of this additional
consideration with internally generated cash flow and, to the extent necessary,
with borrowings under the Credit Facility.
As part of its ongoing acquisition program, the Company regularly evaluates
and holds preliminary discussions with potential acquisition candidates. The
Company is currently a party to four non-binding letters of intent for the
acquisition of four same-day courier businesses. See "Business -- Recent
Acquisitions."
During the fiscal year ended July 31, 1997 and the six months ended January
31, 1998, the Company spent approximately $565,000 and $1.9 million,
respectively, on capital expenditures, which expenditures related primarily to
improvements in facilities and technology to support the Company's expanding
operations. Management presently expects the amount of capital expenditures for
the fiscal years ending July 31, 1998 and 1999 to approximate $3.0 million for
each year, subject to increases as its operations continue to expand, and that
such amount will remain relatively minor compared to the capital requirements of
the Company's acquisition program. The Company does not have significant capital
expenditure requirements to replace or expand the number of vehicles used in its
operations because substantially all of its drivers are owner-operators who
provide their own vehicles. The Company's expansion of its national marketing
program consists primarily of increased hiring and salary expenditures related
to the Company's Vice President of Marketing and additional product specialists.
These marketing expenditures have not, nor does management expect that in the
future they will have, a significant impact on the Company's liquidity. See
"Business -- Sales and Marketing."
The Company's cash flow provided by operations for the fiscal year ended
July 31, 1997 was approximately $4.5 million and, consequently, increases in
working capital during such period were completely financed by internally
generated cash flow. The Company's cash flow used in operations for the six
months ended January 31, 1998 was approximately $514,000, reflecting working
capital demands which exceeded internally generated cash flow.
In August 1997, the Company amended the Credit Facility to provide for
total borrowings of up to $75.0 million, of which $59.7 million was outstanding
as of March 31, 1998. Any amounts outstanding under the Credit Facility are due
August 31, 2000. Interest under the facility is payable quarterly at the prime
rate, or certain other interest rate elections based on LIBOR plus an applicable
margin ranging from 1.25% to 2.00%. The applicable margin can vary from quarter
to quarter based on the ratio of the Company's funded debt to cash flow, each as
defined in the Credit Facility. At March 31, 1998, the weighted average interest
rate for all outstanding borrowings was approximately 7.75%. See Note 6 of Notes
to Consolidated Financial Statements.
The Company has entered into interest rate protection arrangements on a
portion of the borrowings under the Credit Facility. The interest rate on $15.0
million of outstanding debt has been fixed at 6.26%, plus the applicable margin,
and a collar of between 5.50% and 6.50%, plus the applicable margin, has been
placed on $9.0 million of outstanding debt. These hedging arrangements mature on
August 31, 2000. Amounts outstanding under the Credit Facility are secured by
all of the Company's U.S. assets and 65% of the stock of its Canadian
subsidiary. The Credit Facility also contains restrictions on the payment of
dividends, incurring additional debt, capital expendi-
27
<PAGE> 29
tures and investments by the Company as well as requiring the Company to
maintain certain financial ratios. Generally, the Company must obtain the
lenders' consent to consummate any acquisition. See Note 6 of Notes to
Consolidated Financial Statements and "Risk Factors -- Acquisition Strategy;
Possible Need for Additional Financing."
Management is currently negotiating to amend the Credit Facility to (i)
provide for total borrowings of up to $110.0 million, (ii) extend the maturity
date to May 31, 2001 and (iii) decrease the restrictions and procedures
concerning the consummation of acquisitions. There can be no assurance that the
Company will enter into a revised credit facility on these or other terms
favorable to the Company.
For the fiscal year ended July 31, 1997, the Company's EBITDA increased to
approximately $11.4 million from approximately $4.2 million for the fiscal year
ended July 31, 1996. For the six months ended January 31, 1998, the Company's
EBITDA increased to approximately $8.2 million from approximately $4.2 million
for the six months ended January 31, 1997. Management has included EBITDA in its
discussion herein as a measure of liquidity because it believes that it is a
widely accepted financial indicator of a company's ability to service and/or
incur indebtedness, maintain current operating levels of fixed assets and
acquire additional operations and businesses. EBITDA should not be considered as
a substitute for statement of operations or cash flow data from the Company's
financial statements, which have been prepared in accordance with generally
accepted accounting principles. In addition, the Company's working capital as of
July 31, 1997 increased to approximately $11.4 million from approximately $4.1
million as of July 31, 1996 and the Company's working capital as of January 31,
1998 increased to approximately $18.8 million. These increases in liquidity are
due in part to the increased level of operations arising from acquired
businesses and internal sales growth, as well as from improved profitability in
the Company's existing operations.
Management expects that its capital requirements, other than in connection
with acquisitions, will be met from internally generated cash flow. Management
expects to continue to meet the capital requirements of its acquisition program
from the following sources: (i) internally generated cash flow, (ii) proceeds
from borrowings under the Credit Facility and (iii) the issuance of its Common
Stock to the sellers of acquired businesses. However, the portion of future
acquisition costs which will be funded with Common Stock is dependent upon the
sellers' willingness to accept the stock as partial consideration and the
Company's willingness to issue such stock based on the market price of the
stock.
The extent to which these existing sources of capital will be adequate to
fund the Company's acquisition program is dependent upon the number of
economically and strategically attractive acquisitions available to the Company,
the size of the acquisitions and the amount of internally generated cash flow.
Should these factors be such that currently available capital resources are
inadequate, the Company may seek additional sources of capital. Such sources
could include additional bank borrowings or the issuance of debt or equity
securities. Should these additional sources of capital not be available or be
available only on terms which the Company does not find attractive, the Company
may be forced to reduce its acquisition activity. This in turn could negatively
affect the Company's ability to implement its business strategy in the manner,
or in the time frame, anticipated by management.
YEAR 2000 COMPLIANCE
Currently, there is significant uncertainty among software users regarding
the impact of the year 2000 on installed software. Other than the Company's
proprietary software system that is currently used in its Minneapolis/St. Paul
operations, the Company uses software that has been licensed from third-party
vendors. The Company is in the process of determining the extent to which its
licensed and proprietary software is year 2000 compliant and the cost of
obtaining such compliance. The Company does not believe that the cost of
addressing the year 2000 issue or the
28
<PAGE> 30
effects of any year 2000 non-compliance in any proprietary or licensed software
will result in any material adverse impact on the Company's business or
financial condition.
INFLATION
The Company does not believe that inflation has had a material effect on
the Company's results of operations nor does it believe it will do so in the
foreseeable future.
ACCOUNTING PRONOUNCEMENTS
New accounting standard -- In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No. 128,
("SFAS No. 128"), "Earnings Per Share" which requires presentation of basic and
diluted earnings per share. Basic earnings per share is computed by dividing
income available to common shareholders by the weighted average number of common
shares outstanding for the reporting period. Diluted earnings per share reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock. As required,
the Company adopted the provisions of SFAS No. 128 in the quarter ended January
31, 1998. All prior period weighted average and per share information has been
restated in accordance with SFAS No. 128. Outstanding stock options issued by
the Company represent the only dilutive effect reflected in diluted weighted
average shares.
29
<PAGE> 31
BUSINESS
GENERAL
Dynamex is a leading provider of same-day delivery and logistics services
in the United States and Canada. From its base as the largest nationwide
same-day transportation company in Canada, over the last three years Dynamex has
established a presence in 21 metropolitan markets in the United States and has
continued to expand its system in Canada. Through its network of branch offices,
the Company provides same-day, door-to-door delivery services utilizing its
ground couriers. For many of its inter-city deliveries, the Company uses third
party air or motor carriers in conjunction with its ground couriers to provide
same-day service. In addition to traditional on-demand delivery services, the
Company offers scheduled distribution services, which encompass recurring, often
daily, point-to-point deliveries or multiple destination deliveries that often
require intermediate handling, and manages strategic stocking locations from
which it makes on-demand deliveries to meet its customers' just-in-time
inventory requirements. The Company also offers fleet and facilities management
services. These services include designing and managing systems to maximize
efficiencies in transporting, sorting and delivering customers' products on a
local and multi-city basis. With its fleet management service, the Company
manages and may provide a fleet of dedicated vehicles at single or multiple
customer sites. The Company's on-demand delivery capabilities are available to
supplement scheduled distribution arrangements or dedicated fleets as needed.
Facilities management services include the Company's operation and management of
a customer's mailroom.
The Company was organized under the laws of Delaware in 1992 as Parcelway
Systems Holding Corp. In May 1995, the Company acquired Dynamex Express and, in
July 1995, the Company changed its name to Dynamex Inc. At the time of its
acquisition by the Company, Dynamex Express had developed a national network of
20 locations across Canada and offered an array of services on a national,
multi-city and local basis. In December 1995, the Company acquired the on-demand
ground courier operations of Mayne Nickless which had operations in eight U.S.
cities and two Canadian cities. In August 1996, the Company consummated the IPO
Acquisitions, thereby acquiring five same-day delivery businesses in three U.S.
and two Canadian cities. Subsequent to the IPO and through January 31, 1998 the
Company consummated the Pro Forma Completed Acquisitions, thereby acquiring 14
additional same-day delivery businesses in nine U.S. and two Canadian cities.
Subsequent to January 31, 1998, the Company completed the Recent Acquisitions,
thereby acquiring four additional same-day delivery businesses in three U.S.
cities and one Canadian city. See "-- Recent Acquisitions."
INDUSTRY OVERVIEW
The delivery and logistics industry is large, highly fragmented and
growing. The industry is composed primarily of same-day, next-day and second-day
service providers. The Company primarily services the same-day, intra-city
delivery market. The same-day delivery and logistics industry in the U.S. and
Canada primarily consists of several thousand small, independent businesses
serving local markets and a small number of multi-location regional or national
operators. The Company believes that the same-day delivery and logistics
industry offers substantial consolidation opportunities as a result of industry
fragmentation and that there are significant operating benefits to large scale
service providers. Relative to smaller operators in the industry, the Company
believes that national operators such as the Company benefit from several
competitive advantages including: national brand identity, professional
management, the ability to service national accounts and centralized
administrative and management information systems. These factors have
contributed to a recent trend toward consolidation in the industry.
Management believes that the same-day delivery segment of the
transportation industry is benefitting from several recent trends. For example,
the trend toward outsourcing has resulted in numerous shippers turning to third
party providers for a range of services including same-day
30
<PAGE> 32
delivery, strategic stocking and management of in-house distribution. Many
businesses that outsource their distribution requirements prefer to purchase
such services from one source that can service multiple cities, thereby
decreasing the number of vendors from which they purchase services.
Additionally, the growth of "just-in-time" inventory practices designed to
reduce inventory carrying costs has increased the demand for the same-day
delivery of such inventory from strategic stocking locations. Technological
developments such as e-mail and facsimile have increased the pace of business
and other transactions, thereby increasing demand for the same-day delivery of a
wide array of items, ranging from voluminous documents to critical manufacturing
parts and medical devices. Consequently, there has been increased demand for the
same-day transportation of items that are not suitable for fax or electronic
transmission, but for which there is an immediate need.
BUSINESS STRATEGY
The Company intends to expand its operations in the U.S. and Canada to
capitalize on the demand of local, regional and national businesses for
innovative same-day transportation solutions. The key elements of the Company's
business strategy are as follows:
- Focus on Primary Services: The Company provides three primary services:
(i) same-day on-demand delivery services, (ii) same-day scheduled
distribution services and (iii) outsourcing services such as fleet
management and facilities management. The Company focuses its same-day
on-demand delivery business on transporting non-faxable, time sensitive
items throughout metropolitan areas. By delivering items of greater
weight over longer distances and providing value added on-demand services
such as strategic stocking, the Company expects to raise the yield per
delivery relative to the yield that would be generated by only delivering
documents within a central business district. Additionally, the Company
intends to capitalize on the market trend towards outsourcing
transportation requirements by concentrating its logistics services in
same-day scheduled distribution and fleet management. The delivery
transactions in a fleet management, scheduled distribution or strategic
stocking program are recurring in nature, thus creating the potential for
long term customer relationships. Additionally, these value added
services are generally less vulnerable to price competition than
traditional on-demand delivery services.
- Target National and Regional Accounts: The Company's sales force focuses
on pursuing and maintaining national and regional accounts. The Company
anticipates that its (i) existing multi-city network of locations
combined with new locations to be acquired, (ii) ability to offer value
added services such as strategic stocking and fleet management to
complement its basic same-day delivery services and (iii) experienced,
operations oriented management team and sales force will create further
opportunities with many of its existing customers and attract new
national and regional accounts.
- Create Strategic Alliances: By forming alliances with strategic partners
that offer services that compliment those of the Company, the Company and
its partner can jointly market their services, thereby accessing one
another's customer base and providing such customers with a broader range
of value added services. For example, the Company has formed an alliance
with Purolator, the largest Canadian overnight courier company, whereby
on an exclusive basis the Company and Purolator provide each other with
certain delivery services and market each other's delivery services to
their respective customers. See "Sales and Marketing."
- Pursue Acquisitions: The Company believes that the highly fragmented
nature of the delivery and logistics industry creates significant
opportunities for same-day delivery and logistics companies with national
marketing and operations. Having substantially completed its Canadian
network, the Company will focus its acquisition program on further
penetrating the U.S. market. The Company will seek to acquire high
quality same-day delivery businesses in new markets as well as in markets
in which it has already established a presence.
31
<PAGE> 33
Management expects that acquisitions in existing markets will provide
access to an acquired company's customer base while creating operating
efficiencies within these markets. Management believes that its operating
and acquisition experience and the Company's ability to offer cash or
Common Stock as purchase consideration and are important advantages in
pursuing acquisition candidates. The Company plans to augment the service
offerings of its acquired companies with value added services such as
fleet management and strategic stocking and to integrate the acquired
business into the Company's operations.
SERVICES
The Company capitalizes on its routing, dispatch and vehicle and personnel
management expertise developed in the ground courier business to provide its
customers with a broad range of value added, same-day distribution services. By
creating innovative applications of its core services, the Company intends to
expand the market for its distribution services and increase the yield per
service provided.
Same-Day On-Demand Delivery. The Company provides same-day intra-city
on-demand delivery services whereby Company messengers or drivers respond
to a customer's request for immediate pick-up and delivery. The Company
also provides same-day inter-city delivery services by utilizing third
party air or motor carriers in conjunction with the Company's ground
couriers. The Company focuses on the delivery of non-faxable, time
sensitive items throughout major metropolitan areas rather than traditional
downtown document delivery. By delivering items of greater weight over
longer distances and providing value added on-demand services such as
strategic stocking, the Company expects to continue to raise the yield per
delivery relative to the yield generated from downtown document deliveries.
The Company's on-demand services include the management of strategic
stocking locations from which it makes on-demand deliveries to meet its
customers' just-in-time inventory requirements. The Company does not take
ownership of or title to the inventory but provides the warehouse space or
utilizes space provided by its customers to store and control the goods.
Furthermore, the Company can bundle services such as same-day ground,
same-day air and next-day air delivery to replenish stocking locations. The
benefits of strategic stocking to the customer include (i) faster response
time due to broader geographic distribution of inventory locations and
emergency transportation capabilities, (ii) decreased lease and employee
costs associated with warehouse functions resulting from the Company's
ability to consolidate warehouse space and administrative costs for
multiple strategic stocking customers and (iii) improved inventory control
through improved information systems. The Company has targeted the computer
and telecommunications industries as primary markets for its strategic
stocking services and has established a network of parts banks across
Canada to serve such markets. In the computer industry, for example,
potential losses to the customers of computer parts and services
distributors can increase with the length of time it takes the distributor
to deliver and install replacement parts. As a result, the distributor must
act quickly to meet its customers' needs. By storing computer parts in the
Company's strategic stocking locations, distributors can contact the
Company and have the replacement part quickly delivered to their customers.
Additionally, the Company has expanded the scope of its strategic stocking
services to include simple repairs, such as replacement of a defective
keyboard, which are performed by the Company's drivers, thus eliminating
the need for the distributor to dispatch a technician. For the fiscal year
ended July 31, 1997 and the six months ended January 31, 1998,
approximately 66% and 63%, respectively, of the Company's revenues were
generated from on-demand same-day delivery services, including strategic
stocking services.
Same-Day Scheduled Distribution. The Company provides same-day
scheduled distribution services for time-sensitive local deliveries.
Scheduled distribution services include regularly scheduled deliveries made
on a point-to-point basis and deliveries that may require intermediate
handling, routing or sorting of items to be delivered to multiple
locations. The Company's
32
<PAGE> 34
on-demand delivery capabilities are available to supplement the scheduled
drivers as needed. A bulk shipment may be received at the Company's
warehouse where it is sub-divided into smaller bundles and sorted for
delivery to specified locations. Same-day scheduled distribution services
are provided on both a local and multi-city basis. For example, in the
suburban Washington, D.C./Baltimore area the Company provides scheduled, as
well as on-demand, delivery services for a group of local hospitals and
medical laboratories, transferring samples between these facilities. In
Ontario, Canada, the Company services the scheduled distribution
requirements of a consortium of commercial banks. These banks require
regular pick-up of non-negotiable materials that are then delivered by the
Company on an intra- and inter-city basis. For the fiscal year ended July
31, 1997 and the three months ended January 31, 1998, approximately 13% and
14%, respectively, of the Company's revenues were generated from same-day
scheduled distribution services.
Outsourcing Services. The Company's outsourcing services include fleet
management and mailroom or other facilities management, such as maintenance
of call centers for inventory tracking and delivery. With its outsourcing
services, the Company is able to apply its same-day delivery capability and
logistics experience to design and manage efficient delivery systems for
its customers. The outsourcing service offerings can expand along with the
customer's needs. Management believes that the trend toward outsourcing has
resulted in many customers reducing their reliance on in-house
transportation departments and increasing their use of third-party
providers for a variety of delivery services.
The largest component of the Company's outsourcing services is fleet
management. With its fleet management service, the Company provides
transportation services primarily for customers that previously managed
such operations in-house. This service is generally provided with a fleet
of dedicated vehicles that can range from passenger cars to tractor
trailers (or any combination) and may display the customer's logo and
colors. In addition, the Company's on-demand delivery capability may
supplement the dedicated fleet as necessary, thereby allowing a smaller
dedicated fleet to be maintained than would otherwise be required. The
Company's fleet management services include designing and managing systems
created to maximize efficiencies in transporting, sorting and delivering
customers' products on a local and multi-city basis. Because the Company
generally does not own vehicles but instead hires drivers who do, the
Company's fleet management solutions are not limited by the Company's need
to utilize its own fleet.
By outsourcing their fleet management, the Company's customers (i)
utilize the Company's distribution and route optimization experience to
deliver their products more efficiently, (ii) gain the flexibility to
expand or contract fleet size as necessary, and (iii) reduce the costs and
administrative burden associated with owning or leasing vehicles and hiring
and managing transportation employees. For example, the Company has
configured and now manages a distribution fleet for one of the largest
distributors to drug stores in Canada. For the fiscal year ended July 31,
1997 and the six months ended January 31, 1998, approximately 21% and 23%,
respectively, of the Company's revenues were generated from fleet
management and other outsourcing services.
While the volume and profitability of each service provided varies
significantly from branch office to branch office, each of the Company's branch
offices generally offers the same core services. Factors which impact the
business mix per branch include customer base, competition, geographic
characteristics, available labor and general economic environment. The Company
can bundle its various delivery and logistics services to create customized
distribution solutions and, by doing so, seeks to become the single source for
its customers' distribution needs.
33
<PAGE> 35
OPERATIONS
The Company's operations are divided into three U.S. regions and one
Canadian region, with each of the Company's approximately 40 branches assigned
to the appropriate region. Branch operations are locally managed with regional
and national oversight and support provided as necessary. A branch manager is
assigned to each branch office and is accountable for all aspects of such branch
operations including its profitability. Each branch manager reports to a
regional manager with similar responsibilities for all branches within his
region. Certain administrative and marketing functions may be centralized for
multiple branches in a given city or region. Dynamex believes that the strong
operational background of its senior management is important to building brand
identity throughout the United States while simultaneously overseeing and
encouraging individual managers to be successful in their local markets.
Same-Day On-Demand Delivery. Most branches have operations centers
staffed by dispatchers, as well as customer service representatives and
operations personnel. Incoming calls are received by trained customer
service representatives who utilize computer systems to provide the
customer with a job-specific price quote and to transmit the order to the
appropriate dispatch location. Certain of the Company's larger clients can
access such software through electronic data interface to enter dispatch
requirements, page specific drivers, make inquiries and receive billing
information. A dispatcher coordinates shipments for delivery within a
specific time frame. Shipments are routed according to the type and weight
of the shipment, the geographic distance between the origin and destination
and the time allotted for the delivery. Coordination and deployment of
delivery personnel for on-demand deliveries is accomplished either through
communications systems linked to the Company's computers, through pagers or
by radio.
Same-Day Scheduled Distribution. A dispatcher coordinates and assigns
scheduled deliveries to the drivers and manages the delivery flow. In many
cases, certain drivers will handle a designated group of scheduled routes
on a recurring basis. Any intermediate handling required for a scheduled
distribution is conducted at the Company's warehouse or at a third party
facility such as the airport.
Outsourcing Services. The largest component of the Company's
outsourcing services is its fleet management. Fleet management services are
coordinated by the Company's logistics specialists who have experience in
designing, implementing and managing integrated networks for transportation
services. Based upon the specialist's analysis of a customer's fleet and
distribution requirements, the Company develops a plan to optimize fleet
configuration and route design. The Company provides the vehicles and
drivers necessary to implement the fleet management plan. Such vehicles and
drivers are generally dedicated to a particular customer and may display
the customer's name and logo on its vehicles. The Company can supplement
these dedicated vehicles and drivers with its on-demand capability as
necessary.
Prices for the Company's services are determined at the branch level based
on the distance, weight and time-sensitivity of a particular delivery. The
Company generally enters into customer contracts for scheduled distribution,
fleet and facilities management and strategic stocking services which are
generally terminable by such customer upon notice generally ranging from 30 to
90 days. The Company does not typically enter into contracts with its customers
for on-demand delivery services other than strategic stocking services.
Substantially all of the Dynamex drivers are owner-operators who provide
their own vehicles, pay all expenses of operating their vehicles and receive a
percentage of the delivery charge as compensation. Management believes that this
creates a higher degree of responsiveness on the part of its drivers as well as
significantly lowering the capital required to operate the business and reducing
the Company's fixed costs. The Company owns approximately 50 vehicles, primarily
light trucks and automobiles, with ages ranging from one to 15 years, and an
average age of five years.
34
<PAGE> 36
These vehicles are used by certain Company employees for delivery services or
are leased to owner-operators.
SALES AND MARKETING
The Company markets its services through a sales force comprised of
national and local sales representatives. As a same-day transportation provider
with a national network of branch offices in Canada and locations in 21
metropolitan markets in the United States, Dynamex is positioned to pursue large
accounts whose same-day transportation requirements may encompass multiple city
locations. Historically, local accounts, which often include large companies
with multiple locations, have provided the bulk of the Company's sales. The
Company's sales force will seek to generate additional business from these
accounts in multiple locations. In January 1997, the Company hired a Vice
President of Marketing and has been actively hiring product and industry
specialists to expand its national marketing efforts. The Company's expansion of
its national sales program and continuing investment in technology to support
the Company's expanding operations, have been undertaken at a time when large
companies are increasing their demand for delivery providers who offer a range
of delivery services at multiple locations.
The Company's marketing program is directed by the Vice President of
Marketing, who was hired in January 1997. The Company's national sales force,
comprised of approximately 10 persons, includes product specialists dedicated to
specific services, such as fleet management or strategic stocking. Additionally,
some of these specialists have developed expertise in servicing certain
industries such as banks and telecommunications companies. As part of its
overall marketing plan, the Company has been increasing the number of national
product and industry specialists and intends to continue to do so in the future.
Approximately 75 local employee sales representatives target business
opportunities from the branch offices and approximately 25 specialized sales
representatives contact existing customers to assess customer satisfaction and
requirements.
The Company's local sales representatives make regular calls on existing
and potential customers to identify such customers' delivery and logistics
needs. The Company's national product and industry specialists augment the local
marketing efforts and seek new applications of the Company's primary services in
an effort to expand the demand for such services. Customer service
representatives on the local and national levels regularly communicate with
customers to monitor the quality of services and to quickly respond to customer
concerns. The Company maintains a database of its customers' service utilization
patterns and satisfaction level. This database is used by the Company's
specialized sales force to analyze opportunities and conduct performance audits.
Fostering strategic alliances with customers who offer services that
complement those of the Company is an important component of the Company's
marketing strategy. For example, under an agreement with Purolator, the Company
serves as Purolator's exclusive provider of same-day courier services, which
services are then marketed by Purolator to its customers. The Company also
provides Purolator with local and inter-city same-day ground courier service for
misdirected Purolator shipments. Purolator, in turn, serves as the Company's
exclusive provider of overnight delivery services which services are marketed by
the Company to its customers. Purolator reports that it is the largest overnight
courier in Canada with approximately 9,000 employees who handle approximately
300,000 packages daily.
CUSTOMERS
As of January 31, 1998, the Company had a diversified customer base of
approximately 45,000 active customers across the U.S. and Canada. The Company's
target customer is a business that distributes time-sensitive, non-faxable items
that weigh from one to seventy pounds to multiple locations. The primary
industries served by the Company include financial services, electronics,
pharmaceuticals, medical laboratories and hospitals, auto parts, legal services
and Canadian governmental agencies. Management believes that as of January 31,
1998, no single industry
35
<PAGE> 37
accounted for more than 10% of the Company's annual revenues. A significant
number of the Company's customers are located in Canada. For the fiscal years
ended July 31, 1995, 1996 and 1997, respectively, and for the six months ended
January 31, 1998, approximately 71.8%, 72.8%, 52.1% and 39.3% of the Company's
revenues, respectively, were generated in Canada. See Note 9 of Notes to
Consolidated Financial Statements for additional information concerning the
Company's foreign sales.
COMPETITION
The market for the Company's same-day delivery and logistics services has
been and is expected to remain highly competitive. The Company believes that the
principal competitive factors in the markets in which it competes are
reliability, quality, breadth of service and price.
Most of the Company's competitors in the same-day intra-city delivery
market are privately held companies that operate in only one location, with no
one competitor dominating the market. However, there is a trend toward industry
consolidation and companies with greater financial and other resources than the
Company that may not currently operate in the delivery and logistics business
may enter the industry to capitalize on such trend. Price competition for basic
delivery services is particularly intense.
The market for the Company's logistics services is also highly competitive,
and can be expected to become more competitive as additional companies seek to
capitalize on the growth in the industry. The Company's principal competitors
for such services are other delivery companies and in-house transportation
departments. The Company generally competes on the basis of its ability to
provide customized service regionally and nationally, which it believes is an
important advantage in this highly fragmented industry, and on the basis of
price.
The Company competes for acquisition candidates with other companies in the
industry and companies that may not currently operate in the industry but may
acquire and consolidate local courier businesses. Management believes that its
operating experience and its strategy to fully integrate each acquired company
by adding its core services and introducing national and multi-city marketing
will allow it to remain competitive in the acquisition market.
The Company's principal competitors for drivers are other delivery
companies within each market area. Management believes that its method of driver
compensation, which is based on a percentage of the delivery charge, is
attractive to drivers and helps the Company to recruit and retain drivers.
36
<PAGE> 38
RECENT ACQUISITIONS
Commencing with the IPO in August 1996 and continuing through March 31,
1998, the Company acquired the following same-day delivery businesses:
<TABLE>
<CAPTION>
EFFECTIVE DATE
COMPANY METROPOLITAN AREAS SERVED OF ACQUISITION
------- ------------------------- --------------
<S> <C> <C>
Action Delivery(1)............................ Halifax, Nova Scotia August 16, 1996
Seidel Delivery(1)............................ Columbus, Ohio August 16, 1996
Seko/Metro(1)................................. Chicago, Illinois August 16, 1996
Southbank(1).................................. New York, New York August 16, 1996
Zipper(1)..................................... Winnipeg, Manitoba August 16, 1996
Express It, Inc.(2)........................... New York, New York October 1, 1996
Dollar Courier(2)............................. San Diego, California October 18, 1996
Winged Foot Couriers, Inc.(2)................. New York, New York December 1, 1996
Boogey Transportation Limited(2).............. Saskatoon, Saskatchewan December 1, 1996
One Hour Delivery Services, Inc.(2)........... Dallas, Texas January 1, 1997
Priority Parcel Express, Inc.(2).............. Dallas, Texas January 1, 1997
Max America Holdings, Inc.(2)................. Dallas, Texas January 1, 1997
Eagle Couriers, Inc.(2)....................... Richmond, Virginia February 1, 1997
One Hour Courier Service, Inc.(2)............. Kansas City, Missouri March 1, 1997
Regina Mail Marketing, Inc.(2)................ Regina, Saskatchewan April 28, 1997
Road Runner Transportation, Inc.(2)........... Minneapolis/St. Paul, MN May 16, 1997
Central Delivery Service of
Washington, Inc.(2 branches only)(2)........ Hartford, Connecticut August 16, 1997
Boston, Massachusetts
Road Management Systems, Inc. and certain
related companies(2)........................ Atlanta, Georgia September 26, 1997
Nydex Companies(2)............................ New York, New York October 1, 1997
Backstreet Couriers, Inc. and a related
company(3).................................. Memphis, Tennessee March 1, 1998
U.S.C. Management Systems, Inc.(3)............ New York, New York March 23, 1998
Colorado Courier and Distribution, Inc.(3).... Denver, Colorado March 31, 1998
Alpine Enterprises Ltd.(3).................... Winnipeg, Manitoba March 31, 1998
</TABLE>
- - ---------------
(1) IPO Acquisition.
(2) Pro Forma Completed Acquisition.
(3) Recent Acquisition.
The aggregate consideration paid by the Company in the Acquisitions was
approximately $70.0 million, consisting of approximately $58.1 million in cash
and the issuance by the Company of approximately $700,000 in promissory notes
and approximately 1,338,000 shares of Common Stock to the sellers. In addition,
in certain instances, additional cash consideration may be paid by the Company
if such acquired businesses obtain certain performance goals. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
consideration paid by the Company for the Acquisitions was determined through
arms-length negotiations among the Company and the representatives of the owners
of these acquired companies. The factors considered by the parties in
determining the purchase price include, among other things, the historical
operating results and the future prospects of the acquired companies.
Each of the Acquisitions has been accounted for using the purchase method
of accounting. Accordingly, each acquired company is included in the Company's
consolidated results of operations from the date of its respective acquisition.
The Company is currently integrating recently acquired businesses into the
Company's operations. Each acquired company has been assigned to the appropriate
regional division of the Company. Generally, an existing manager of each
acquired company has agreed to continue to manage such operation after the
consummation of the respective acquisition. Management is training the staff of
the acquired companies so that each branch will be able to provide and market
the full range of Company services. As soon as practicable and where
appropriate, the Company will assimilate each acquired company's accounting,
payroll and cash management functions, standardize its insurance coverage and
employee benefits and supplement or replace the use of the acquired company's
tradename with "Dynamex."
37
<PAGE> 39
Subsequent to January 31, 1998 and through March 31, 1998 the Company
completed the acquisition of four same-day transportation companies. On March 1,
1998, the Company purchased Backstreet Couriers, Inc. and a related company
(together, "Backstreet") for approximately $1.6 million in cash, plus additional
cash consideration of up to $250,000 the payment of which is contingent upon
Backstreet's performance over the twelve months following the closing.
Backstreet has its principal operations in Memphis, Tennessee. On March 23,
1998, the Company purchased U.S.C. Management Systems, Inc. ("USC") for
approximately $4.8 million in cash, plus additional cash consideration of up to
$3.0 million the payment of which is contingent upon USC's performance over the
twelve months following the closing. USC operates in New Jersey and Long Island
and Manhattan, New York.
On March 31, 1998, the Company purchased Colorado Courier and Distribution,
Inc. ("Colorado Courier") for approximately $500,000 in cash, plus additional
consideration of up to $350,000 the payment of which is contingent upon Colorado
Courier's performance over the twelve months following the closing. Colorado
Courier operates in Denver, Colorado. Additionally, on March 31, 1998, the
Company purchased Alpine Enterprises Ltd. ("Alpine") for approximately $950,000
in cash, plus additional consideration of up to $280,000 the payment of which is
contingent upon Alpine's performance over the twelve months following the
closing. Alpine operates in Winnipeg, Manitoba.
As part of its ongoing acquisition program, the Company regularly evaluates
and holds preliminary discussions with potential acquisition candidates. In
addition to the acquisitions described above, the Company has entered into
non-binding letters of intent for the acquisition of two U.S. and two Canadian
same-day transportation companies. The completion of each of these transactions
is contingent upon the satisfactory completion of a due diligence review by the
Company and the consent of the Company's primary lenders. Accordingly, there is
no assurance that any or all of these acquisitions will be completed. It is
currently contemplated that the aggregate consideration to be paid in such
acquisitions will be approximately $7.3 million, consisting of $6.8 million in
cash and approximately 40,000 shares of Common Stock. In addition, these
transactions provide for contingent consideration of up to $6.1 million in cash
if the acquired businesses achieve certain financial results subsequent to their
acquisition by the Company.
REGULATION
The Company's business and operations are subject to various federal (U.S.
and Canadian), state, provincial and local regulations and, in many instances,
require permits and licenses from state authorities. The Company holds
nationwide general commodities authority from the Federal Highway Administration
of the U.S. Department of Transportation to transport certain property as a
motor carrier on an inter-state basis within the contiguous 48 states. Where
required, the Company holds statewide general commodities authority. The Company
holds permanent extra-provincial (and where required, intra-provincial)
operating authority in all Canadian provinces where the Company does business.
In connection with the operation of certain motor vehicles, the handling of
hazardous materials in its courier operations and other safety matters,
including insurance requirements, the Company is subject to regulation by the
United States Department of Transportation, the states and by the appropriate
Canadian federal and provincial regulations. The Company is also subject to
regulation by the Occupational Health and Safety Administration, provincial
occupational health and safety legislation and federal and provincial employment
laws respecting such matters as hours of work, driver logbooks and workers'
compensation. To the extent the Company holds licenses to operate two-way radios
to communicate with its fleet, the Company is regulated by the Federal
Communica-
38
<PAGE> 40
tions Commission. The Company believes that it is in substantial compliance with
all of these regulations. The failure of the Company to comply with the
applicable regulations could result in substantial fines or possible revocations
of one or more of the Company's operating permits.
SAFETY
From time to time, the Company's drivers are involved in accidents. The
Company carries liability insurance with a per claim and an aggregate limit of
$15.0 million. Owner-operators are required to maintain liability insurance of
at least the minimum amounts required by applicable state and provincial law
(generally such minimum requirements range from $35,000 to $75,000). The Company
also has insurance policies covering property and fiduciary trust liability,
which coverage includes all drivers. The Company reviews prospective drivers to
ensure that they have acceptable driving records. In addition, where required by
applicable law, the Company requires prospective drivers to take a physical
examination and to pass a drug test. Branch managers are responsible for
training drivers on any additional safety requirements as dictated by customer
specifications.
PROPERTIES
The Company leases facilities in 69 locations. These facilities are
principally used for operations and general and administrative functions.
Several of these facilities are primarily used as storage and warehouse space
for strategic stocking. The chart below summarizes the locations of facilities
which the Company leases:
<TABLE>
<CAPTION>
NUMBER OF
LOCATION LEASED PROPERTIES
-------- ------------------
<S> <C>
Canada
Alberta............................................. 6
British Columbia.................................... 6
Manitoba............................................ 4
Newfoundland........................................ 1
Nova Scotia......................................... 1
Ontario............................................. 10
Quebec.............................................. 3
Saskatchewan........................................ 3
----------
Canadian Total............................ 34
==========
U.S.
Arizona............................................. 1
California.......................................... 4
Colorado............................................ 1
Connecticut......................................... 1
District of Columbia................................ 1
Georgia............................................. 1
Illinois............................................ 2
Maryland............................................ 1
Massachusetts....................................... 1
Minnesota........................................... 2
Missouri............................................ 1
New Jersey.......................................... 1
New York............................................ 8
North Carolina...................................... 1
Ohio................................................ 1
Pennsylvania........................................ 1
Tennessee........................................... 1
Texas............................................... 3
Virginia............................................ 2
Washington.......................................... 1
----------
U.S. Total................................ 35
==========
</TABLE>
The Company believes that its properties are well maintained, in good
condition and adequate for its present needs. The Company anticipates that
suitable additional or replacement space will be
39
<PAGE> 41
available when required. The Company's facilities rental expense for the fiscal
year ended July 31, 1997 and the six months ended January 31, 1998 was
approximately $2.1 million and $1.3 million, respectively. The Company's
principal executive offices are located in Irving, Texas. See Note 7 of Notes to
Consolidated Financial Statements.
INTELLECTUAL PROPERTY
The Company has registered "DYNAMEX" and "DYNAMEX EXPRESS" as federal trade
marks in the Canadian Intellectual Office and has filed applications in the U.S.
Patents and Trademark's office for federal trademark registration of such names.
No assurance can be given that any such registration will be granted in the U.S.
or that if granted, such registration will be effective to prevent others from
using the trade mark concurrently or preventing the Company from using the trade
mark in certain locations.
EMPLOYEES
At March 31, 1998, the Company had approximately 2,500 employees, of whom
approximately 1,600 were employed primarily in various management, supervisory,
administrative, and other corporate positions and approximately 900 were
employed as drivers and messengers. Additionally at March 31, 1998, the Company
had contracts with approximately 4,100 independent owner-operator drivers.
Management believes that the Company's relationship with such employees and
independent owner-operators is good. See "Risk Factors -- Certain Tax Matters
Related to Drivers."
Of the approximately 5,000 drivers and messengers used by the Company as of
March 31, 1998, approximately 1,900 are located in Canada and approximately
3,100 are located in the U.S. Approximately 50% of the drivers and messengers
located in Canada are represented by major international labor unions.
Management believes that the Company's relationship with such unions is good.
None of the Company's U.S. employees, drivers or messengers are represented by
unions.
LEGAL PROCEEDINGS
There are no pending legal proceedings involving the Company other than
routine litigation incidental to the Company's business, including numerous
motor vehicle-related accident claims. In the opinion of the Company's
management, such proceedings should not, individually or in the aggregate, have
a material adverse effect on the Company's business, financial condition or
results of operations.
40
<PAGE> 42
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning each of the
persons who are executive officers or directors of the Company:
<TABLE>
<CAPTION>
NAME AGE POSITION(S)
---- --- -----------
<S> <C> <C>
Richard K. McClelland............. 46 Chairman of the Board, President, Chief Executive
Officer and Director(1)
Robert P. Capps................... 43 Vice President -- Chief Financial Officer,
Treasurer and Secretary
John J. Wellik.................... 36 Vice President -- Controller and Assistant
Secretary
James R. Aitken................... 37 Vice President -- Canada
Ralph Embree...................... 47 Vice President -- Eastern U.S.
James C. Isaacson................. 62 Vice President -- Central U.S.
Robert Dobrient................... 36 Vice President -- Marketing and Assistant
Secretary
James M. Hoak, Jr................. 53 Director(1)
Stephen P. Smiley................. 49 Director(1)(2)
Wayne Kern........................ 65 Director
Brian J. Hughes................... 36 Director(2)(3)
Kenneth H. Bishop................. 60 Director(2)(3)
E. T. Whalen...................... 64 Director
</TABLE>
- - ---------------
(1) Member of the Executive Committee.
(2) Member of the Compensation Committee.
(3) Member of the Audit Committee.
Richard K. McClelland became the President, Chief Executive Officer and a
director of the Company in May 1995 upon the closing of the Company's
acquisition of Dynamex Express (the ground courier division of Air Canada),
where he also served as President since 1988. He was elected as Chairman of the
Board of the Company in February 1996. Prior to joining Dynamex Express in 1986,
Mr. McClelland held a number of advisory and management positions with the
Irving Group, Purolator Courier Ltd. and Sunbury Transport Ltd., where he was
engaged in the domestic and international same-day air, overnight air and
trucking businesses.
Robert P. Capps has served as Vice President, Treasurer and Assistant
Secretary of the Company since February 1996 and was elected Chief Financial
Officer in May 1997. Mr. Capps served in various financial management capacities
with Hadson Corporation (an energy company) from February 1986 through June 1995
and was Executive Vice President and Chief Financial Officer from May 1991
through June 1995. Mr. Capps is a certified public accountant.
John J. Wellik became the Vice President-Controller and Assistant Secretary
of the Company in December 1997. Prior to joining the Company, Mr. Wellik served
as the Assistant Controller for the American Pad & Paper Company (a paper
products manufacturer) since June 1997. From January 1989 through February 1997,
he served in various accounting management positions, including Director of
Financial Accounting, for Avnet, Inc. (an electronics distributor) and Hall-Mark
Electronics Corporation (an electronics distributor), which company was acquired
by Avnet, Inc. in July 1993. Mr. Wellik is a certified public accountant.
James R. Aitken was elected as the Vice President -- Eastern Canada in
September 1997. He joined the Company in May 1995 in conjunction with the
Company's acquisition of Dynamex
41
<PAGE> 43
Express, was appointed General Manager -- Eastern Canada in February 1996 and
served in such capacity until September 1997. Prior to joining the Company, Mr.
Aitken was the Director of Sales and Marketing with Dynamex Express, where he
had been employed since 1988. During his employment with Dynamex Express, Mr.
Aitken worked in sales and marketing, regional and branch management and client
development. Mr. Aitken has over 18 years of experience in the courier industry.
Ralph Embree, was elected as the Vice President -- Eastern U.S. in
September 1997. He joined the Company in December 1995 in conjunction with the
Company's acquisition of Mayne Nickless and was appointed as the General
Manager -- Eastern U.S. in February 1996. Prior to joining the Company, Mr.
Embree held a variety of operations, sales and management positions with Mayne
Nickless where he was employed for seven years. Mr. Embree has over 17 years of
experience in the courier industry.
James C. Isaacson was elected as the Vice President -- Central U.S. in
September 1997. He joined the Company in May 1997 in conjunction with the
Company's acquisition of Road Runner Transportation, Inc. Prior to joining the
Company, Mr. Isaacson had been the principal stockholder and executive officer
of Road Runner since 1978. Mr. Isaacson has over 19 years of experience in the
courier industry. See "Certain Transactions."
Robert Dobrient was elected as the Vice President -- Marketing and
Assistant Secretary in September 1997. He joined the Company as an operations
manager in January 1997 in conjunction with the Company's acquisition of Max
America Holdings, Inc., a logistics services business in Dallas, Texas. Prior to
joining the Company, Mr. Dobrient was a principal stockholder and executive
officer of Max America since 1985. Mr. Dobrient has over 12 years of experience
in the courier industry. See "Certain Transactions."
James M. Hoak, Jr. has served as a director of the Company since February
1996. Mr. Hoak has served as Chairman and a principal of Hoak Capital
Corporation (a private equity investment firm) since September 1991. From June
1996 through March 1998, Mr. Hoak served as Chairman and a director of Hoak
Breedlove Wesneski & Co. (an investment bank, securities broker-dealer and one
of the Underwriters) and as Chairman of such company's parent corporation, HBW
Holdings, Inc. (an investment bank). Mr. Hoak has been serving as a director of
HBW Holdings, Inc. since the end of March 1998. Mr. Hoak served as Chairman of
Heritage Media Corporation (a broadcasting and marketing services firm) from its
inception in August 1987 to its sale in August 1997. From February 1991 to
January 1995, he served as Chairman and Chief Executive Officer of Crown Media,
Inc. (a cable television company). From 1971 to 1987, he served as President and
Chief Executive Officer of Heritage Communications, Inc. (a diversified
communications company), and as its Chairman and Chief Executive Officer from
August 1987 to December 1990. Mr. Hoak is a director of MidAmerican Energy
Company, PanAmSat Corporation, Pier 1 Imports, Inc. and Texas Industries, Inc.
See "Certain Transactions" and "Underwriting."
Stephen P. Smiley has served as a director of the Company since 1993 and
was a Vice President of the Company from December 1995 through February 1996.
Mr. Smiley was President of Hoak Capital Corporation from 1991 through February
1996. Mr. Smiley joined Hunt Financial Corporation (a private investment
company) as Executive Vice President in February 1996, and was appointed
President in January 1997. Mr. Smiley is also a director of Ergo Science
Corporation (a biopharmaceutical company). See "Certain Transactions."
Wayne Kern has served as a director of the Company since February 1996. Mr.
Kern served as the Secretary of HBW Holdings, Inc. from July 1996 through March
1998. Mr. Kern served as Senior Vice President and Secretary of Heritage Media
Corporation from 1987 through August 1997. From 1991 to 1995, Mr. Kern also
served as Executive Vice President of Crown Media, Inc. From 1979 to 1991, Mr.
Kern served as the Executive or Senior Vice President, General Counsel and
Secretary of Heritage Communications, Inc. See "Certain Transactions" and
"Underwriting."
42
<PAGE> 44
Brian J. Hughes has served as a director of the Company since May 1995. Mr.
Hughes has served as the Vice President -- Investments of both The Guidant
Financial Group, Inc. (formerly, Preferred Risk Life Insurance Company) and
Guidant Mutual Insurance Company (formerly, Preferred Risk Mutual Insurance
Company) since September 1992. From 1986 to 1992, Mr. Hughes served as Assistant
Vice President -- Investments at Boatmen's National Bank. See "Certain
Transactions."
Kenneth H. Bishop has served as a director of the Company since August
1996. From 1974 to August 1996, Mr. Bishop was President and General Manager of
Zipper Transportation Services, Ltd. and a related company (together "Zipper")
which operated a same-day delivery business in Winnipeg, Manitoba. Zipper was
acquired by the Company in August 1996. See "Certain Transactions."
E. T. Whalen has served as a director of the Company since August 1996. Mr.
Whalen is currently a consultant to Gateway Freight Services, an entity
providing freight forwarding services to major international airlines. From 1965
until January 1996, Mr. Whalen was employed by Japan Airlines in various
management positions, including Staff Vice President-Cargo from October 1986.
BOARD OF DIRECTORS
The Board of Directors of the Company consists of seven members. Each
director holds office until the annual meeting of the stockholders of the
Company next following his election, unless his successor is elected and
qualified. The holders of the shares of Common Stock, voting separately as a
class, are entitled to elect all of the directors.
Directors who are employees of the Company do not receive additional
compensation for serving as directors. Each director who is not an employee of
the Company receives an annual fee of $6,000 as compensation for his or her
services as a member of the Board of Directors. Non-employee directors receive
an additional fee of $500 for each meeting of the Board of Directors attended in
person by such director and $250 for each telephonic meeting in which such
director participates. Non-employee directors who serve on a committee of the
Board of Directors receive $500 for each committee meeting attended in person
and $250 for each telephonic committee meeting in which such director
participates. All directors of the Company are reimbursed for out-of-pocket
expenses incurred in attending meetings of the Board of Directors or committees
thereof, and for other expenses incurred in their capacities as directors of the
Company.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has established three committees: a Compensation
Committee, an Audit Committee and an Executive Committee. Each of these
committees has two or more members who serve at the discretion of the Board of
Directors. The Compensation Committee is responsible for reviewing and making
recommendations to the Board of Directors with respect to compensation of
executive officers, other compensation matters and awards under the Company's
stock option plan. The Audit Committee is responsible for reviewing the
Company's financial statements, audit reports, internal financial controls and
the services performed by the Company's independent public accountants, and for
making recommendations with respect to those matters to the Board of Directors.
The Executive Committee exercises all powers and authority of the Board of
Directors in the management of the business and affairs of the Company, except
as otherwise reserved in the Company Bylaws or designated by resolution of the
Board of Directors for action by the full board or another committee thereof.
43
<PAGE> 45
EXECUTIVE COMPENSATION
The following summary compensation table sets forth the total annual
compensation paid or accrued by the Company to or for the account of the Chief
Executive Officer and each of the executive officers of the Company whose total
cash compensation for the fiscal year ended July 31, 1997 exceeded $100,000:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL ------------
COMPENSATION SECURITIES
------------------ UNDERLYING
NAME AND FISCAL SALARY BONUS OPTIONS
PRINCIPAL POSITION YEAR ($) ($) (#)
------------------ ------ ------- ------- ------------
<S> <C> <C> <C> <C>
Richard K. McClelland
President and Chief Executive Officer...... 1997 200,000 120,000 99,000
1996 194,467 50,790 --
1995(1) 22,050 -- 103,000
Robert P. Capps
Vice President and Chief Financial
Officer................................. 1997(2) 141,950 54,250 46,000
</TABLE>
- - ---------------
(1) Mr. McClelland was employed by the Company as of May 31, 1995, and,
consequently, his salary for fiscal year 1995 as set forth above represents
only two months of his annual salary. Had Mr. McClelland been employed for
the entire twelve months of fiscal year 1995, his salary for such year would
have been approximately $132,300.
(2) Mr. Capps was initially employed by the Company in January 1996 and did not
earn in excess of $100,000 in salary and bonus prior to fiscal year 1997.
EMPLOYMENT AGREEMENT
The Company has entered into an employment agreement with Mr. McClelland
that provides for a base salary in the annual amount of $200,000 (which amount
has been increased by the Board of Directors to $220,000 commencing with the
fiscal year ended July 31,1998), participation in an executive bonus plan, an
auto allowance of Cdn $900 per month and participation in other employee benefit
plans. The agreement also provides that the Company shall pay Mr. McClelland
eight additional bonus payments, each in the amount of $25,500 plus interest,
with the first such payment to be made three months after Mr. McClelland's
exercise of certain stock options to purchase 48,000 shares of Common Stock, and
the remaining payments to be made on the last day of each three month period
thereafter, respectively, for the following eighteen months. Interest accrues on
the aggregate unpaid amount of such bonus payments from the option exercise date
at the prime rate of the Company's primary lenders.
Unless terminated earlier, the employment agreement shall continue until
May 31, 2000, upon which date such agreement will be automatically extended for
successive one-year renewal terms unless notice is given upon the terms provided
in the agreement. Additionally, upon a sale or transfer of substantially all of
the assets of the Company or certain other events that constitute a change of
control of the Company, or the acquisition by any "person" or "group" as defined
in such agreement, other than certain named stockholders of the Company, of
securities representing 15% of the votes that may be cast for director
elections, the Company shall continue to pay Mr. McClelland the compensation set
forth in such agreement for the greater of two years from the date of such
change of control or the remainder of the agreement term. During the term of the
employment agreement and pursuant to such agreement, the Company will use its
best efforts to cause Mr. McClelland to be nominated and elected to the Board of
Directors of the Company.
44
<PAGE> 46
1996 STOCK OPTION PLAN
The Company maintains the Dynamex Inc. Amended and Restated 1996 Stock
Option Plan (the "Option Plan") which provides for the grant of options to
eligible employees and directors for the purchase of Common Stock of the
Company. Under the Option Plan, any employee, including an employee who is a
director, is eligible to receive incentive stock options ("ISOs") (as defined in
Section 422 (formerly Section 422A) of the Internal Revenue Code of 1986, as
amended (the "Code")), nonqualified stock options (which do not meet the
requirements of Section 422) and restricted stock grants (which restrictions may
include, without limitation, restrictions on the right to vote or receive
dividends with respect to such shares). Non-employee directors are only eligible
to receive nonqualified stock options pursuant to a specified formula described
below.
The Compensation Committee administers and interprets the Option Plan and
is authorized to grant options and restricted stock to all directors and
eligible employees, including officers. The maximum number of shares of Common
Stock approved for issuance under the Option Plan is 1,000,000, of which no more
than 100,000 shares may be delivered pursuant to restricted stock grants and the
exercise of options awarded to non-employee directors. Options to purchase more
than an aggregate of 500,000 shares may not be granted to any one participant.
Restricted stock grants covering more than an aggregate of 100,000 shares may
not be granted to any one participant. The Compensation Committee designates the
optionees or stock recipients, the number of shares subject to such award and
the terms and conditions of each award. The purchase price under each option
will be 100% of the fair market value of the Common Stock on the date of award.
No option shall be exercisable more than ten years after the date the option is
awarded. An ISO may not be granted under the Option Plan to an employee who owns
more than 10% of the outstanding Common Stock unless the purchase price is 110%
of the fair market value of the Common Stock at the date of award and the option
is not exercisable more than five years after it is awarded. Unless sooner
terminated, the Option Plan will terminate on June 5, 2006, and no awards may
thereafter be granted under the Option Plan.
Non-employee directors are granted a nonqualified option to purchase 2,000
shares on the date of their initial election or appointment to the Board of
Directors. Non-employee directors subsequently reelected at any annual meeting
of stockholders receive as of the date of such meeting (commencing with the 1998
annual meeting) a nonqualified option to purchase 2,000 shares. Options granted
to each non-employee director are immediately exercisable. If a non-employee
director ceases to be a director of the Company, such director's options shall
be exercisable by him only during the six months following the date he ceases to
be a director (or if he dies while a director, by his or his estate's legal
representative within six months of the date of death) except that, a
non-employee director's options shall terminate immediately on the date such
person is removed for cause.
45
<PAGE> 47
OPTION GRANTS
The following table sets forth information regarding the grant of stock
options under the Option Plan during the fiscal year ended July 31, 1997 to the
executive officers named in the Summary Compensation Table:
OPTION GRANTS IN FISCAL YEAR 1997
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------- POTENTIAL REALIZABLE
PERCENT VALUE AT ASSUMED
OF TOTAL ANNUAL RATES
OPTIONS/SARS OF STOCK PRICE
GRANTED TO APPRECIATION FOR
OPTIONS/ EMPLOYEES EXERCISE OPTION TERM(1)
SARS IN FISCAL OR BASE EXPIRATION ---------------------
NAME GRANTED(#) YEAR PRICE($/SH) DATE 5%($) 10%($)
---- ---------- ------------ ----------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Richard K. McClelland.... 99,000 40.1% 8.00 8/16/06 498,000 1,262,000
Robert P. Capps.......... 46,000 18.6% 8.00 8/16/06 231,000 586,000
</TABLE>
- - ---------------
(1) The 5% and 10% assumed annual rates of appreciation are mandated by the
rules of the Securities and Exchange Commission and do not reflect the
Company's estimates or projections of future prices of the shares of the
Company's Common Stock. There can be no assurance that the amounts reflected
in this table will be achieved.
FISCAL YEAR-END OPTION VALUES
In the fiscal year ended July 31, 1997, none of the executive officers
named in the Summary Compensation Table exercised any of the options granted to
him under the Option Plan. The following table sets forth information with
respect to the unexercised options to purchase shares of the Company's Common
Stock granted under the Option Plan to the executive officers named in the
Summary Compensation Table and held by them at July 31, 1997.
<TABLE>
<CAPTION>
FISCAL YEAR-END OPTION VALUES
AS OF JULY 31, 1997
-----------------------------------------------------------
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS IN-THE-MONEY OPTIONS(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Richard K. McClelland........... 70,000 132,000 $210,000(2) $99,000
Robert P. Capps................. -- 46,000 -- --
</TABLE>
- - ---------------
(1) Based on the closing price of the Company's Common Stock on July 31, 1997
which price was $7.25 per share.
(2) Does not give effect to the Company's agreement to pay a cash bonus to Mr.
McClelland upon exercise of his option to purchase 48,000 of these shares
equal to the exercise price multiplied by the number of shares purchased.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No executive officer of the Company serves as a member of the board of
directors or compensation committee of any entity which has one or more
executive officers serving as a member of the Company's Board of Directors or
Compensation Committee.
LIMITATION ON LIABILITY AND INDEMNIFICATION MATTERS
The Company's Restated Certificate of Incorporation limits the liability of
directors of the Company to the Company or its stockholders to the fullest
extent permitted by Delaware General Corporation Law (the "DGCL"). Accordingly,
pursuant to the terms of the DGCL presently in effect,
46
<PAGE> 48
the Company's directors will not be liable to the Company or its stockholders
for monetary damages for breach of the directors' fiduciary duty as a director,
except for liability (i) for any breach of the directors' duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) in
respect of certain unlawful dividend payments or stock redemptions or
repurchases or (iv) for any transaction from which the director derived an
improper personal benefit. The effect of these provisions will be to eliminate
the rights of the Company and its stockholders (through stockholders' derivative
suits on behalf of the Company) to recover monetary damages against a director
for breach of fiduciary duty as a director (including breaches resulting from
grossly negligent behavior), except in the situations described above. These
provisions will not limit the liability of directors under federal securities
laws. Such limitation of liability does not affect the availability of equitable
remedies such as injunctive relief or rescission.
The Company's Bylaws provide that the Company shall indemnify each of its
directors and officers, acting in such capacity, so long as such person acted in
good faith and in a manner he or she reasonably believed to be in or not opposed
to the best interests of the Company. Such indemnification may be made only upon
a determination by the Board of Directors that such indemnification is proper in
the circumstances because the person to be indemnified has met the applicable
standard of conduct to permit indemnification under the law. The Company is also
required to advance to such persons payment for their expenses incurred in
defending a proceeding to which indemnification might apply, provided the
recipient provides an undertaking agreeing to repay all such advanced amounts if
it is ultimately determined that he is not entitled to be indemnified.
The Company has also entered into indemnification agreements with each of
its directors and certain of its executive officers. Pursuant to these
agreements, the Company is obligated, to the extent permitted by law, to
indemnify these persons against all expenses, judgments, fines and penalties
incurred in connection with the defense or settlement of any actions brought
against them by reason of the fact that they are or were directors or officers
of the Company or that they are or were serving at the request of the Company as
an officer or director of another corporation or enterprise, except that if the
acts of such an indemnitee are found by a court of proper jurisdiction to be
intentional or willful, the Company will not be liable to indemnify such
indemnitee.
As of this date hereof, there is no pending litigation or proceeding
involving a director, officer, employee or agent of the Company where
indemnification will be required or permitted, and the Company is not aware of
any threatened litigation or proceeding which may result in a claim for such
indemnification.
CERTAIN TRANSACTIONS
In December 1995, the Company issued an aggregate of $4.5 million principal
amount of junior subordinated debentures (the "Bridge Notes") due June 28, 2001,
bearing interest at an initial annual rate of 12%, and related warrants (the
"Bridge Warrants") that were mandatorily exercisable upon completion of the IPO
for an aggregate of 540,000 shares of Common Stock (reduced from 1,080,000
shares because the IPO was completed prior to December 31, 1996, as prescribed
in the Bridge Warrants) at an exercise price of $.025 per share to certain
investors including:
(a) Cypress Capital Partners I, L.P. ("Cypress"), which acquired $1.0
million principal amount of Bridge Notes and Bridge Warrants exercisable for
120,000 shares, for aggregate consideration of $1.0 million. At the time of such
issuance to Cypress, (i) James M. Hoak (a Company director) was the sole
director and stockholder of CCP Investment Corp. ("CCP") (the 5% general partner
of Cypress), and owned a 45% limited partnership interest in Cypress, (ii)
Stephen P. Smiley (a Company director and Compensation Committee member) was the
President of CCP and (iii) Brian J. Hughes (a Company director and Compensation
Committee member) was a member of the Cypress Advisory Board, and his employers,
Guidant Mutual Insurance Company (formerly,
47
<PAGE> 49
Preferred Risk Mutual Insurance Company) and The Guidant Financial Group, Inc.
(formerly, Preferred Risk Life Insurance Company) owned limited partnership
interests in Cypress;
(b) certain affiliates of CCP (including a partnership owned by Wayne Kern,
a Company director) and various limited partners of Cypress (including Guidant
Mutual Insurance Company and The Guidant Financial Group, Inc. (each a Selling
Stockholder) and Stephen P. Smiley), which acquired an aggregate of $1.8 million
principal amount of Bridge Notes and Bridge Warrants exercisable for 210,000
shares for aggregate consideration of approximately $1.8 million; and
(c) James M. Hoak, Jr. and CCP, which acquired an aggregate of $1.8 million
principal amount of Bridge Notes and Bridge Warrants exercisable for 210,000
shares, for aggregate consideration of approximately $1.8 million.
In August 1996, at the time of the IPO, the Company redeemed the Bridge
Notes at 100% of the principal amount thereof plus accrued and unpaid interest
and the holders exercised their Bridge Warrants in full. See Note 6 of Notes to
Consolidated Financial Statements. As of August 1997, Cypress had distributed to
its limited partners all of its shares of the Company's Common Stock.
The Company paid Hoak Capital Corporation fees in the aggregate amount of
approximately $146,000 in the fiscal year ended July 31, 1995 for advisory
services rendered in connection with certain acquisitions and financing
arrangements. James M. Hoak, Jr. has served as Chairman and a principal of Hoak
Capital Corporation (a private equity investment firm) since September 1991. In
January 1996, the Company paid SC Securities Corp. (formerly Hoak Securities
Corp.) a fee of $70,000 for investment banking services rendered in connection
with the Company's acquisition of Mayne Nickless and $165,000 for the
arrangement of bank financing related to that acquisition. James M. Hoak, Jr.
was the Chairman and principal shareholder of SC Securities Corp., substantially
all of the assets of which were sold to Hoak Breedlove Wesneski & Co. (one of
the Underwriters) in July 1996. In August 1996, the Company paid Hoak Breedlove
Wesneski & Co. approximately $367,000 for investment banking services rendered
in such firm's capacity as a co-manager of the IPO. Mr. Hoak served as a
director of Hoak Breedlove Wesneski & Co. through March 1998. In addition,
through March 1998, Mr. Hoak was the Chairman, a director and a principal
stockholder of Hoak Breedlove Wesneski & Co.'s parent corporation and Wayne
Kern, a director of the Company, was the Secretary of such parent corporation.
Mr. Hoak continues to serve as a director of such parent corporation.
In August 1996, the Company purchased from Kenneth Bishop and certain other
parties all of the capital stock of Zipper Transportation Services, Ltd. and a
related company for an aggregate purchase price of approximately Cdn $2.5
million in cash (approximately $1.8 million, as converted using the exchange
rate at the time of such acquisition of 0.73 U.S. dollars to 1.00 Canadian
dollar) and 56,922 shares of Common Stock. Simultaneously with the closing of
such acquisition, the Company repaid Zipper's bank indebtedness of approximately
Cdn $445,000 (approximately $325,000, converted on the same basis as above) and
Mr. Bishop became a director of the Company. The Company rents operating space
in Winnipeg from an entity controlled by Mr. Bishop at a rate of Cdn $162,000
per annum under a lease expiring in August 2001.
In January 1997, the Company purchased from Robert Dobrient and certain
other parties all of the capital stock of Max America Holdings, Inc. for an
aggregate purchase price of approximately $3.9 million in cash (plus contingent
compensation if certain performance goals are met by the acquired business) and
33,500 shares of the Company's Common Stock. Upon the closing of the
acquisition, Mr. Dobrient was employed by the Company to manage the acquired
operations and, in September 1997, he was elected as the Company's Vice
President-Marketing and Assistant Secretary.
In May 1997, the Company purchased from James C. Isaacson and certain other
parties all of the capital stock of Road Runner Transportation, Inc. for an
aggregate purchase price of approxi-
48
<PAGE> 50
mately $11.2 million in cash (plus contingent compensation if certain
performance goals are met by the acquired business) and 350,000 shares of the
Company's Common Stock. Upon the closing of the acquisition, Mr. Isaacson was
employed by the Company to manage the acquired operations and, in September
1997, he was elected as the Company's Vice President-Central U.S. Operations.
The Company rents operating space in St. Paul/Minnesota from Mr. Isaacson at
escalating rates ranging from approximately $135,000 to $152,000 per annum under
a lease expiring in November 2001. Aggregate rental payments of approximately
$102,000 were paid to Mr. Isaacson under this lease from the date of the Road
Runner acquisition through March 23, 1998.
The Company has agreed to loan Mr. McClelland the sum of $204,000 in
connection with his exercise of stock options at the time of the Offering. The
principal amount of this loan will be due in eight installments, each in the
amount of $25,500 plus accrued interest, with the first such installment to be
made three months after Mr. McClelland's exercise of the aforementioned stock
options, and the remaining payments to be made at the end of the seven
successive three month periods. Interest accrues on the aggregate unpaid amount
of such loan from the date of such loan at the prime rate published by the
Company's primary lenders.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could have been obtained from
unaffiliated third parties. All future transactions, including loans, between
the Company and its officers, directors, principal stockholders and affiliates,
will be approved by a majority of the Board of Directors, including a majority
of the independent and disinterested outside directors, and have been and will
be on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of March 31, 1998, before and after giving
effect to the sale of shares of Common Stock being offered hereby, by (i) each
person who is known by the Company to own beneficially more than 5% of the
Common Stock, (ii) each Selling Stockholder, (iii) each director, (iv) each
executive officer named in the Summary Compensation Table and (v) all directors
and executive officers of the Company as a group. Except pursuant to applicable
community property laws and except as otherwise indicated, each stockholder
identified in the table possesses sole voting and investment power with respect
to its or his shares.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO OFFERING(1) AFTER OFFERING(1)
--------------------- ---------------------
NUMBER OF SHARES BEING NUMBER OF
SHARES PERCENT OFFERED SHARES PERCENT
---------- -------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C>
Directors and Executive Officers:
Richard K. McClelland................... 100,800 1.3% 48,000 52,800 *
Robert P. Capps......................... 9,200 * -- 9,200 *
James M. Hoak(2)........................ 1,275,942 17.2% -- 1,275,942 12.8%
Stephen P. Smiley....................... 6,160 * -- 6,160 *
Wayne Kern.............................. 6,640 * -- 6,460 *
Brian J. Hughes(3)...................... -- -- -- -- --
Kenneth Bishop.......................... 4,422 * -- 4,422 *
E. T. Whalen............................ 4,000 * 4,000 *
All directors and executive officers as
a group (13 individuals).............. 1,552,715 20.5% 48,000 1,504,715 15%
Other Selling Stockholders:
Guidant Mutual Insurance Company(4)..... 523,166 7.1% 269,166 254,000 2.5%
Other 5% Stockholders:
William Blair Fund & Company,
L.L.C.(5)............................. 614,954 8.3% -- 614,954 6.2%
</TABLE>
49
<PAGE> 51
- - ---------------
* Indicates less than 1%.
(1) Includes shares issuable upon the exercise of stock options outstanding and
fully vested as of June 7, 1998.
(2) Mr. Hoak's address is One Galleria Tower, Suite 1050, 13355 Noel Road,
Dallas, Texas 75240. Excludes an aggregate of 26,572 shares owned by Mr.
Hoak's wife and children, as to which shares Mr. Hoak disclaims beneficial
ownership.
(3) Excludes 523,166 (prior to the Offering) and 273,166 (after the Offering)
shares beneficially owned by The Guidant Financial Group, Inc. (formerly,
Preferred Risk Life Insurance Company) ("Guidant Mutual") and Guidant Mutual
Insurance Company (formerly, Preferred Risk Mutual Insurance Company)
("Guidant Financial"), each of which employs Mr. Hughes as Vice
President -- Investments. Mr. Hughes disclaims beneficial ownership of such
shares.
(4) Includes shares owned of record by its affiliate Guidant Financial. The
address of both Guidant Financial and Guidant Mutual is 1111 Ashworth Road,
West Des Moines, Iowa 50265.
(5) Includes 495,720 shares with respect to which William Blair & Company,
L.L.C. has sole investment power in its capacity as an investment adviser
and an aggregate of 119,234 shares that are owned directly by William Blair
& Company, L.L.C. and certain of its members. The address of William Blair &
Company, L.L.C. is 222 West Adams Street, Chicago, Illinois 60606.
DESCRIPTION OF CAPITAL STOCK
The Company's authorized capital stock consists of 60,000,000 shares of
capital stock, par value $.01 per share, of which 50,000,000 are Common Stock
and 10,000,000 are Preferred Stock. As of March 31, 1998, there were 7,411,623
shares of Common Stock issued and outstanding and held by approximately 100
record owners. No shares of Preferred Stock were outstanding.
The following description of the Company's capital stock does not purport
to be complete and is subject in all respects to applicable Delaware law and to
the provisions of the Restated Certificate of Incorporation, Bylaws and Rights
Agreement, in each case as amended to date.
COMMON STOCK
The holders of Common Stock are entitled to one vote per share on all
matters submitted to a vote of stockholders, including the election of
directors. The Common Stock does not have cumulative voting rights, which means
that the holders of a majority of the shares voting for election of directors
can elect all members of the Board of Directors. Dividends may be paid ratably
to holders of Common Stock when and if declared by the Board of Directors out of
funds legally available therefor. Upon liquidation or dissolution of the
Company, the holders of Common Stock will be entitled to share ratably in the
assets of the Company legally available for distribution to stockholders after
payment of all liabilities and the liquidation preferences of any outstanding
Preferred Stock.
The holders of Common Stock have no preemptive or conversion rights or
other subscription rights and are not subject to redemption or sinking fund
provisions or to calls or assessments by the Company. The shares of Common Stock
offered hereby will be, when issued and paid for, fully paid and not liable for
call or assessment. The Common Stock is listed on the Nasdaq National Market.
PREFERRED STOCK
Under governing Delaware law and the Restated Certificate of Incorporation,
no action by the Company's stockholders is necessary, and only action of the
Board of Directors is required, to authorize the issuance of any of the
Preferred Stock. The Board of Directors is empowered to establish, and to
designate the name of, each class or series of the Preferred Stock. In
connection
50
<PAGE> 52
with the Rights Agreement discussed below, 500,000 shares of Series A Junior
Participating Preferred Stock (the "Series A Preferred Stock") have been
designated by the Board of Directors.
Shares of Series A Preferred Stock purchasable upon exercise of the Rights
will not be redeemable. Each share of Series A Preferred Stock will be entitled
to a minimum preferential quarterly dividend payment of $.25 per share but will
be entitled to an aggregate dividend of 100 times the dividend declared per
share of Common Stock. In the event of liquidation, the holders of the shares of
Series A Preferred Stock will be entitled to a minimum preferential liquidation
payment of $1 per share, plus an amount equal to accrued and unpaid dividends
and distributions thereon, whether or not declared, to the date of such payment,
provided that the holders of the shares of Series A Preferred Stock shall be
entitled to an aggregate payment of 100 times the payment made per share of
Common Stock, as adjusted to reflect any dividend on the Common Stock payable in
shares of Common Stock or any subdivision, combination or reclassification of
the Common Stock. Each share of Series A Preferred Stock will have 100 votes,
voting together with the Common Stock. Finally, in the event of any merger,
consolidation or other transaction in which shares of Common Stock are
exchanged, each share of Series A Preferred Stock will be entitled to receive
100 times the amount received per share of Common Stock. These rights are
protected by customary antidilution provisions.
Although the Company has no present plans to issue additional series of
Preferred Stock (other than shares which may be issued in connection with the
Rights Agreement), such shares may be issued from time to time in one or more
classes or series with such designations, powers, preferences, rights,
qualifications, limitations and restrictions as may be fixed by the Company's
Board of Directors. The Board of Directors, without obtaining stockholder
approval, may issue such shares with voting or conversion rights or both and
thereby dilute the voting power and equity of the holders of Common Stock and
adversely affect the market price of such stock.
The existence of authorized Preferred Stock may have the effect of
discouraging an attempt, through acquisition of a substantial number of shares
of Common Stock, to acquire control of the Company with a view to effecting a
change in control of the Company, a merger, sale or exchange of assets or a
similar transaction. The anti-takeover effects of authorized Preferred Stock may
deny stockholders the receipt of a premium on their Common Stock and may also
have a depressive effect on the market price of the Common Stock.
RIGHTS AGREEMENT
In June 1996, the Board of Directors of the Company approved the Rights
Agreement which is designed to protect stockholders should the Company become
the target of coercive and unfair takeover tactics. Pursuant to the Rights
Agreement, the Board of Directors declared a dividend of one Right for each
outstanding share of Common Stock on May 31, 1996. Each Right entitles the
registered holder to purchase from the Company one one-hundredth of a share of
the Series A Preferred Stock, at a price of $45.00 per one one-hundredth of a
share of Series A Preferred Stock, subject to possible adjustment.
Initially, the Rights are attached to all Common Stock certificates and no
separate Rights certificates exist. Until the Rights become separable as
described below, an additional Right will be issued with every share of newly
issued Common Stock, including the shares of Common Stock issued pursuant to the
Offering. Until a Right is exercised, the holder of a Right will have no rights
as a stockholder of the Company, including the right to vote or to receive
dividends. The Rights will expire on May 31, 2006 (the "Final Expiration Date"),
unless the Final Expiration Date is extended or unless the Rights are earlier
redeemed or exchanged by the Company, in each case as described below.
The Rights will become exercisable and separable from shares of Common
Stock upon the earlier to occur of (i) 10 days after the first public
announcement that a person or group (an "Acquiring Person"), other than the
Company, any subsidiary of the Company or any employee
51
<PAGE> 53
benefit plan of the Company or Cypress, James M. Hoak (or any affiliates
thereof), has become the beneficial owner of 15% or more of the outstanding
shares of Common Stock or (ii) 10 business days (or such later date as may be
determined by action of the Board of Directors prior to the time any person or
group becomes an Acquiring Person) after the commencement of, or the
announcement of an intention to commence, a tender or exchange offer the
consummation of which would result in any person or group (other than the
Company, any subsidiary of the Company or any employee benefit plan of the
Company) becoming the beneficial owner of 15% or more of such outstanding shares
of Common Stock.
In the event that any person or group, other than those listed above,
becomes the beneficial owner of 15% or more of the shares of Common Stock then
outstanding, each registered holder of a Right will have the right to receive
upon exercise of Right at the then current purchase price of the Right that
number of shares of Common Stock of the Company having a market value of two
times such purchase price. Notwithstanding the foregoing, after the occurrence
of the event described in this paragraph, all Rights which are, or (under
certain circumstances specified in the Rights Agreement) were, beneficially
owned by an Acquiring Person will be void. Under no circumstances may a Right be
exercised following the occurrence of a transaction described in this paragraph
prior to the expiration of the Company's right of redemption.
In the event that, on or after the first public announcement by the Company
or an Acquiring Person that an Acquiring Person has become such (the "Share
Acquisition Date"), the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold or transferred (in one transaction or a series of transactions
other than in the ordinary course of business), each registered holder of a
Right (except Rights which have become void as specified above) will thereafter
have the right to receive, upon the exercise thereof at the then current
purchase price of the Right, the number of shares of common stock of the
acquiring company (or of another person or group affiliated with the Acquiring
Person as provided in the Rights Agreement) which at the time of such
transaction will have a market value of two times such purchase price.
At any time after any person becomes an Acquiring Person and prior to the
time such person or group becomes the beneficial owner of 50% or more of the
outstanding shares of Common Stock, the Board of Directors of the Company may
exchange the Rights (other than Rights which have become void), in whole or in
part, at the exchange rate of one share of Common Stock, or one one-hundredth of
a share of Series A Preferred Stock (or of a share of a class or series of the
Company's preferred stock having equivalent rights, preferences and privileges),
per Right, subject to adjustment as provided in the Rights Agreement.
At any time prior to the earlier of (i) the 10th business day after the
Share Acquisition Date, subject to one or more extensions by a majority of the
Disinterested Directors (as defined below) and (ii) the Final Expiration Date,
the Board of Directors of the Company may redeem the Rights in whole, but not in
part, at a redemption price of $.01 per Right, appropriately adjusted to reflect
any stock split, stock dividend, subdivision or combination or any similar
transaction occurring after the date of the Rights Agreement (the "Redemption
Price"); provided, however, that, under certain circumstances specified in the
Rights Agreement, the Rights may not be redeemed unless there are Disinterested
Directors in office and such redemption is approved by a majority of such
Disinterested Directors. The redemption of the Rights may be made effective at
such time, on such basis and with such conditions as the Board of Directors in
its sole discretion shall establish. After the redemption period has expired,
the Company's right of redemption may be reinstated, under the circumstances
specified in the Rights Agreement, which include the concurrence of a majority
of the Disinterested Directors, if an Acquiring Person shall have reduced to 10%
or less the number of outstanding shares of Common Stock beneficially owned in a
transaction or series of transactions not involving the Company and not
constituting specified transactions which result in a discounted purchase price
under the Rights Agreement. Immediately after any action by the Board of
Directors
52
<PAGE> 54
directing the redemption of the Rights, the right to exercise the Rights shall
terminate and thereafter the registered holders of the Rights shall be entitled
to receive only the Redemption Price per Right.
The term "Disinterested Director" means any member of the Company's Board
of Directors who is unaffiliated with an Acquiring Person and was a member of
the Company's Board of Directors prior to the time that an Acquiring Person
became such and any successor of a Disinterested Director who is unaffiliated
with an Acquiring Person and is recommended to succeed a Disinterested Director
by a majority of Disinterested Directors then on the Company's Board of
Directors.
The Rights have certain anti-takeover effects. The Rights could cause
substantial dilution to a person or group that attempts to acquire the Company
without conditioning the offer on redemption of the Rights or on substantially
all of the Rights also being acquired. The Rights should not, however, interfere
with any merger or other business combination approved by the Board of Directors
of the Company since the Rights may be redeemed or amended by the Company as
described above.
SECTION 203 OF THE DELAWARE GENERAL CORPORATION LAW
The Company is a Delaware corporation and is subject to the provisions of
Section 203 of the Delaware General Corporation Law. In general, Section 203
provides that a Delaware corporation may not engage in any of a broad range of
business combinations with a person or affiliate or associate of such person who
is an "interested stockholder" (defined generally as a person who together with
affiliates and associates, own (or within three years, did own) 15% or more of a
corporation's outstanding voting stock) unless: (a) the transaction resulting in
a person's becoming an interested stockholder, or the business combination, is
approved by the board of directors of the corporation before the person becomes
an interested stockholder; (b) the interested stockholder acquires 85% or more
of the outstanding voting stock of the corporation in the same transaction that
makes it an interested stockholder; or (c) on or after the date the person
becomes an interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66 2/3% of the
corporation's outstanding voting stock at an annual or special meeting,
excluding shares owned by the interested stockholder.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is Harris
Trust and Savings Bank.
53
<PAGE> 55
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, each of
the Underwriters named below, and each of the Underwriters for whom Schroder &
Co. Inc., William Blair & Company, L.L.C., and Hoak Breedlove Wesneski & Co. are
acting as Representatives (the "Representatives") has severally agreed to
purchase from the Company and the Selling Stockholders an aggregate of 2,900,000
shares of Common Stock at the price to the public less the underwriting
discounts set forth on the cover page of this Prospectus, in the amounts set
forth below opposite their respective names.
<TABLE>
<CAPTION>
NUMBER
UNDERWRITERS OF SHARES
------------ ---------
<S> <C>
Schroder & Co. Inc..........................................
William Blair & Company, L.L.C..............................
Hoak Breedlove Wesneski & Co................................
---------
Total............................................. 2,900,000
=========
</TABLE>
The Underwriting Agreement provides that the Underwriters' obligation to
pay for and accept delivery of the shares of Common Stock offered hereby is
subject to certain conditions precedent and that the Underwriters will be
obligated to purchase all such shares, excluding shares covered by the
over-allotment option, if any are purchased. The Underwriters have informed the
Company that no sales of Common Stock will be confirmed to discretionary
accounts.
The Company has been advised by the Underwriters that they propose
initially to offer the Common Stock to the public at the public offering price
set forth on the cover page of this Prospectus and to certain dealers at such
price, less a concession not in excess of $ per share. The Underwriters may
allow and such dealers may reallow a concession not in excess of $ per
share to certain other brokers and dealers. After the Offering, the public
offering price, the concession and reallowances to dealers and other selling
terms may be changed by the Underwriters.
The Company has granted to the Underwriters an option exercisable for 30
days after the date of this Prospectus to purchase up to an aggregate of 435,000
additional shares of Common Stock to cover over-allotments, if any, at the same
price per share to be paid by the Underwriters for the other shares of Common
Stock offered hereby. If the Underwriters purchase any such additional shares
pursuant to the over-allotment option, each Underwriter will be committed,
subject to certain conditions, to purchase a number of the additional shares of
Common Stock proportionate to such Underwriter's initial commitment.
The Company, its directors and executive officers and the Selling
Stockholders, who will beneficially own an aggregate of 1,758,715 shares of the
Common Stock outstanding immediately after the Offering, have agreed with the
Representatives, for a period of 120 days after the date of this Prospectus, not
to issue, sell, offer to sell, grant any options for the sale of, or otherwise
dispose of any shares of Common Stock or any rights to purchase shares of Common
Stock (other than stock issued or options granted pursuant to the Company's
stock incentive plans), without the prior written consent of Schroder & Co. Inc.
The Company and the Selling Stockholders have severally agreed to indemnify
the Underwriters against certain liabilities that may be incurred in connection
with the sale of the Common Stock,
54
<PAGE> 56
including liabilities arising under the Securities Act, and to contribute to
payments that the Underwriters may be required to make with respect thereto.
Other than in the United States, no action has been taken by the Company or
the Underwriters that would permit a public offering of the shares of Common
Stock offered hereby in any jurisdiction where action for that purpose is
required. The shares of Common Stock offered hereby may not be offered or sold,
directly or indirectly, nor may this Prospectus or any other offering material
or advertisements in connection with the offer and sale of any such shares of
Common Stock be distributed or published in any jurisdiction, except under
circumstances that will result in compliance with the applicable rules and
regulations of such jurisdiction. Persons into whose possession this Prospectus
comes are advised to inform themselves about and to observe any restrictions
relating to the Offering and the distribution of this Prospectus. This
Prospectus does not constitute an offer to sell or a solicitation of an offer to
buy any shares of Common Stock offered hereby in any jurisdiction in which such
an offer or a solicitation is unlawful.
The Underwriters and dealers may engage in passive market making
transactions in the Common Stock in accordance with Rule 103 of Regulation M
promulgated by the Commission. In general, a passive market maker may not bid
for or purchase shares of Common Stock at a price that exceeds the highest
independent bid. In addition, the net daily purchases made by any passive market
maker generally may not exceed 30% of its average daily trading volume in the
Common Stock during a specified two month prior period, or 200 shares, whichever
is greater. A passive market maker must identify passive market making bids as
such on the Nasdaq electronic inter-dealer reporting system. Passive market
making may stabilize or maintain the market price of the Common Stock above
independent market levels. Underwriters and dealers are not required to engage
in passive market making and may end passive market making activities at any
time.
In connection with the Offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may overallot the Offering,
creating a syndicate short position. The Underwriters may bid for and purchase
shares of Common Stock in the open market or cover such syndicate short position
or to stabilize the price of the Common Stock. These activities may stabilize or
maintain the market price of the Common Stock above independent market levels.
The Underwriters are not required to engage in these activities, and may end any
of these activities at any time.
James M. Hoak, a director of the Company and beneficial owner of
approximately 1.3 million shares of Common Stock, served as a director of Hoak
Breedlove Wesneski & Co., one of the Representatives, through March 1998. In
addition, through March 1998, Mr. Hoak was the Chairman, a director and a
principal stockholder of Hoak Breedlove Wesneski & Co.'s parent corporation and
Wayne Kern, a director of the Company, was the Secretary of such parent
corporation. Mr. Hoak continues to serve as a director of such parent
corporation. As a result, Hoak Breedlove Wesneski & Co. is deemed to be an
affiliate of the Company for purposes of the Conduct Rules of the National
Association of Securities Dealers, Inc. (the "NASD Conduct Rules"). Accordingly,
the Offering is being made in compliance with Rule 2720 of the NASD Conduct
Rules. See "Management," "Certain Transactions" and "Principal and Selling
Stockholders."
VALIDITY OF SHARES
The validity of the Common Stock offered hereby will be passed upon for the
Company and the Selling Stockholders by Crouch & Hallett, L.L.P. Certain legal
matters related to the Offering will be passed on for the Underwriters by Akin,
Gump, Strauss, Hauer & Feld, L.L.P.
55
<PAGE> 57
EXPERTS
The (i) consolidated financial statements of Dynamex Inc. and its
subsidiaries as of and for each of the years in the three-year period ended July
31, 1997 and (ii) financial statements of New York Document Exchange
Corporation, Eastside/Westside, Inc. and City Courier, Inc. as of and for the
year ended May 31, 1997 have been audited by Deloitte & Touche, independent
auditors, as stated in their reports appearing herein. Such financial statements
are included herein in reliance upon such reports given upon the authority of
such firm as experts in accounting and auditing.
The financial statements of Road Runner Transportation, Inc. included in
the Prospectus have been audited by Deloitte & Touche LLP, independent auditors,
as stated in their reports appearing herein, and are included in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing.
AVAILABLE INFORMATION
The Company has filed a Registration Statement on Form S-1 (the
"Registration Statement") with the Securities and Exchange Commission (the
"Commission") under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the shares of Common Stock offered hereby. This
Prospectus, which is a part of the Registration Statement, does not contain all
of the information set forth in the Registration Statement and the exhibits and
schedules thereto. Reference is hereby made to the Registration Statement and to
the exhibits and schedules thereto for further information, which may be
inspected without charge at the office of the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and copies of which may be obtained from the
Commission at prescribed rates. Statements contained in this Prospectus relating
to the contents of any contract or other document referred to herein or therein
are not necessarily complete and, in each instance, reference is made to the
copy of such document filed as an exhibit to the Registration Statement. Each
such statement is qualified in its entirety by such reference.
In addition, the Company is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Commission. Such reports, proxy statements and other information filed with
the Commission can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549 or at the Regional Offices of the Commission which are located as
follows: 500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven
World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material can also be obtained from the Commission at prescribed rates. Written
requests for such material should be addressed to the Public Reference Section,
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, D.C.
20549. The Commission maintains a Web site that contains reports, proxy
statements and other information filed electronically by the Company with the
Commission which can be accessed over the internet at http://www.sec.gov.
56
<PAGE> 58
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
DYNAMEX INC. AND SUBSIDIARIES
Independent Auditors' Report.............................. F-2
Consolidated Balance Sheets, July 31, 1996 and 1997....... F-3
Consolidated Statements of Operations for each of the
years in the three-year period ended July 31, 1997..... F-4
Consolidated Statements of Stockholders' Equity for each
of years in the three-year period ended July 31,
1997................................................... F-5
Consolidated Statements of Cash Flows for each of the
years in the three-year period ended July 31, 1997..... F-6
Notes to the Consolidated Financial Statements............ F-7
Condensed Consolidated Balance Sheets, July 31, 1997 and
January 31, 1998 (unaudited)........................... F-16
Condensed Consolidated Statements of Operations
(unaudited) three and six months ended January 31, 1997
and 1998............................................... F-17
Condensed Consolidated Statements of Cash Flows
(unaudited) six months ended January 31, 1997 and
1998................................................... F-18
Notes to the Condensed Consolidated Financial Statements
(unaudited)............................................ F-19
NEW YORK DOCUMENT EXCHANGE CORPORATION, EASTSIDE/WESTSIDE,
INC., AND CITY COURIER, INC.
Independent Auditors' Report.............................. F-20
Combined Balance Sheet, May 31, 1997...................... F-21
Combined Statement of Operations for the year ended May
31, 1997............................................... F-22
Combined Statement of Stockholders' Equity for the year
ended May 31, 1997..................................... F-23
Combined Statement of Cash Flows for the year ended May
31, 1997............................................... F-24
Notes to the Combined Financial Statements................ F-25
ROAD RUNNER TRANSPORTATION, INC.
Independent Auditors' Report.............................. F-30
Balance Sheet, February 28, 1997.......................... F-31
Statement of Income, nine months ended February 28,
1997................................................... F-32
Statement of Stockholders' Equity, nine months ended
February 28, 1997...................................... F-33
Statement of Cash Flows, nine months ended February 28,
1997................................................... F-34
Notes to Financial Statements............................. F-35
</TABLE>
F-1
<PAGE> 59
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and
Stockholders of Dynamex Inc.
We have audited the accompanying consolidated balance sheets of Dynamex
Inc. and subsidiaries as of July 31, 1996 and 1997 and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
years in the three year period ended July 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Dynamex Inc. and subsidiaries
as of July 31, 1996 and 1997 and the results of their operations and their cash
flows for each of the years in the three year period ended July 31, 1997 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE
Toronto, Canada
September 19, 1997 except for Notes 3(b) and 14
which are as of September 29, 1997 and March 20, 1998, respectively
F-2
<PAGE> 60
DYNAMEX INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JULY 31, 1996 AND 1997
(IN THOUSANDS EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
CURRENT
Cash and cash equivalents................................. $ 894 $ 1,326
Accounts receivable (net of allowance for doubtful
accounts of $281 and $616 at July 31, 1996 and 1997,
respectively).......................................... 11,141 20,867
Prepaid and other current assets.......................... 856 3,301
Deferred income taxes..................................... -- 597
------- -------
12,891 26,091
PROPERTY AND EQUIPMENT -- net (Note 5)...................... 2,047 5,787
INTANGIBLES -- net (Note 4)................................. 18,196 54,036
DEFERRED OFFERING EXPENSES.................................. 763 --
DEFERRED INCOME TAXES....................................... -- 405
OTHER ASSETS................................................ 1,102 1,832
------- -------
$34,999 $88,151
======= =======
LIABILITIES
CURRENT
Accounts payable trade.................................... $ 1,088 $ 1,759
Accrued liabilities
Broker commissions..................................... 1,348 2,697
Wages.................................................. 667 1,803
Other.................................................. 3,431 4,696
Income taxes payable...................................... -- 2,968
Current portion of long-term debt (Note 6)................ 2,271 740
------- -------
8,805 14,663
LONG-TERM DEBT (Note 6)..................................... 20,036 32,388
------- -------
28,841 47,051
------- -------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' EQUITY
Preferred stock; $0.01 par value, 10,000,000 shares
authorized; none outstanding.............................. -- --
Common stock; $0.01 par value, 50,000,000 shares authorized;
7,337,505 (1996 -- 2,543,460) shares outstanding.......... 25 73
Stock warrants (Note 6)..................................... 624 --
Additional paid-in capital.................................. 8,756 40,967
Retained earnings (deficit)................................. (3,262) 250
Unrealized foreign currency translation adjustment.......... 15 (190)
------- -------
6,158 41,100
------- -------
$34,999 $88,151
======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
F-3
<PAGE> 61
DYNAMEX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED JULY 31, 1995, 1996 AND 1997
(IN THOUSANDS EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
SALES....................................................... $21,032 $71,812 $131,867
COST OF SALES............................................... 14,336 50,018 87,193
------- ------- --------
GROSS PROFIT................................................ 6,696 21,794 44,674
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 7,225 17,545 33,318
DEPRECIATION AND AMORTIZATION............................... 690 1,542 3,543
------- ------- --------
OPERATING INCOME (LOSS)..................................... (1,219) 2,707 7,813
INTEREST EXPENSE............................................ 403 1,655 1,481
------- ------- --------
INCOME (LOSS) BEFORE TAXES.................................. (1,622) 1,052 6,332
INCOME TAXES................................................ 3 176 2,485
------- ------- --------
NET INCOME (LOSS) BEFORE EXTRAORDINARY ITEM................. (1,625) 876 3,847
EXTRAORDINARY LOSS ON EARLY RETIREMENT OF DEBT (net of
income tax benefit of $222) (Note 6)...................... -- -- 335
------- ------- --------
NET INCOME (LOSS)........................................... $(1,625) $ 876 $ 3,512
======= ======= ========
EARNINGS PER COMMON SHARE -- BASIC (Note 14):
Income (loss) before extraordinary item................... $ (1.90) $ 0.34 $ 0.58
Extraordinary loss........................................ -- -- (0.05)
------- ------- --------
Net income (loss)......................................... $ (1.90) $ 0.34 $ 0.53
======= ======= ========
EARNINGS PER COMMON SHARE -- ASSUMING DILUTION (Note 14):
Income (loss) before extraordinary item................... $ (1.90) $ 0.23 $ 0.56
Extraordinary loss........................................ -- -- (0.05)
------- ------- --------
Net income (loss)......................................... $ (1.90) $ 0.23 $ 0.51
======= ======= ========
WEIGHTED AVERAGE SHARES (Note 14):
Common shares outstanding................................. 855 2,543 6,670
Adjusted common shares -- assuming exercise of stock
warrants and options................................... 855 3,732 6,839
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE> 62
DYNAMEX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEAR ENDED JULY 31, 1995, 1996 AND 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
REDEEMABLE UNREALIZED
PREFERRED RETAINED FOREIGN
COMMON STOCK STOCK ADDITIONAL EARNINGS CURRENCY
--------------- --------------- PAID-IN (ACCUMULATED TRANSLATION
SHARES AMOUNT SHARES AMOUNT WARRANTS CAPITAL DEFICIT) ADJUSTMENT TOTAL
------ ------ ------ ------ -------- ---------- ------------ ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, AUGUST 1, 1994........ 516 $ 5 309 $ 3 $ -- $ 5,453 $(2,072) $ -- $ 3,389
Sale of common stock......... 608 6 -- -- -- 2,539 -- -- 2,545
Conversion of redeemable
preferred stock to common
stock...................... 1,236 12 (309) (3) -- (9) -- -- --
Dividend on redeemable
preferred stock............ -- -- -- -- -- -- (441) -- (441)
Dividend and interest expense
converted to common
stock...................... 183 2 -- -- -- 773 -- -- 775
Unrealized foreign currency
translation adjustment..... -- -- -- -- -- -- -- 7 7
Net loss..................... -- -- -- -- -- -- (1,625) -- (1,625)
----- ---- ---- ---- ----- ------- ------- ----- -------
BALANCE, JULY 31, 1995......... 2,543 25 -- -- -- 8,756 (4,138) 7 4,650
Sale of stock warrants....... -- -- -- -- 624 -- -- -- 624
Unrealized foreign currency
translation adjustment..... -- -- -- -- -- -- -- 8 8
Net income................... -- -- -- -- -- -- 876 -- 876
----- ---- ---- ---- ----- ------- ------- ----- -------
BALANCE, JULY 31, 1996......... 2,543 25 -- -- 624 8,756 (3,262) 15 6,158
Sale of common stock in
connection with IPO........ 2,990 30 -- -- -- 20,946 -- -- 20,976
Issuance of common stock in
connection with IPO
acquisitions............... 174 2 -- -- -- 1,386 -- -- 1,388
Issuance of common stock on
exercise of stock
warrants................... 540 5 -- -- (624) 633 -- -- 14
Issuance of common stock in
connection with
acquisitions............... 1,091 11 -- -- -- 9,246 -- -- 9,257
Unrealized foreign currency
translation adjustment..... -- -- -- -- -- -- -- (205) (205)
Net income................... -- -- -- -- -- -- 3,512 -- 3,512
----- ---- ---- ---- ----- ------- ------- ----- -------
BALANCE, JULY 31, 1997......... 7,338 $ 73 -- $ -- $ -- $40,967 $ 250 $(190) $41,100
===== ==== ==== ==== ===== ======= ======= ===== =======
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE> 63
DYNAMEX INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED JULY 31, 1995, 1996 AND 1997
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
1995 1996 1997
------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss)....................................... $(1,625) $ 876 $ 3,512
Adjustment to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................ 678 1,542 3,543
Extraordinary loss on early retirement of debt....... -- -- 557
Deferred income taxes................................ -- -- (1,002)
Loss on disposal of property and equipment........... 12 -- --
Loss on disposal Tuscon division..................... 18 -- --
Dividend and interest expense converted to common
stock.............................................. 57 -- --
Changes in assets and liabilities:
Accounts receivable.................................. (6) (627) (3,879)
Prepaids and other assets............................ 154 (341) (2,064)
Accounts payable and accrued liabilities............. (239) 922 3,806
------- -------- --------
Net cash provided by (used in) operating activities..... (951) 2,372 4,473
------- -------- --------
INVESTING ACTIVITIES
Payments for acquisitions............................... (7,794) (12,613) (31,331)
Purchase of property and equipment...................... (213) (579) (565)
Proceeds from sale of property and equipment............ 12 -- --
------- -------- --------
Net cash used in investing activities................... (7,995) (13,192) (31,896)
------- -------- --------
FINANCING ACTIVITIES
Principal payment on long term debt..................... (1,110) (5,064) (9,820)
Net borrowings under line of credit..................... 2,797 (2,686) --
Proceeds from issuance of long term debt................ 4,709 20,470 18,160
Proceeds from issuance of stock warrants................ -- 624 --
Net proceeds from sale of common stock.................. 2,460 -- 21,753
Dividends paid.......................................... (21) -- --
Other assets, deferred offering expenses and
intangibles.......................................... (255) (2,144) (2,033)
Unrealized foreign currency adjustment.................. 7 8 (205)
------- -------- --------
Net cash provided by financing activities............... 8,587 11,208 27,855
------- -------- --------
NET INCREASE (DECREASE) IN CASH........................... (359) 388 432
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.............. 865 506 894
------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR.................... $ 506 $ 894 $ 1,326
======= ======== ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INFORMATION
Cash paid for interest.................................. $ 403 $ 1,114 $ 1,261
Cash paid for taxes..................................... 21 109 500
======= ======== ========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
Assets acquired, liabilities assumed and consideration
paid for acquisitions were as follows:
Fair value of assets acquired........................ $10,188 $ 15,243 47,483
Liabilities assumed and incurred and issuance of
notes payable...................................... (7,268) (2,630) (5,507)
Issuance of common stock............................. -- -- (10,645)
------- -------- --------
$ 2,920 $ 12,613 $ 31,331
======= ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-6
<PAGE> 64
DYNAMEX INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Dynamex Inc. (formerly Parcelway Systems Holding Corp.) (the "Company")
provides same-day delivery and logistics services in the U.S. and Canada. The
Company's primary services are (i) same-day, on-demand delivery, (ii) scheduled
distribution and (iii) fleet management. The Company intends to continue to
expand its business through acquiring or developing businesses in additional
areas of the U.S. and Canada and in areas of its existing operations.
Principles of consolidation -- The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries: Dynamex
Operations East, Inc., Dynamex Operations West, Inc., Dynamex Canada Inc.
(formerly Parcelway Courier Systems Canada Ltd.), and Road Runner
Transportation, Inc. All significant intercompany balances and transactions are
eliminated on consolidation.
The accounts of Dynamex Canada Inc. have been translated into United States
dollars under the provision of Statement of Financial Accounting Standards No.
52 with the Canadian dollar as the functional currency. Translation adjustments
arising from the translation of Canada's financial statements into United States
dollars are reported as a separate component of equity.
Use of estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the balance
sheet dates and the reported amounts of revenues and expenses for the periods
presented. Actual results may differ from such estimates.
Property and equipment are stated at cost and are depreciated using the
straight-line method over their estimated useful lives or the term of the lease,
whichever is shorter, as follows:
<TABLE>
<S> <C>
Equipment............................................... 3-5 years
Furniture............................................... 5 years
Vehicles................................................ 7-12 years
Other................................................... 4 years
</TABLE>
Intangibles arise from the acquisition of operations and include the excess
purchase price over net assets acquired, covenants not-to-compete and other
intangible costs. The excess purchase price over net assets acquired is being
amortized over periods from 5 to 25 years. The Company reviews the value
assigned to the excess purchase price over net assets acquired to determine if
it has been impaired by adverse conditions affecting the Company. Management is
of the opinion that there has been no diminution in the value assigned.
Covenants not-to-compete, trademarks and other intangibles are being amortized
over their estimated effective lives, generally five years. Total amortization
expense was $450,000, $944,000 and $2,444,000 for the years ended July 31, 1995,
1996 and 1997, respectively.
Other assets consist of financing fees incurred. These costs are being
amortized on a straight-line basis over the term of the related financing,
approximately five years.
Revenue recognition -- Revenue and direct expenses are recognized when
services are rendered to customers.
Cash and cash equivalents -- The Company considers all highly liquid
investments with a maturity of three months or less to be cash equivalents.
Fair value of financial instruments -- Carrying values of cash and cash
equivalents, accounts receivable, accounts payable trade and current portion of
long-term debt approximate fair value due
F-7
<PAGE> 65
DYNAMEX INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
to the short-term maturities of these assets and liabilities. Long-term debt
consists primarily of variable rate borrowings under the bank credit agreement.
The carrying value of these borrowings approximates fair value.
Derivative financial instruments -- The Company utilizes derivative
financial instruments, including interest rate swaps and caps, to reduce
interest rate fluctuation risk. Amounts paid or received by the Company under
these agreements are recorded as adjustments to interest expense. The Company
does not hold or issue derivative financial instruments for speculative or
trading purposes. In the event that a derivative financial instrument were
terminated prior to its contractual maturity, it is the Company's policy to
recognize the resulting gain or loss over the shorter of the remaining original
contract life of the derivative financial instrument or the remaining term of
the underlying hedged debt agreement.
Stock split -- On June 3, 1996, the Company declared a 4 for 1 stock split
(Note 11(a)). The effect of such stock split has been retroactively reflected in
the accompanying financial statements.
2. INITIAL PUBLIC OFFERING
On August 16, 1996, the Company completed an initial public offering (the
"IPO") whereby the Company sold 2,600,000 shares of Common Stock at $8.00 per
share. On September 10, 1996, the Underwriters exercised their over-allotment
option to purchase an additional 390,000 shares of Common Stock at the IPO
price. The net proceeds received by the Company from the IPO of approximately
$21,700,000 were applied as follows: (i) approximately $7,800,000 to pay the
cash portion of the consideration payable in connection with the IPO
Acquisitions, including repayment of assumed debt of approximately $325,000 and
the estimated transaction costs to effect the transactions of approximately
$400,000, (ii) approximately $2,400,000 to repay the note payable in connection
with the acquisition of Dynamex Express, (iii) the early retirement of the
Junior Subordinated Debentures of approximately $4,800,000 which resulted in an
extraordinary loss of $335,000 net of tax, and (iv) the balance to repay a
portion of the indebtedness under the Bank Credit Agreement.
3. ACQUISITIONS
(a) On May 31, 1995, the Company acquired certain assets of Dynamex Express
Inc., the ground courier operations of Air Canada, for cash of $2,920,000 (plus
expenses of $164,000), a $4,709,000 note and the assumption of $2,558,000 in
liabilities.
On December 29, 1995, the Company acquired certain assets of Mayne Nickless
Courier Systems, Inc., Mayne Nickless Messenger Services, Inc. and Mayne
Nickless Canada Inc. (collectively "Mayne Nickless"), a same-day intracity on
demand ground courier service operating in various cities in the U.S. and
Canada, for cash of $11,868,000 (plus expenses of $399,000) and the assumption
of $2,058,418 in liabilities.
On June 30, 1996, the Company acquired the shares of Action Delivery and
Messenger Service Limited, a same-day on demand ground courier service operating
in Halifax, Nova Scotia, for cash of $147,000 (plus expenses of $22,000).
On August 16, 1996, simultaneously with the closing of the initial public
offering, the Company acquired the same-day delivery business of (i) Seidel
Enterprises, Inc. and the related company, (ii) Seko Enterprises, Inc. and
related companies, (iii) Southbank Courier, Inc. and (iv) K.H.B. & Associates
Ltd. for cash of approximately $8,410,000, the assumption of liabilities of
approximately $629,000 and 173,485 shares of common stock.
F-8
<PAGE> 66
DYNAMEX INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On October 1, 1996, the Company acquired the same-day delivery business of
Express-It, Inc. for cash and assumption of liabilities of approximately
$438,000 and 444,250 shares of common stock.
On May 16, 1997, the Company acquired the same-day delivery business of
Road Runner Transportation, Inc. for cash of approximately $12,201,000,
assumption of liabilities of approximately $1,827,000 and 350,000 shares of
common stock.
In addition to the above acquisition, during 1997, the Company acquired the
same-day delivery businesses of nine separate companies for cash of
approximately $10,676,000, assumption of liabilities of approximately $2,657,000
and 296,310 shares of common stock.
Each of these acquisitions has been accounted for using the purchase method
of accounting and the results of operations of these companies have been
included in these financial statements from the date of acquisition. The
following unaudited pro forma combined results of operations for the year ended
July 31, 1996 and 1997 are presented as if the acquisitions occurred August 1,
1995.
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
------------------------
1996 1997
---------- ----------
PRO FORMA PRO FORMA
---------- ----------
(UNAUDITED)
(IN THOUSANDS EXCEPT PER
SHARE DATA)
<S> <C> <C>
Sales....................................................... $150,523 $161,956
Net income.................................................. 2,132 4,301
-------- --------
Per share:
Net income................................................ $ 0.28 $ 0.57
======== ========
</TABLE>
The Company has recorded the assets acquired as shown below (in thousands):
<TABLE>
<CAPTION>
JULY 31
------------------
1996 1997
------- -------
<S> <C> <C>
Accounts receivable......................................... $ 3,413 $ 5,847
Property and equipment...................................... 546 2,757
Other assets................................................ -- 381
Intangibles................................................. 11,292 38,498
------- -------
Assets acquired............................................. $15,251 $47,483
======= =======
</TABLE>
Consideration for these transactions consisted of the following (in
thousands):
<TABLE>
<CAPTION>
JULY 31
------------------
1996 1997
------- -------
<S> <C> <C>
Cash........................................................ $12,613 $31,331
Issuance of common stock.................................... -- 10,645
Long-term debt.............................................. 453 1,924
Liabilities assumed......................................... 2,185 3,583
------- -------
$15,251 $47,483
======= =======
</TABLE>
F-9
<PAGE> 67
DYNAMEX INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
b) Acquisitions subsequent to year end
On August 15, 1997, the Company acquired certain assets of Central Delivery
Service of Washington, Inc. for cash of approximately $541,000.
On September 26, 1997, the Company acquired the ground courier message
business of Road Management Systems, Inc., Consolidated Transportation Services,
Inc., D.D.S. Courier Service, Inc., Elite Courier Service, Inc., and Time
Courier, Inc. for cash of approximately $3,816,000 and 74,118 shares of common
stock.
On September 29, 1997, the Company acquired the same-day messenger business
of City Courier, Inc., New York Document Exchange Corporation, and
Eastside/Westside, Inc. for cash of approximately $14,606,000.
4. INTANGIBLES
Intangibles from the Company's various acquisitions consist of the
following (in thousands):
<TABLE>
<CAPTION>
JULY 31
-----------------
1996 1997
------- -------
<S> <C> <C>
Goodwill.................................................... $17,875 $52,422
Covenants not to compete.................................... 1,206 4,746
Other....................................................... 602 602
------- -------
19,683 57,770
Less accumulated amortization............................... (1,487) (3,734)
------- -------
Intangibles -- net.......................................... $18,196 $54,036
======= =======
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
JULY 31
-----------------
1996 1997
------- -------
<S> <C> <C>
Equipment................................................... $ 2,024 $ 7,625
Furniture................................................... 186 1,172
Vehicles.................................................... 267 2,005
Other....................................................... 655 1,838
------- -------
3,132 12,640
Less accumulated depreciation............................... (1,085) (6,853)
------- -------
Property and equipment -- net............................... $ 2,047 $ 5,787
======= =======
</TABLE>
Leased equipment under capital leases, included in property and equipment
total $780,000 (1996 -- $76,000) net of accumulated depreciation of $96,000
(1996 -- $57,000) as of July 31, 1997.
F-10
<PAGE> 68
DYNAMEX INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
JULY 31
-------------------
1996 1997
------- -------
<S> <C> <C>
Bank credit agreement(a).................................... $15,012 $31,535
Junior subordinated debentures(b)........................... 4,212 --
Note payable(c)............................................. 2,378 --
Seller financing notes and other(d)......................... 629 844
Capital lease obligations (Note 7).......................... 76 749
------- -------
22,307 33,128
Less current portion........................................ 2,271 740
------- -------
$20,036 $32,388
======= =======
</TABLE>
a) Bank Credit Agreement
On August 26, 1997, the Company amended and restated its bank credit
agreement. Under the terms of the restated agreement, the Company may borrow up
to $75,000,000 (formerly $40,000,000) on a revolving basis through August 31,
2000, at which time any amounts outstanding under the facility are due. Interest
on outstanding borrowings is payable quarterly at prime, or various other
interest rate elections based on LIBOR plus an applicable margin. The applicable
margin ranges from 1.25% to 2.00% based on the ratio of the Company's funded
debt to cash flow, both as defined in the agreement. In addition, the Company is
required to pay a commitment fee of 0.50% of any unused amounts of the total
commitment. At July 31, 1997 the weighted average interest rate for then
outstanding borrowings under the credit agreement was 7.27%.
Borrowings under the agreement are secured by all of the Company's assets
in the United States and by 65% of the stock of the Company's Canadian
subsidiary. Prior to August, 1997 all Canadian assets were also pledged under
the agreement. The agreement contains restrictions on the payment of dividends,
incurring additional debt, capital expenditures and investments by the Company.
In addition, the Company is required to maintain certain financial ratios
related to minimum amounts of stockholders' equity, fixed charges to cash flow
and funded debt to cash flow, all as defined in the agreement. The agreement
also requires the Company to obtain the consent of the lender for additional
acquisitions in certain instances.
The Company has entered into interest rate protection agreements on a
portion of the borrowings under the revolving credit facility. Through an
interest rate swap, the interest rate on $15,000,000 of outstanding debt has
been fixed at 6.26%, plus the applicable margin, and a collar of between 5.50%
and 6.50%, plus the applicable margin, has been placed on $9,000,000 of
outstanding debt. Both of these hedging agreements have three year terms and
expire on August 31, 2000. The total cost of these agreements was approximately
$65,000 and is being amortized to interest expense over the term of the
agreements. The counterparty to these agreements is a major financial
institution with which the Company also has other financial relationships. The
Company believes that the risk of loss due to nonperformance by the counterparty
to these agreements is remote and, in any event, the amount of such loss would
be immaterial to the Company's results of operations.
b) Junior Subordinated Debentures
In connection with the acquisition of Mayne Nickless the Company issued
$4,500,000 face value of Junior Subordinated Debentures "Debentures" to certain
stockholders of the Company. The Debentures were subordinated to all other debt
for borrowed money and were recorded at their estimated fair value as of the
date of issue of $3,876,000. Interest was payable semi-annually and
F-11
<PAGE> 69
DYNAMEX INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
accrued at 12% through December 28, 1996 and at 18% thereafter. On June 28,
1996, the Company elected to pay $270,000 of interest in additional debentures.
The purchasers of the Debentures were also issued warrants to purchase an
aggregate of 1,080,000 shares reduced to 540,000 shares, of the Company's common
stock at a price of $0.025 per share. The warrants were recorded at their
estimated fair value of as of the date of issue of $624,000 and were amortized
over the term of the Debentures.
The Debentures were redeemed in full on August 16, 1996 with a portion of
the proceeds from the Company's initial public offering resulting in an
extraordinary loss on redemption of $335,000 (net of income tax benefit of
$222,000).
c) Note Payable
In connection with the acquisition of Dynamex Express, the Company issued
to the seller a note payable in the principal amount of $4,709,000 (Cdn
$6,450,000). Upon the acquisition of Mayne Nickless this note was repaid and
replaced with a new note bearing interest at 10%, in the principal amount of
$2,369,000 (Cdn $3,225,000). The note was repaid in full on August 16, 1996 with
a portion of the proceeds from the Company's initial public offering (see Note
2).
d) Seller Financing Notes and Other
In connection with various acquisitions (see Note 3) the Company issued
various notes to the sellers of those businesses. These notes bear interest at
varying rates based primarily on prime.
Scheduled principal payments in each of the next five years on long term
debt are as follows (in thousands):
<TABLE>
<S> <C>
1998.............................................. $ 740
1999.............................................. 521
2000.............................................. 199
2001.............................................. 31,617
2002.............................................. 51
-------
$33,128
=======
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
The Company leases certain equipment under properties and non-cancelable
lease agreements which expire at various dates.
At July 31, 1997, minimum annual lease payments for such leases are as
follows (in thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
------- ---------
<S> <C> <C>
1998........................................................ $362 $ 1,442
1999........................................................ 237 1,059
2000........................................................ 78 662
2001........................................................ 74 408
2002........................................................ 51 194
----
802
Less amount representing interest........................... 53
----
Net present value of future minimum lease payments.......... $749
====
</TABLE>
F-12
<PAGE> 70
DYNAMEX INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Rent expense related to the operating leases amounted to approximately
$458,000, $1,177,000 and $2,056,000 for the years ended July 31, 1995, 1996 and
1997, respectively.
From time to time, the Company becomes involved in various legal matters
which it considers to be in the ordinary course of business. While the Company
is not currently able to determine the potential liability, if any, related to
such matters, the Company believes none of the matters, individually or in the
aggregate, will have a material adverse effect on its financial position.
8. INCOME TAXES
As of August 1, 1992, the Company adopted Statement of Financial Accounting
Standards No. 109 ("SFAS No. 109"), Accounting for Income Taxes, which requires
an asset and liability approach for financial accounting and reporting for
income taxes. For purposes of reporting the Company's deferred tax items under
the provisions of SFAS No. 109, the deferred tax asset of approximately $640,000
as of July 31, 1996, arising principally from the available net operating loss
carryforward, has not been reported as an asset due to a valuation allowance.
The differences in income tax provided and the amounts determined by
applying the combined statutory tax rate to income before income taxes result
from the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
------------------------
1995 1996 1997
----- ----- ------
<S> <C> <C> <C>
Canadian federal and provincial tax rate................ 45% 45% 44%
United States federal and state tax rate................ 40 40 42%
----- ----- ------
Combined statutory tax rate............................. 44% 44% 43%
===== ===== ======
Income tax based on combined statutory rate............. $(714) $ 463 $2,723
Add (deduct) the effect of:
Benefit of net operating losses....................... (186) (470) (476)
Non-deductible expenses and other -- net.............. 189 183 238
Valuation allowance................................... 714 -- --
----- ----- ------
$ 3 $ 176 $2,485
===== ===== ======
</TABLE>
Differences between accounting rules and tax laws cause differences between
the bases of certain assets and liabilities for financial reporting purposes and
tax purposes. The tax effects of these differences, to the extent they are
temporary, are recorded as deferred tax assets and liabilities under SFAS 109
and consisted of the following components as at July 31, 1997.
<TABLE>
<S> <C>
Deferred tax assets:
Allowance for doubtful accounts........................... $ 206
Accrued vacation.......................................... 112
Accrued worker compensation............................... 211
Accrued severance payments................................ 67
Other..................................................... 1
------
597
Capital assets............................................ 405
------
$1,002
======
</TABLE>
F-13
<PAGE> 71
DYNAMEX INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. FOREIGN OPERATIONS
Amounts included in the consolidated financial statements applicable to
Canada were as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
-----------------------------
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Revenues............................................ $15,094 $52,249 $68,690
Operating income (loss)............................. (78) 7,759 5,338
Identifiable assets................................. 13,324 17,274 23,059
</TABLE>
10. RELATED PARTY TRANSACTIONS
During the year ended July 31, 1995, the Company paid approximately
$146,000 to a related party for consulting services in connection with
acquisition of Dynamex Express Inc. and other advisory services. During the year
ended July 31, 1996 the Company paid a related party $70,000 for investment
banking services rendered in connection with the Company's acquisition of Mayne
Nickless and $165,000 for the arrangement of bank financing related to that
acquisition. During the year ended July 31, 1997 the company paid a related
party approximately $367,000 in connection with the underwriting of the
Company's initial public offering.
11. STOCKHOLDERS' EQUITY
On December 20, 1995, the Company restated its certificate of incorporation
to change its name from Parcelway Systems Holding Corp. to Dynamex Inc. The
certificate of incorporation was also restated to increase the authorized
capital stock to 10,000,000 shares of $0.01 per value common stock and to
3,000,000 shares of $0.01 per value preferred stock.
On June 3, 1996, the Company restated its certificate of incorporation to
increase the authorized capital stock to 50,000,000 shares of $0.01 par value
common stock and to 10,000,000 shares of $0.01 par value preferred stock. The
Company then effected a common stock split in the form of a dividend where it
distributed three shares of common stock for every common share outstanding. The
effect of the dividend was to increase the number of common shares outstanding
from 635,865 to 2,543,460.
Rights Agreement
In June 1996, the Board of Directors of the Company approved a Rights
Agreement which is designed to protect stockholders should the Company become
the target of coercive and unfair takeover tactics. Pursuant to the Rights
Agreement, the Board of Directors declared a dividend of one preferred stock
purchase right (a "Right") for each outstanding share of Common Stock on May 31,
1996. Each Right entitles the registered holder to purchase from the Company one
one-hundredth of a share of the Series A Preferred Stock, at a price of $45.00
per one one-hundredth of a share of Series A Preferred Stock, subject to
possible adjustment.
12. STOCK OPTION PLAN
a) Effective June 5, 1996, the Company's stockholders approved the 1996
Stock Option Plan (the "Option Plan"). The maximum aggregate amount of Common
Stock with respect to which options may be granted is 620,000. The Option Plan
provides for the granting of both incentive stock options and non-qualified
stock options. In addition, the Option Plan provides for the granting of
restricted stock, which may include, without limitation, restrictions on the
right to vote such shares
F-14
<PAGE> 72
DYNAMEX INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and restrictions on the right to receive dividends on such shares. The exercise
price of all options granted under the Option Plan may not be less than the fair
market value of the underlying Common Stock on the date of grant option.
Options to purchase 471,384 shares are outstanding and (i) 214,384 of these
options have a weighted average exercise price of $3.84 per share and expire
between November 2003 and July 2005 and (ii) 257,000 of these options (which
were granted in connection with the Offering and are exercisable at $8.00 per
share) expire in August 2006. A total of 148,616 shares remained available for
future grants under the Option Plan.
b) Stock-Based Compensation
Had compensation cost for stock option plan been determined based upon fair
values of the grant dates for awards under this plan consistent with the
methodology prescribed under Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation", the Company's net income and
earnings per share would have been reduced by approximately $1,650,000 or $0.24
per share in 1997. The fair value of each grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions used for grants in 1997; dividend yield of 0%,
expected volatility of 64%, risk-free interest rate of 8.35%, and expected lives
of an average of 10 years.
13. SELLING, GENERAL AND ADMINISTRATIVE
Included in selling, general and administrative expenses for the years
ended July 31, 1995, 1996, and 1997 are bad debt expenses of $155,000, $462,000
and $559,000, respectively.
14. SUBSEQUENT EVENT
In February 1997, the Financial Accounting Standards Board Issued Statement
of Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings Per
Share," which requires presentation of basic and diluted earnings per share.
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the
reporting period. Diluted earnings per share reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock. As required, the Company adopted the
provisions of SFAS No. 128 in the quarter ended January 31, 1998. All prior
period weighted average and per share information has been restated in
accordance with SFAS No. 128. Stock options and stock warrants issued by the
Company represent the only dilutive effect reflected in diluted weighted average
shares.
* * * * * *
F-15
<PAGE> 73
DYNAMEX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JULY 31, JANUARY 31,
1997 1998
-------- -----------
(UNAUDITED)
<S> <C> <C>
CURRENT
Cash and cash equivalents................................. $ 1,326 $ 1,483
Accounts receivable -- net................................ 20,867 25,553
Prepaid and other current assets.......................... 3,301 4,436
Deferred income taxes..................................... 597 593
------- --------
26,091 32,065
PROPERTY AND EQUIPMENT -- net............................... 5,787 7,047
INTANGIBLES -- net.......................................... 54,036 69,313
DEFERRED INCOME TAXES....................................... 405 397
OTHER ASSETS................................................ 1,832 1,997
------- --------
$88,151 $110,819
======= ========
LIABILITIES
CURRENT
Accounts payable trade.................................... $ 1,759 $ 928
Accrued liabilities....................................... 9,196 11,057
Income taxes payable...................................... 2,968 727
Current portion of long-term debt......................... 740 525
------- --------
14,663 13,237
LONG-TERM DEBT.............................................. 32,388 54,794
------- --------
47,051 68,031
------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Preferred stock; $0.01 par value, 10,000,000 shares
authorized; none outstanding.............................. -- --
Common stock; $0.01 par value, 50,000,000 shares authorized;
7,337,505 and 7,411,623 shares outstanding................ 73 74
Additional paid-in capital.................................. 40,967 41,646
Retained earnings........................................... 250 2,257
Unrealized foreign currency translation adjustment.......... (190) (1,189)
------- --------
41,100 42,788
------- --------
$88,151 $110,819
======= ========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
F-16
<PAGE> 74
DYNAMEX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JANUARY 31, JANUARY 31,
------------------ ------------------
1997 1998 1997 1998
------- ------- ------- -------
<S> <C> <C> <C> <C>
SALES............................................ $29,946 $48,712 $56,846 $95,262
COST OF SALES.................................... 20,106 32,623 38,099 64,137
------- ------- ------- -------
GROSS PROFIT..................................... 9,840 16,089 18,747 31,125
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES..... 7,638 11,773 14,564 22,887
DEPRECIATION AND AMORTIZATION.................... 834 1,453 1,517 2,857
------- ------- ------- -------
OPERATING INCOME................................. 1,368 2,863 2,666 5,381
INTEREST EXPENSE................................. 236 1,071 508 1,899
------- ------- ------- -------
INCOME BEFORE TAXES.............................. 1,132 1,792 2,158 3,482
INCOME TAXES..................................... 453 753 861 1,475
------- ------- ------- -------
INCOME BEFORE EXTRAORDINARY ITEM................. 679 1,039 1,297 2,007
EXTRAORDINARY LOSS ON EARLY RETIREMENT OF DEBT
(net of income tax benefit of $222)............ -- -- (335) --
------- ------- ------- -------
NET INCOME....................................... $ 679 $ 1,039 $ 962 $ 2,007
======= ======= ======= =======
EARNINGS PER COMMON SHARE -- BASIC:
Income before extraordinary item............... $ 0.10 $ 0.14 $ 0.20 $ 0.27
Extraordinary loss............................. -- -- (0.05) --
------- ------- ------- -------
Net income..................................... $ 0.10 $ 0.14 $ 0.15 $ 0.27
======= ======= ======= =======
EARNINGS PER COMMON SHARE -- ASSUMING DILUTION:
Income before extraordinary item............... $ 0.10 $ 0.14 $ 0.20 $ 0.27
Extraordinary loss............................. -- -- (0.05) --
------- ------- ------- -------
Net income..................................... $ 0.10 $ 0.14 $ 0.15 $ 0.27
======= ======= ======= =======
WEIGHTED AVERAGE SHARES:
Common shares outstanding...................... 6,759 7,412 6,223 7,387
Adjusted common shares -- assuming exercise of
stock options............................... 6,947 7,616 6,443 7,558
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
F-17
<PAGE> 75
DYNAMEX INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JANUARY 31,
--------------------
1997 1998
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................ $ 962 $ 2,007
Adjustment to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.......................... 1,517 2,857
Extraordinary loss on early retirement of debt......... 558 --
Unrealized foreign currency adjustment................. 180 (999)
Changes in current assets and current liabilities:
Accounts receivable.................................. (1,780) (1,650)
Prepaids and other assets............................ (361) 99
Accounts payable and accrued liabilities............. 1,770 (2,828)
-------- --------
Net cash provided by (used in) operating activities....... 2,846 (514)
-------- --------
INVESTING ACTIVITIES
Payments for acquisitions................................. (14,129) (18,963)
Purchase of property and equipment........................ (759) (1,857)
-------- --------
Net cash used in financing activities..................... (14,888) (20,820)
-------- --------
FINANCING ACTIVITIES
Principal payment on long-term debt....................... (8,051) --
Net borrowing under line of credit........................ -- 22,004
Net proceeds from sale of common stock.................... 21,148 --
Other assets, deferred offering expenses and
intangibles............................................ (350) (513)
-------- --------
Net cash provided by financing activities................. 12,747 21,491
-------- --------
NET INCREASE IN CASH........................................ 705 157
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 894 1,326
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 1,599 $ 1,483
======== ========
SUPPLEMENTAL DISCLOSURE ON NON-CASH INFORMATION
Cash paid for interest.................................... $ 559 $ 1,636
======== ========
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES
In conjunction with the acquisitions described, liabilities
were assumed as follows:
Fair value of assets acquired............................. $ 18,401 $ 20,809
Cash paid................................................. (14,129) (18,963)
-------- --------
Liabilities assumed and incurred.......................... $ 4,272 $ 1,846
======== ========
</TABLE>
See accompanying notes to the condensed consolidated financial statements.
F-18
<PAGE> 76
DYNAMEX INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
Dynamex Inc. (the "Company") provides same-day delivery and logistics
services in the United States and Canada. The Company's primary services are (i)
same-day, on-demand delivery, (ii) scheduled distribution and (iii) fleet
management.
The financial statements of the Company include the accounts of the Company
and its wholly-owned subsidiaries: Dynamex Operations East, Inc., Dynamex
Operations West, Inc., Dynamex Canada Inc., Road Runner Transportation, Inc. and
New York Document Exchange Corporation. All significant intercompany balances
and transactions are eliminated on consolidation. The accounts of Dynamex Canada
Inc. are translated into United States dollars with the Canadian dollar as the
functional currency.
The accompanying interim financial statements are unaudited. Certain
information and disclosures normally included in financial statements prepared
in accordance with generally accepted accounting principles have been condensed
or omitted, although the Company believes the disclosures included herein are
adequate to make the information presented not misleading. These interim
financial statements should be read in conjunction with the Company's financial
statements for the fiscal year ended July 31, 1997.
The accompanying interim financial statements contain all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the Company's financial position at January 31, 1998, and the
results of its operations and its cash flows for the three and six month periods
ended January 31, 1998 and 1997. The results of the interim periods presented
are not necessarily indicative of results to be expected for the full fiscal
year.
2. ACQUISITIONS
Through three separate transactions during the six months ended January 31,
1998, the Company acquired the same-day delivery business of companies operating
in Hartford, Connecticut, Boston, Massachusetts, Atlanta, Georgia and New York,
New York for total consideration of approximately $19.0 million in cash and
74,118 shares of common stock.
In March 1998, the Company completed the acquisition of a same-day delivery
company in Memphis, Tennessee for total consideration of approximately $1.6
million in cash.
3. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings Per
Share," which requires presentation of basic and diluted earnings per share.
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding for the
reporting period. Diluted earnings per share reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock. As required, the Company adopted the
provisions of SFAS No. 128 in the quarter ended January 31, 1998. All prior
period weighted average and per share information has been restated in
accordance with SFAS No. 128. Outstanding stock options issued by the Company
represent the only dilutive effect reflected in diluted weighted average shares.
F-19
<PAGE> 77
INDEPENDENT AUDITORS' REPORT
To the Stockholders of
New York Document Exchange Corporation,
Eastside-Westside, Inc., and City Courier, Inc.
We have audited the accompanying combined balance sheet of New York
Document Exchange Corporation, Eastside-Westside, Inc., and City Courier, Inc.
(the "Companies"), all of which are under common ownership and common
management, as of May 31, 1997 and the related combined statements of
operations, stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Companies' management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such combined financial statements present fairly, in all
material respects, the combined financial position of the Companies' at May 31,
1997 and the combined results of their operations and their combined cash flows
for the year then ended in conformity with generally accepted accounting
principles.
DELOITTE & TOUCHE
Toronto, Canada
August 1, 1997
F-20
<PAGE> 78
NEW YORK DOCUMENT EXCHANGE CORPORATION,
EASTSIDE-WESTSIDE, INC., AND CITY COURIER, INC.
COMBINED BALANCE SHEET
MAY 31, 1997
ASSETS
<TABLE>
<S> <C>
CURRENT
Cash...................................................... $ 338,480
Accounts receivable (net of allowance for doubtful
accounts of $59,488)................................... 2,155,850
Due from affiliates....................................... 83,329
Stockholders' loans receivable............................ 296,495
Other current assets (Note 4)............................. 138,920
----------
3,013,074
PROPERTY AND EQUIPMENT (Note 5)............................. 94,212
INTANGIBLES, NET (Note 6)................................... 8,604
OTHER ASSETS................................................ 29,730
----------
$3,145,620
==========
LIABILITIES
CURRENT
Accounts payable.......................................... $ 206,481
Accrued payroll........................................... 241,650
Accrued workmen's compensation............................ 177,680
Other accrued liabilities................................. 35,932
Accrued death benefit (Note 9)............................ 1,500,000
Income taxes payable...................................... 152,365
Line of credit (Note 7)................................... 196,298
Capital lease obligation -- current (Note 8).............. 26,225
Deferred taxes payable.................................... 413,823
----------
2,950,454
CAPITAL LEASE OBLIGATIONS (Note 8).......................... 14,372
----------
2,964,826
----------
COMMITMENTS AND CONTINGENCIES (Note 12)..................... --
STOCKHOLDERS' EQUITY
Common stock
New York Document Exchange Corporation -- ($1 par value;
authorized 200 shares; issued 150 shares).............. 150
Eastside-Westside, Inc. -- ($5 par value; authorized 200
shares; issued 111 shares)............................. 555
City Courier, Inc. (No par value; authorized 200 shares;
issued 100 shares)..................................... 41,000
Additional paid-in capital.................................. 58,651
Treasury stock.............................................. (500)
Stock subscription receivable............................... (1,000)
Retained earnings........................................... 81,938
----------
180,794
----------
$3,145,620
==========
</TABLE>
See notes to combined financial statements.
F-21
<PAGE> 79
NEW YORK DOCUMENT EXCHANGE CORPORATION,
EASTSIDE-WESTSIDE, INC., AND CITY COURIER, INC.
COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED MAY 31, 1997
<TABLE>
<S> <C>
REVENUE..................................................... $21,835,219
COST OF SALES............................................... 16,657,053
-----------
GROSS MARGIN................................................ 5,178,166
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES................ 4,592,612
-----------
OPERATING INCOME............................................ 585,554
INTEREST EXPENSE............................................ 46,388
-----------
INCOME BEFORE UNDERNOTED ITEM AND INCOME TAXES.............. 539,166
DEATH BENEFIT EXPENSE (Note 9).............................. 1,500,000
-----------
LOSS BEFORE INCOME TAXES.................................... (960,834)
INCOME TAXES (Note 10)...................................... 113,790
-----------
NET LOSS.................................................... $(1,074,624)
===========
</TABLE>
See notes to combined financial statements.
F-22
<PAGE> 80
NEW YORK DOCUMENT EXCHANGE CORPORATION,
EASTSIDE-WESTSIDE, INC., AND CITY COURIER, INC.
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED MAY 31, 1997
<TABLE>
<CAPTION>
NEW YORK DOCUMENT
EXCHANGE CORPORATION EAST-WESTSIDE, INC. CITY COURIER, INC.
--------------------------- -------------------------- ------------------- ADDITIONAL
NUMBER NUMBER NUMBER PAID-IN
OF SHARES AMOUNT OF SHARES AMOUNT OF SHARES AMOUNT CAPITAL
------------ ------------ --------- -------------- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, BEGINNING OF
YEAR............... 150 $150 111 $555 100 $41,000 $108,195
NET LOSS............. -- -- -- -- -- -- --
TREASURY STOCK
REACQUIRED....... -- -- -- -- -- -- (49,544)
--- ---- --- ---- --- ------- --------
BALANCE, END
OF YEAR............ 150 $150 111 $555 100 $41,000 $ 58,651
=== ==== === ==== === ======= ========
<CAPTION>
TREASURY STOCK
---------------------- STOCK
NUMBER SUBSCRIPTION RETAINED
OF SHARES AMOUNT RECEIVABLE EARNINGS TOTAL
----------- -------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, BEGINNING OF
YEAR............... -- $ -- $(1,000) $ 1,156,562 $ 1,305,462
NET LOSS............. -- -- -- (1,074,624) (1,074,624)
TREASURY STOCK
REACQUIRED....... 50 (500) -- -- (50,044)
-- ----- ------- ----------- -----------
BALANCE, END
OF YEAR............ 50 $(500) $(1,000) $ 81,938 $ 180,794
== ===== ======= =========== ===========
</TABLE>
See notes to combined financial statements.
F-23
<PAGE> 81
NEW YORK DOCUMENT EXCHANGE CORPORATION,
EASTSIDE-WESTSIDE, INC., AND CITY COURIER, INC.
COMBINED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDING MAY 31, 1997
<TABLE>
<CAPTION>
<S> <C>
OPERATING ACTIVITIES:
Net loss.................................................. $(1,074,624)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 52,415
Deferred income taxes.................................. (106,553)
Changes in assets and liabilities
Increase in accounts receivable........................ (96,027)
Increase in due from affiliates........................ (61,100)
Increase in other current assets....................... (32,849)
Increase in accounts payable and accrued expenses...... 1,515,760
Increase in income taxes payable....................... 100,897
-----------
Net cash provided by operating activities................. 297,919
-----------
FINANCING ACTIVITIES:
Obligations under capital lease........................... (23,583)
Borrowings on credit facility............................. 695,000
Repayments of credit facility............................. (695,000)
Reacquisition of common stock............................. (50,044)
Advances to stockholders.................................. (69,725)
-----------
Net cash used in financing activities..................... (143,352)
-----------
INVESTING ACTIVITIES:
Acquisition of property and equipment..................... (27,106)
Increase in other assets.................................. 2,178
-----------
Net cash used in investing activities..................... (24,928)
-----------
NET INCREASE IN CASH........................................ 129,639
CASH, BEGINNING OF THE YEAR................................. 208,841
-----------
CASH, END OF THE YEAR....................................... $ 338,480
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income taxes paid......................................... $ 68,746
Interest paid............................................. $ 46,388
===========
</TABLE>
See notes to combined financial statements.
F-24
<PAGE> 82
NEW YORK DOCUMENT EXCHANGE CORPORATION,
EASTSIDE-WESTSIDE, INC., AND CITY COURIER, INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS
MAY 31, 1997
1. BUSINESS AND ORGANIZATION
New York Document Exchange Corporation, Eastside-Westside, Inc., and City
Courier, Inc. (collectively the "Companies") provide facility management,
overnight courier, messenger, and mail box subscription services in the New York
City metropolitan area. The majority of revenues are earned from messenger and
facilities management services.
2. PRINCIPLES OF COMBINATION
The Companies are commonly owned by a single shareholder and operate under
common management, and have been combined due to their interdependence and form
of operations. The combined financial statements include the accounts of the
Companies after all intercompany balances have been eliminated.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Revenue recognition
The Companies recognize messenger service revenue when deliveries are
completed or services are performed. Facilities management service revenue is
recognized in accordance with the terms of the customer contract.
Property and equipment
Property and equipment are recorded at cost less accumulated depreciation.
Depreciation is provided annually at rates calculated to write-off the assets
over their estimated useful lives as follows:
<TABLE>
<S> <C>
Furniture and fixtures........ -- 5-7 years -- straight-line basis
Computer software............. -- 5 years -- straight-line basis
Leaseholds.................... -- applicable useful life or lease term if shorter
</TABLE>
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Income taxes
New York Document Exchange Corporation and City Courier, Inc., with the
consent of its stockholders, have elected under the Internal Revenue and the New
York State Tax Codes to be S corporations. In lieu of corporation income taxes,
the stockholders of an S corporation are taxed on their proportionate share of
the Company's taxable income. Therefore no provision or liability for federal
income tax has been included in the financial statements. Provision for New York
state income taxes has been included to the extent the corporate tax rate
exceeds the highest personal income tax rate. The City of New York does not
recognize S corporation status, therefore, a provision has been made for New
York City corporation taxes.
Eastside-Westside, Inc., is a C corporation, as such the financial
statements include a provision for federal, state and local corporation taxes.
F-25
<PAGE> 83
NEW YORK DOCUMENT EXCHANGE CORPORATION,
EASTSIDE-WESTSIDE, INC., AND CITY COURIER, INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1997
Fair value of financial instruments
The financial statements include the following financial instruments: cash,
trade accounts receivable, due from affiliates, stockholders' loans receivable,
accounts payable, and the bank indebtedness. With the exception of the bank
indebtedness, no separate comparison of fair values is presented for the
aforementioned financial instruments since their fair values are not
significantly different that their balance sheet carrying values. Based upon
prevailing market interest rates, the fair value of the bank indebtedness
approximates its carrying value.
4. OTHER CURRENT ASSETS
Other current assets consist of the following:
<TABLE>
<S> <C>
Employee and messenger loans and advances................... $ 45,328
Prepaid expenses............................................ 25,599
Prepaid insurance........................................... 67,993
--------
$138,920
========
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<S> <C>
Furniture and equipment..................................... $479,307
Computer software........................................... 6,719
Leasehold improvements...................................... 26,263
--------
512,289
Accumulated depreciation.................................... 418,077
--------
$ 94,212
========
</TABLE>
Included in property and equipment are assets recorded under capital leases
aggregating $75,454, with related accumulated depreciation of $21,877.
6. INTANGIBLES
Intangibles, arising from the purchase of assets of another company, are
carried at cost and amortized on a straight-line basis over the life of the
agreements or a period of 5 to 10 years. Intangibles consist of the following:
<TABLE>
<S> <C>
Covenant not to compete..................................... $239,925
Customer lists.............................................. 38,388
Customer contracts.......................................... 50,383
Organizational costs........................................ 28,161
--------
356,857
Accumulated amortization.................................... 348,253
--------
$ 8,604
========
</TABLE>
F-26
<PAGE> 84
NEW YORK DOCUMENT EXCHANGE CORPORATION,
EASTSIDE-WESTSIDE, INC., AND CITY COURIER, INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1997
7. LINE OF CREDIT
The line of credit is due on demand. The balance represents the amount
drawn on a $300,000 revolving line of credit. The outstanding balance may not
exceed 80% of eligible accounts receivable as defined. The loan is evidenced by
ninety-day notes which bear interest at the prime rate plus 2%. The loan is
guaranteed by the stockholders' of the Companies. Interest on the note payable
for the year amounted to $17,887.
The stockholders of the Companies have negotiated a credit facility with a
bank, whereby the stockholders may borrow up to $750,000 under a demand note
payable, bearing interest at the bank's base lending rate plus 1% per annum. The
proceeds of this loan are for the direct use of the Companies. Borrowings under
this agreement have been guaranteed by the stockholders, with a cross guaranty
by the Companies. The bank has further secured the loan by a lien on the
Companies' assets. At May 31, 1997 no outstanding balance existed. Interest
expense incurred during the year related to this loan amounted to $19,601.
8. LEASES
The Companies are obligated under various non-cancellable capital and
operating leases for computer and office equipment, and storage space. Rent
expense, under the operating leases aggregated $180,521, for the year ended May
31, 1997. Minimum future rental commitments under the capital and operating
leases at May 31, 1997 are as follows:
<TABLE>
<CAPTION>
CAPITAL
LEASE OPERATING
OBLIGATIONS LEASES
----------- ---------
<S> <C> <C>
1998........................................................ $ 30,249 $148,442
1999........................................................ 15,241 113,510
2000........................................................ -- 108,417
2001........................................................ -- 72,117
2002........................................................ -- 40,058
-------- --------
Total minimum payments...................................... 45,490 $482,544
========
Less: amount representing interest.......................... (4,893)
--------
Total present value of net minimum lease payments at May 31,
1997...................................................... 40,597
Less: current portion....................................... (26,225)
--------
Long-term portion........................................... $ 14,372
========
</TABLE>
Interest expense includes $8,900 with respect to these capital lease
obligations.
9. ACCRUED DEATH BENEFIT
On August 15, 1996 Eastside-Westside, Inc. entered into a salary
continuation and death benefit agreement with a stockholder. The agreement
stated that in the event of the stockholder's death, which occurred in November
1996, the spouse or the estate is entitled to receive weekly payments for a
period of ten years, and other related benefits. If during the term of the
agreement, Eastside-Westside, Inc. is sold, the spouse or the estate then
becomes entitled to receive immediate payment. This amount is estimated at
$1,500,000 and due to the pending sale of Eastside-Westside,
F-27
<PAGE> 85
NEW YORK DOCUMENT EXCHANGE CORPORATION,
EASTSIDE-WESTSIDE, INC., AND CITY COURIER, INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1997
Inc. the amount has been accrued as a current liability and included in the
determination of the net loss for the year.
10. PROVISION FOR FEDERAL, STATE AND LOCAL INCOME TAXES
Provisions for federal, state and local income taxes consist of the
following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
-------- -------- --------
<S> <C> <C> <C>
Federal............................ $ 80,740 $(40,535) $ 40,205
State.............................. 32,090 (9,110) 22,980
Local.............................. 42,215 8,390 50,605
-------- -------- --------
$155,045.. $(41,255) $113,790
======== ======== ========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
<TABLE>
<CAPTION>
<S> <C>
The sources of the net deferred tax liability relate to
differences between accrual and cash accounting........... $413,823
========
</TABLE>
In addition to the amount disclosed above, there is a potential tax benefit
of approximately $680,000 related to the death benefit expense, which has been
offset by a valuation allowance.
The effective tax rate on income before taxes differs from the United
States statutory rate. The following summary reconciles taxes at the United
States statutory rate with the effective rates:
<TABLE>
<CAPTION>
<S> <C>
Taxes on income at U.S. statutory rate...................... 34.0%
Increase (reduction) in taxes resulting from
State and local income taxes (net of federal tax
benefit)............................................... 9.0
Corporations taxed as electing S corporation status....... (25.2)
Vacation allowance........................................ (32.9)
Other..................................................... 3.3
-----
Taxes on income at effective rates.......................... (11.8)%
=====
</TABLE>
11. RELATED PARTY TRANSACTIONS
The Companies have advanced funds to three of their stockholders which are
non-interest bearing and are due on demand. Amounts due to the Companies from
these stockholders totalled $296,495 as of May 31, 1997.
The Companies provide services to a company which is controlled by a
stockholder. $1,888,035 is included in revenue. At May 31, 1997 the balance due
from this Company totalled $19,579.
New York Document Exchange Corporation utilizes the services of independent
contractors that are employed by a company which is controlled by a stockholder.
For the year ended May 31, 1997, $1,888,035 of services are included in Trucking
expense. At May 31, 1997 $62,565 is owed to the Companies.
F-28
<PAGE> 86
NEW YORK DOCUMENT EXCHANGE CORPORATION,
EASTSIDE-WESTSIDE, INC., AND CITY COURIER, INC.
NOTES TO THE COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
MAY 31, 1997
12. COMMITMENTS AND CONTINGENCIES
New York Document Exchange Corporation and City Courier, Inc. are currently
being audited by the United States Department of Labor, Wage and Hour Division,
to determine if they are in compliance with the Fair Labor Standards Act. To
date, the Department of Labor has not issued an assessment nor has it quantified
the amount of back wages, if any, that may be due as a result of the
examination.
13. LETTER OF INTENT
On May 15, 1997, holders of the Companies' voting common stock signed a
non-binding letter of intent to sell all of the Companies' common stock. There
can be no assurances the sale will be completed.
F-29
<PAGE> 87
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Road Runner Transportation, Inc.
We have audited the accompanying balance sheet of Road Runner
Transportation, Inc. (the "Company") as of February 28, 1997, and the related
statements of income, stockholders' equity and cash flows for the nine months
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of the Company as of February
28, 1997, and the results of its operations and its cash flows for the nine
months then ended, in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Dallas, Texas
April 14, 1997
F-30
<PAGE> 88
ROAD RUNNER TRANSPORTATION, INC.
BALANCE SHEET
FEBRUARY 28, 1997
ASSETS
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash...................................................... $ 12,715
Receivables:
Trade, net of allowance for doubtful accounts of
$30,000 (Note 7)...................................... 1,995,115
Related parties (Note 6)............................... 97,940
Other.................................................. 2,035
Inventories............................................... 17,383
Prepaid expenses.......................................... 67,111
----------
Total current assets.............................. 2,192,299
----------
PROPERTY AND EQUIPMENT, AT COST (Notes 3 and 4):
Leasehold improvements.................................... 154,454
Office furniture and equipment............................ 248,192
Radios.................................................... 679,791
Data processing equipment................................. 2,191,448
Transportation and other delivery equipment............... 2,106,790
----------
5,380,675
Less accumulated depreciation............................. 2,817,138
----------
Property and equipment, net............................... 2,563,537
----------
OTHER ASSETS:
Tax deposits.............................................. 119,631
Other..................................................... 86,171
----------
205,802
----------
TOTAL ASSETS................................................ $4,961,638
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable to bank (Note 2)............................. $ 240,000
Current maturities of long-term debt...................... 583,007
Notes payable to stockholders (Note 6).................... 72,884
Accounts payable.......................................... 222,501
Accrued expenses:
Compensation........................................... 260,133
Commissions............................................ 879,096
Profit sharing......................................... 90,000
Other.................................................. 83,652
Deferred revenue.......................................... 53,606
----------
Total current liabilities......................... 2,484,879
----------
LONG-TERM DEBT, less current maturities (Notes 2 and 3)..... 573,993
----------
COMMITMENTS (Note 9)
STOCKHOLDERS' EQUITY (Note 9):
Common stock, no par value; 25,000 shares authorized:
Voting, 6,545 shares, issued and outstanding........... 135,487
Nonvoting, 4,364 shares, issued and outstanding........ 90,489
Retained earnings......................................... 1,676,790
----------
Total stockholders' equity........................ 1,902,766
----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $4,961,638
==========
</TABLE>
See notes to financial statements.
F-31
<PAGE> 89
ROAD RUNNER TRANSPORTATION, INC.
STATEMENT OF INCOME
NINE MONTHS ENDED FEBRUARY 28, 1997
<TABLE>
<S> <C>
REVENUE:
Delivery services (Note 7)................................ $16,413,755
Rents (Note 4)............................................ 143,291
Driver services........................................... 500,797
-----------
17,057,843
-----------
COSTS AND EXPENSES:
Commissions, drivers...................................... 8,156,397
Compensation and related costs............................ 4,841,891
Depreciation.............................................. 752,080
Repairs and maintenance................................... 170,104
Insurance................................................. 781,654
Profit sharing contribution (Note 5)...................... 90,000
Interest.................................................. 143,511
Other direct delivery costs............................... 504,670
Other selling, general and administrative expenses (Note
6)..................................................... 1,380,777
Loss on sale of property and equipment (Note 8)........... 137,116
-----------
16,958,200
-----------
NET INCOME.................................................. $ 99,643
===========
</TABLE>
See notes to financial statements.
F-32
<PAGE> 90
ROAD RUNNER TRANSPORTATION, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
NINE MONTHS ENDED FEBRUARY 28, 1997
<TABLE>
<CAPTION>
VOTING NONVOTING
COMMON STOCK COMMON STOCK
-------------------- -------------------
NUMBER OF NUMBER OF RETAINED
SHARES AMOUNT SHARES AMOUNT EARNINGS TOTAL
--------- -------- --------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, BEGINNING.......... 6,000 $ 600 4,000 $ 400 $1,727,147 $1,728,147
Net income................ 99,643 99,643
Common stock issued for
compensation........... 545 134,887 364 90,089 224,976
Dividends................. (150,000) (150,000)
----- -------- ----- ------- ---------- ----------
BALANCE, ENDING............. 6,545 $135,487 4,364 $90,489 $1,676,790 $1,902,766
===== ======== ===== ======= ========== ==========
</TABLE>
See notes to financial statements.
F-33
<PAGE> 91
ROAD RUNNER TRANSPORTATION, INC.
STATEMENT OF CASH FLOWS
NINE MONTHS ENDED FEBRUARY 28, 1997
<TABLE>
<S> <C>
OPERATING ACTIVITIES:
Net income................................................ $ 99,643
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization.......................... 753,384
Common stock issued as compensation.................... 224,976
Loss on sale of property and equipment................. 137,116
Changes in assets and liabilities:
Increase in trade receivables........................ (334,237)
Decrease in other receivables........................ 55,638
Decrease in inventories.............................. 8,320
Increase in prepaid expenses......................... (31,869)
Decrease in accounts payable......................... (136,519)
Increase in accrued expenses......................... 488,925
Increase in deferred revenue......................... 8,656
-----------
Net cash provided by operating activities......... 1,274,033
-----------
INVESTING ACTIVITIES:
Proceeds from sales of property and equipment............. 1,148,752
Purchases of property and equipment....................... (1,431,799)
Advances to related parties............................... (34,748)
Other..................................................... (1,534)
-----------
Net cash used in investing activities............. (319,329)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments on revolving loan agreement.................. (535,000)
Proceeds from notes payable to stockholders............... 30,000
Principal payments on notes payable to stockholders....... (32,116)
Proceeds from long-term borrowings........................ 177,330
Principal payments on long-term debt...................... (434,531)
Cash dividends............................................ (150,000)
-----------
Net cash used in financing activities............. (944,317)
-----------
NET INCREASE IN CASH........................................ 10,387
CASH, BEGINNING OF PERIOD................................... 2,328
-----------
CASH, END OF PERIOD......................................... $ 12,715
===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION -- Cash
payments for interest..................................... $ 142,481
===========
SUPPLEMENTAL SCHEDULE OF NONCASH OPERATING, INVESTING, AND
FINANCING ACTIVITIES:
Common stock issued as compensation....................... $ 224,976
===========
Other asset resulting from sale -- leaseback
transaction............................................ $ 72,601
===========
Capital lease obligations incurred for use of equipment... $ 136,829
===========
</TABLE>
See notes to financial statements.
F-34
<PAGE> 92
ROAD RUNNER TRANSPORTATION, INC.
NOTES TO FINANCIAL STATEMENTS
NINE MONTHS ENDED FEBRUARY 28, 1997
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES:
Nature of Business -- Road Runner Transportation, Inc. (the "Company")
provides on-demand delivery and logistics management for customers in the
metropolitan areas of Minneapolis-St. Paul, Minnesota; Dallas, San Antonio, and
Austin, Texas; and Denver, Colorado. The Company grants credit terms to
customers on an individual customer basis.
Cash -- The Company maintains its cash in bank deposit accounts which, at
times, may exceed federally insured limits. The Company has not experienced any
losses in such accounts.
Inventories -- Inventories are composed of radio and vehicle repair parts
and delivery envelopes valued at the lower of cost (first-in, first-out method)
or market.
Depreciation -- Depreciation of property and equipment is provided using
the straight-line method over estimated useful lives of three to seven years.
Revenue Recognition -- The Company recognizes revenue as delivery services
are performed. Deferred revenue represents prebilled deliveries or payments
received for delivery services which have not been performed as of February 28,
1997.
Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Income Tax Matters -- The Company, with the consent of its stockholders,
has elected to be taxed under sections of the federal and state income tax laws
(Subchapter S) which provide that, in lieu of corporate income taxes, the
stockholders separately account for the Company's items of income, deductions,
losses and credits. Therefore, the accompanying financial statements do not
include any provision for corporation income taxes. The Company pays dividends
to assist the stockholders in paying their personal income taxes on the income
of the Company.
In addition, as a result of the Company's May 31 fiscal year, the Company
is required to make federal tax deposits that will vary annually depending on
the Company's income.
Fair Value of Financial Instruments -- The financial statements include the
following financial instruments: cash, trade accounts and other receivables,
accounts payable, and notes payable to banks, stockholders and other financial
institutions. At February 28, 1997, no separate comparison of fair values to
carrying values is presented for the aforementioned financial instruments since
their fair values are not significantly different than their balance-sheet
carrying values.
2. BANK FINANCING
As of February 28, 1997, the Company has a loan agreement with a bank that
provides for a revolving line of credit, a nonrevolving capital expenditure
line, a nonrevolving acquisition line and the term notes payable to bank as
described in Note 3. The loan agreement expires December 31, 1997, and is
collateralized by substantially all Company assets, a personal guaranty of the
Company's majority stockholder and the assignment of a life insurance policy on
the Company's majority stockholder. The loan agreement contains various
covenants that require the Company to, among other things, not exceed a certain
debt to tangible net worth ratio, maintain a minimum tangible net worth,
maintain a minimum debt service coverage ratio and limit the amount of capital
expenditures.
F-35
<PAGE> 93
ROAD RUNNER TRANSPORTATION, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NINE MONTHS ENDED FEBRUARY 28, 1997
Revolving Line of Credit -- The Company can borrow up to $800,000 on its
line of credit; however, the amount borrowed cannot exceed a borrowing base
equal to 75% of eligible receivables. Amounts borrowed bear interest at the
prime rate (8.25% at February 28, 1997) plus 0.5%. As of February 28, 1997,
$240,000 was outstanding under this line.
Nonrevolving Capital Expenditure Line -- The Company can borrow up to
$1,750,000 under this line for the purpose of financing vehicle and other
equipment purchases through December 31, 1997. Interest on any outstanding
borrowings is payable monthly at the prime rate plus 0.5%. On January 1, 1998,
the then-outstanding principal balance will be converted to a term loan with
principal and interest payable monthly over 30 months. As of February 28, 1997,
no borrowings are outstanding under this line.
Nonrevolving Acquisition Line -- The Company can borrow up to $1,500,000
under this line for the purpose of financing acquisitions of businesses. As of
February 28, 1997, no borrowings are outstanding under this line.
3. LONG-TERM DEBT
Long-term debt is composed of the following as of February 28, 1997:
<TABLE>
<S> <C>
Note payable to bank, due in monthly principal installments
of $9,583, plus interest at 9.0%, through June 1998....... $ 153,333
Note payable to bank, due in monthly installments of
$16,941, including interest at 8.5%, through November
1998...................................................... 306,171
Note payable to bank, due in monthly installments of
$11,771, including interest at 8.45%, through July 1999... 298,122
Notes payable to finance companies, due in varying monthly
installments, including interest at varying rates, through
April 1999................................................ 50,939
Capital lease obligations (see Note 4)...................... 348,435
----------
1,157,000
Less current maturities..................................... 583,007
----------
$ 573,993
==========
</TABLE>
Aggregate annual maturities of the above long-term debt at February 28,
1997, are as follows:
<TABLE>
<CAPTION>
<S> <C>
Years ending February 28:
1998.......................................... $ 583,007
1999.......................................... 466,854
2000.......................................... 107,139
----------
$1,157,000
==========
</TABLE>
4. LEASE ARRANGEMENTS
The Company has acquired certain equipment under capital leases. As of
February 28, 1997, capital lease equipment costs of $467,815 and related
accumulated depreciation of $116,331 are included in property and equipment. The
related capital lease obligations are reflected in long-term debt and require
varying monthly payments, including interest at rates ranging from 8.0% to 9.5%.
The Company also leases its office and warehouse facilities and certain
vehicles and telecommunications equipment under various operating lease
arrangements. These leases require minimum
F-36
<PAGE> 94
ROAD RUNNER TRANSPORTATION, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NINE MONTHS ENDED FEBRUARY 28, 1997
monthly payments plus additional payments based on vehicle miles or a pro rata
share of real estate taxes and other operating costs associated with a leased
property.
The following is a schedule of future minimum rental payments required
under the operating and capital leases as of February 28, 1997:
<TABLE>
<CAPTION>
OPERATING CAPITAL
LEASES LEASES
---------- --------
<S> <C> <C>
Years ending February 28:
1998..................................... $ 418,118 $174,816
1999..................................... 313,260 162,491
2000..................................... 275,871 149,194
2001..................................... 174,360
2002..................................... 159,408
Thereafter............................... 1,255,100
---------- --------
$2,596,117 386,501
==========
Less amounts representing interest on
capital lease obligations................ 38,066
--------
Principal portion of capital lease
obligations.............................. $348,435
========
</TABLE>
Total rental expense included on the statement of income for the nine
months ended February 28, 1997, was $365,655.
The Company rents computers and radios to nonemployee owner/operators on a
month-to-month basis. Rental income from these arrangements amounted to $143,291
for the nine months ended February 28, 1997.
5. PROFIT SHARING PLAN
The Company has a profit sharing plan for those employees who meet the
eligibility requirements set forth in the plan. Contributions to the plan are at
the discretion of the Company's Board of Directors. For the nine months ended
February 28, 1997, the Company has accrued $90,000 of profit sharing expense.
6. RELATED PARTY TRANSACTIONS
The Company has advanced to two of its stockholders funds which bear
interest at 8.0%. The stockholders make periodic repayments of principal.
Amounts due to the Company from these stockholders totaled $97,940 as of
February 28, 1997.
The Company leases its office and warehouse facilities in St. Paul,
Minnesota, from its majority stockholder under a thirty-six month lease
agreement that calls for monthly rentals of $11,279 through November 1999. The
Company carries insurance and pays the real estate taxes, utilities and
maintenance costs on the property. The Company paid rents of approximately
$90,000 to this stockholder for the nine months ended February 28, 1997.
The Company has notes payable to three of its minority stockholders that
total approximately $73,000 as of February 28, 1997. The Company pays interest
monthly at the rate of 8.0% with the principal due in April 1997.
F-37
<PAGE> 95
ROAD RUNNER TRANSPORTATION, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NINE MONTHS ENDED FEBRUARY 28, 1997
7. MAJOR CUSTOMER
Approximately 15% of the Company's delivery services revenue for the nine
months ended February 28, 1997, is from one customer. Trade receivables from
this customer approximated 18% of total trade receivables at February 28, 1997.
8. SALE-LEASEBACK TRANSACTION
The Company completed the construction of an office/warehouse facility in
the Denver, Colorado, metropolitan area in September 1996 at a cost of
approximately $1,200,000, including land. In December 1996, the Company sold the
property to an unrelated party, incurring a loss of approximately $103,000.
Concurrent with the sale, the Company leased back the property for a period of
approximately fourteen years at monthly rentals ranging from $10,000 to $12,000
during the term of the lease. The Company is also responsible for insuring and
maintaining the property and the real estate taxes assessed on the property. In
addition, the majority stockholder has provided a guaranty to the lessor for the
rents on this property. The guaranty is for a period of five years and for a
maximum amount of $150,000 in the first year of the lease term. This guaranty
amount reduces by $30,000 each year until the end of the five-year period, at
which time the guaranty terminates.
9. COMMITMENTS
The Company has a buy-sell agreement with its minority stockholders whereby
the Company has the first option to purchase any shares of common stock upon
death, disability or termination of employment of the minority stockholders or
upon the offer to sell any shares by the minority stockholders. The purchase
price for the shares of common stock subject to this agreement is to be
determined within 75 days following the end of each fiscal year.
10. LETTER OF INTENT
On March 13, 1997, stockholders of the Company's voting common stock signed
a non-binding letter of intent to sell all of the Company's issued and
outstanding common stock. There can be no assurances the sale will be completed.
F-38
<PAGE> 96
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, THE SELLING STOCKHOLDERS OR THE UNDERWRITERS. THIS PROSPECTUS
DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE
SHARES TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION
IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 8
Use of Proceeds....................... 13
Price Range of Common Stock........... 13
Dividend Policy....................... 13
Capitalization........................ 14
Selected Consolidated Financial
Data................................ 15
Pro Forma Financial Information....... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 22
Business.............................. 30
Management............................ 41
Certain Transactions.................. 47
Principal and Selling Stockholders.... 49
Description of Capital Stock.......... 50
Underwriting.......................... 54
Validity of Shares.................... 55
Experts............................... 56
Available Information................. 56
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
------------------------
======================================================
======================================================
2,817,166 SHARES
DYNAMEX INC.
COMMON STOCK
($0.01 PAR VALUE)
SCHRODER & CO. INC.
WILLIAM BLAIR & COMPANY
HOAK BREEDLOVE WESNESKI & CO.
, 1998
======================================================
<PAGE> 97
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimates
except the Securities and Exchange Commission registration and NASD filing fees.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee......... $ 11,418
NASD filing fee............................................. 4,379
Nasdaq National Market listing fee.......................... 17,500
Legal fees and expenses..................................... 100,000
Accounting fees and expenses................................ 100,000
Printing and engraving expenses............................. 100,000
Transfer agent and registrar fees and expenses.............. 2,500
Blue Sky fees and expenses.................................. 12,500
Miscellaneous expenses...................................... 51,703
--------
Total............................................. $400,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Restated Certificate of Incorporation eliminates to the
fullest extent permissible under the General Corporation Law of Delaware the
liability of directors to the Company and the stockholders for monetary damages
for breach of fiduciary duty as a director. This provision does not eliminate
liability (a) for any breach of a director's duty of loyalty to the Company or
its stockholders; (b) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of the law; (c) in connection with
payment of any illegal dividend or illegal stock repurchase; or (d) for any
transaction from which the director derives an improper personal benefit. In
addition, these provisions do not apply to equitable remedies such as injunctive
relief.
The Company's Bylaws provide that the Company shall indemnify each of its
directors and officers, acting in such capacity, so long as such person acted in
good faith and in a manner he or she reasonably believed to be in or not opposed
to the best interests of the Company. Such indemnification may be made only upon
a determination that such indemnification is proper in the circumstances because
the person to be indemnified has met the applicable standard of conduct to
permit indemnification under the law. The Company is also required to advance to
such persons payment for their expenses incurred in defending a proceeding to
which indemnification might apply, provided the recipient provides an
undertaking agreeing to repay all such advanced amounts if it is ultimately
determined that he is not entitled to be indemnified.
The Company also maintains a directors' and officers' liability insurance
policy insuring directors and officers of the Company for up to $5.0 million of
covered losses as defined in the policy. Reference is also made to the
indemnification and contribution provisions of the Underwriting Agreement filed
as an exhibit to this Registration Statement. The Company has entered into
Indemnification Agreements with each of its directors and certain of its
officers contractually requiring the Company to provide such indemnification to
the extent permitted by applicable law.
Pursuant to the Underwriting Agreement to be entered among the Company, the
Selling Stockholders and the Underwriters, the officers and directors of the
Company are indemnified for certain liabilities, including liabilities incurred
under the Securities Act of 1933, as amended.
II-1
<PAGE> 98
ITEM 15. RECENT SALE OF UNREGISTERED SECURITIES
Since April 1, 1995, the Company has sold or issued the following
unregistered securities:
1. On May 31, 1995, at a purchase price of $4.25 per share (i) Cypress
converted its shares of convertible preferred stock and the dividends and
interest accrued thereon into Common Stock; (ii) the Company issued to
Cypress and Cypress purchased from the Company for cash 294,116 shares of
Common Stock; (iii) the Company issued to The Guidant Financial Group, Inc.
(formerly, Preferred Risk Life Insurance Company) and Guidant Mutual
Insurance Company (formerly, Preferred Risk Mutual Insurance Company)
147,060 shares and 147,056 shares of Common Stock, respectively, which were
purchased by such holders for cash; and (iv) George M. Siegel purchased
20,000 shares of Common Stock, which purchase price was paid by Mr. Siegel
pursuant to a promissory note issued by Mr. Siegel to the Company.
2. On December 28, 1995, the Company issued and delivered (a) an
aggregate of approximately $1.0 million principal amount of Bridge Notes
and Bridge Warrants exercisable for 120,000 shares to Cypress, (b) an
aggregate of approximately $1.8 million principal amount of Bridge Notes
and Bridge Warrants exercisable for 210,000 shares to James M. Hoak and
CCP, (c) an aggregate of approximately $1.8 million principal amount of
Bridge Notes and Bridge Warrants exercisable for 210,000 shares to various
limited partners of Cypress and affiliates of CCP in exchange for cash in
the corresponding principal amounts of the Bridge Notes. In August 1996, at
the time of the IPO, the Company redeemed the Bridge Notes and the Bridge
Warrants were exercised by the holders in full.
3. As partial consideration for the consummation of the IPO
Acquisitions and the Pro Forma Completed Acquisitions, the Company issued
an aggregate of 1,338,163 shares of Common Stock to the sellers of the
businesses acquired in such acquisitions.
4. Between January 1, 1995 and January 31, 1998, the Company granted
options to approximately 60 persons to purchase an aggregate of 532,000
shares of Common Stock (net of expired options) pursuant to the Option Plan
for purchase prices ranging from $3.235 to $10.375 per share. Options
granted to employees and officers generally vest ratably over a five-year
period commencing on the grant date. Options granted to directors and
certain options granted to the Chief Executive Officer immediately vest on
the grant date.
In issuing such securities, the Company relied on the exemption from the
registration and prospectus delivery requirements of the Securities Act provided
by Section 4(2) of the Securities Act.
II-2
<PAGE> 99
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1(1) -- Form of Underwriting Agreement.
2.1(4) -- Stock Purchase Agreement dated May 16, 1997, by and among
Dynamex, Inc., Road Runner Transportation, Inc., James C.
Isaacson, Gordon I. Isaacson, Gretchen E. Larsen and
Thomas W. Ingeman.
2.2(5) -- Stock Purchase Agreement dated September 30, 1997, by and
among Dynamex Inc. and the shareholders of City Courier
Inc., New York Document Exchange Corporation and
Eastside/Westside, Inc.
3.1(2) -- Restated Certificate of Incorporation of Dynamex Inc.
3.2(3) -- Bylaws, as amended and restated, of Dynamex Inc.
4.1(2) -- Rights Agreement between Dynamex Inc. and Harris Trust
and Savings Bank, dated July 5, 1996.
5.1(1) -- Opinion of Crouch & Hallett, L.L.P.
10.1(1) -- Amendment No. 2 to Employment Agreement of Richard K.
McClelland.
10.2(3) -- Dynamex Inc. Amended and Restated 1996 Stock Option Plan.
10.3(2) -- Marketing and Transportation Services Agreement, between
Purolator Courier Ltd. and Parcelway Courier Systems
Canada Ltd., dated November 20, 1995.
10.4(2) -- Form of Indemnity Agreements with Executive Officers and
Directors.
10.5(3) -- Second Amended and Restated Credit Agreement by and among
the Company and NationsBank of Texas, N.A., as agent for
the lenders named therein, dated August 26, 1997.
10.6(2) -- Form of Junior Subordinated Debenture, issued by Dynamex
Inc., dated December 28, 1995.
10.7(2) -- Form of Dynamex Inc. Common Stock Purchase Warrant, dated
December 28, 1995.
11.1(1) -- Statement regarding computation of earnings per share.
21.1(1) -- Subsidiaries of the Registrant.
23.1(1) -- Independent Auditors' Consent of Deloitte & Touche.
23.2(1) -- Independent Auditors' Consent of Deloitte & Touche LLP.
23.3 -- Consent of Crouch & Hallett, L.L.P. (included in Exhibit
5.1).
24.1 -- Power of Attorney (included on page II-5).
27.1(1) -- Restated Financial Data Schedule, for each of the years
in the three-year period ended July 31, 1997.
27.2(1) -- Restated Financial Data Schedule, for each of the three
month periods ended October 31, 1996, January 31, 1997,
April 30, 1997 and October 31, 1997.
</TABLE>
- - ---------------
* To be filed by amendment.
(1) Filed herewith.
(2) Filed as an exhibit to registrant's Registration Statement on Form S-1 (File
No. 333-05293), and incorporated herein by reference.
(3) Filed as an exhibit to the registrant's annual report on Form 10-K for the
fiscal year ended July 31, 1997, and incorporated herein by reference.
(4) Filed as an exhibit to registrant's Form 8-K filed on October 7, 1997 and
incorporated herein by reference.
(5) Filed as an Exhibit to the registrant's Form 8-K filed on May 16, 1997 and
incorporated herein by reference.
II-3
<PAGE> 100
(b) Financial Schedules and Reports of Independent Auditors are as follows:
All schedules for which provision is made in the applicable accounting
regulation of the Commission are not required under the related instructions or
are inapplicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the underwriting agreement certificates
in such denominations and registered in such names as required by the
Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising from the Act may be
permitted to directors, officers and controlling persons of the Registrant
pursuant to the foregoing provisions, or otherwise, the Registrant has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(c) The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in the form
of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each
post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered
therein, and the Offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
II-4
<PAGE> 101
SIGNATURES
Pursuant to the requirement of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Irving, State of Texas on
the 7th day of April, 1998.
DYNAMEX INC.
By: /s/ ROBERT P. CAPPS
----------------------------------
Robert P. Capps,
Vice President -- Chief Financial
Officer
POWER OF ATTORNEY
We, the undersigned officers and directors of Dynamex Inc. hereby severally
constitute and appoint Richard K. McClelland and Robert P. Capps, and each of
them singly, our true and lawful attorneys, with full power to them and each of
them singly, to sign for us in our names in the capacities indicated below, all
pre-effective and post-effective amendments to this Registration Statement, and
any registration statements filed pursuant to Rule 462(b) under the Securities
Act of 1933, as amended, to register additional shares and generally to do all
things in our names and on our behalf in such capacities to enable Dynamex Inc.
to comply with the provisions of the Securities Act of 1933, as amended, and all
requirements of the Securities and Exchange Commission.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities on the 7th day of April, 1998.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<C> <S>
/s/ RICHARD K. MCCLELLAND President, Chief Executive Officer and
- - ----------------------------------------------------- Chairman of the Board (Principal Executive
Richard K. McClelland Officer)
/s/ ROBERT P. CAPPS Vice President -- Chief Financial Officer
- - ----------------------------------------------------- (Principal Financial Officer)
Robert P. Capps
/s/ JOHN J. WELLIK Vice President -- Controller (Principal
- - ----------------------------------------------------- Accounting Officer)
John J. Wellik
/s/ JAMES M. HOAK, JR. Director
- - -----------------------------------------------------
James M. Hoak, Jr.
/s/ WAYNE KERN Director
- - -----------------------------------------------------
Wayne Kern
/s/ STEPHEN P. SMILEY Director
- - -----------------------------------------------------
Stephen P. Smiley
/s/ BRIAN J. HUGHES Director
- - -----------------------------------------------------
Brian J. Hughes
/s/ KENNETH H. BISHOP Director
- - -----------------------------------------------------
Kenneth H. Bishop
/s/ E. T. WHALEN Director
- - -----------------------------------------------------
E. T. Whalen
</TABLE>
II-5
<PAGE> 102
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1(1) -- Form of Underwriting Agreement.
2.1(4) -- Stock Purchase Agreement dated May 16, 1997, by and among
Dynamex, Inc., Road Runner Transportation, Inc., James C.
Isaacson, Gordon I. Isaacson, Gretchen E. Larsen and
Thomas W. Ingeman.
2.2(5) -- Stock Purchase Agreement dated September 30, 1997, by and
among Dynamex Inc. and the shareholders of City Courier
Inc., New York Document Exchange Corporation and
Eastside/Westside, Inc.
3.1(2) -- Restated Certificate of Incorporation of Dynamex Inc.
3.2(3) -- Bylaws, as amended and restated, of Dynamex Inc.
4.1(2) -- Rights Agreement between Dynamex Inc. and Harris Trust
and Savings Bank, dated July 5, 1996.
5.1(1) -- Opinion of Crouch & Hallett, L.L.P.
10.1(1) -- Amendment No. 2 to Employment Agreement of Richard K.
McClelland.
10.2(3) -- Dynamex Inc. Amended and Restated 1996 Stock Option Plan.
10.3(2) -- Marketing and Transportation Services Agreement, between
Purolator Courier Ltd. and Parcelway Courier Systems
Canada Ltd., dated November 20, 1995.
10.4(2) -- Form of Indemnity Agreements with Executive Officers and
Directors.
10.5(3) -- Second Amended and Restated Credit Agreement by and among
the Company and NationsBank of Texas, N.A., as agent for
the lenders named therein, dated August 26, 1997.
10.6(2) -- Form of Junior Subordinated Debenture, issued by Dynamex
Inc., dated December 28, 1995.
10.7(2) -- Form of Dynamex Inc. Common Stock Purchase Warrant, dated
December 28, 1995.
11.1(1) -- Statement regarding computation of earnings per share.
21.1(1) -- Subsidiaries of the Registrant.
23.1(1) -- Independent Auditors' Consent of Deloitte & Touche.
23.2(1) -- Independent Auditors' Consent of Deloitte & Touche LLP.
23.3 -- Consent of Crouch & Hallett, L.L.P. (included in Exhibit
5.1).
24.1 -- Power of Attorney (included on page II-5).
27.1(1) -- Restated Financial Data Schedule, for each of the years
in the three-year period ended July 31, 1997.
27.2(1) -- Restated Financial Data Schedule, for each of the three
month periods ended October 31, 1996, January 31, 1997,
April 30, 1997 and October 31, 1997.
</TABLE>
- - ---------------
* To be filed by amendment.
(1) Filed herewith.
(2) Filed as an exhibit to registrant's Registration Statement on Form S-1 (File
No. 333-05293), and incorporated herein by reference.
(3) Filed as an exhibit to the registrant's annual report on Form 10-K for the
fiscal year ended July 31, 1997, and incorporated herein by reference.
(4) Filed as an exhibit to registrant's Form 8-K filed on October 7, 1997 and
incorporated herein by reference.
(5) Filed as an Exhibit to the registrant's Form 8-K filed on May 16, 1997 and
incorporated herein by reference.
<PAGE> 1
EXHIBIT 1.1
DYNAMEX INC.
___________ SHARES
COMMON STOCK
(PAR VALUE $.01 PER SHARE)
__________________
UNDERWRITING AGREEMENT
____________, 1998
SCHRODER & CO. INC.
WILLIAM BLAIR & COMPANY, L.L.C
HOAK BREEDLOVE & WESNESKI CO.
As Representatives of the several
Underwriters named in Schedule I hereto
c/o Schroder & Co. Inc.
Equitable Center
787 Seventh Avenue
New York, New York 10019-6016
Dear Sirs:
Dynamex Inc., a Delaware corporation (the "Company"), proposes, subject
to the terms and conditions stated herein, to issue and sell, and certain
stockholders of the Company named in Schedule II hereto (the "Selling
Stockholders") propose to sell, to the Underwriters named in Schedule I hereto
(the "Underwriters"), an aggregate of ___________ shares of Common Stock, par
value $.01 per share (the "Common Stock"), of the Company, of which _________
shares are to be issued and sold by the Company and an aggregate of ________
shares are to be sold by the Selling Stockholders in the respective amounts set
forth in Schedule II hereto. The aggregate ________ shares of Common Stock to be
sold by the Company and the Selling Stockholders are herein collectively
referred to as the "Firm Securities." In addition, the Company and the Selling
Stockholders propose to grant to the Underwriters an option to purchase up to an
aggregate of an additional ________ shares of Common Stock (the "Option
Securities") on the terms and for the purposes set forth in Section 2 hereof,
all of which are to be issued and sold by the Company. The Firm Securities and
the Option Securities are herein collectively referred to as the "Securities."
Except as may be expressly set forth below, any reference to you in this
Agreement
<PAGE> 2
shall be solely in your capacity as the Representatives.
1. (a) The Company represents and warrants to, and agrees with,
each of the Underwriters that:
(i) A registration statement on Form S-1 (File No.
333- ), and as part thereof a preliminary prospectus, in respect of the
Securities, has been filed with the Securities and Exchange Commission
(the "Commission") in the form heretofore delivered to you and, with
the exception of exhibits to the registration statement, to you for
each of the other Underwriters; if such registration statement has not
become effective, an amendment (the "Final Amendment") to such
registration statement, including a form of final prospectus, necessary
to permit such registration statement to become effective, will
promptly be filed by the Company with the Commission; if such
registration statement has become effective and any post-effective
amendment to such registration statement has been filed with the
Commission prior to the execution and delivery of this Agreement, which
amendment or amendments shall be in acceptable form to you, the most
recent such amendment has been declared effective by the Commission; if
such registration statement has become effective, a final prospectus
(the "Rule 430A Prospectus") relating to the Securities containing
information permitted to be omitted at the time of effectiveness by
Rule 430A of the rules and regulations of the Commission under the
Securities Act of 1933, as amended (the "Act"), will promptly be filed
by the Company pursuant to Rule 424(b) of the rules and regulations of
the Commission under the Act (any preliminary prospectus filed as part
of such registration statement being herein called a "Preliminary
Prospectus," such registration statement as amended at the time that it
becomes or became effective, or, if applicable, as amended at the time
the most recent post-effective amendment to such registration statement
filed with the Commission prior to the execution and delivery of this
Agreement became effective (the "Effective Date"), including a
registration statement (if any) filed pursuant to Rule 462(b) under the
Act increasing the size of the offering registered under the Act and
including all exhibits thereto and all information deemed to be a part
thereof at such time pursuant to Rule 430A of the rules and regulations
of the Commission under the Act, being herein called the "Registration
Statement" and the final prospectus relating to the Securities in the
form first filed pursuant to Rule 424(b)(1) or (4) of the rules and
regulations of the Commission under the Act or, if no such filing is
required, the form of final prospectus included in the Registration
Statement, being herein called the "Prospectus");
(ii) No order preventing or suspending the use of any
Preliminary Prospectus has been issued by the Commission, and each
Preliminary Prospectus, at the time of filing thereof, conformed in all
material respects to the requirements of the Act and the rules and
regulations of the Commission thereunder, and did not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not
misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon
and in conformity
2
<PAGE> 3
with information furnished in writing to the Company by an Underwriter
through you expressly for use therein;
(iii) On the Effective Date and the date the Prospectus is
filed with the Commission, and when any further amendment or
supplements thereto become effective or are filed with the Commission,
as the case may be, the Registration Statement, the Prospectus and such
amendment or supplements did and will conform in all material respects
to the requirements of the Act and the rules and regulations of the
Commission thereunder, and did not and will not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading; provided, however, that this representation and warranty
shall not apply to any statements or omissions made in reliance upon
and in conformity with information furnished in writing to the Company
by an Underwriter through you expressly for use therein;
(iv) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with power and authority (corporate and other) to own its
properties and to conduct its business as described in the Prospectus,
and has been duly qualified as a foreign corporation for the
transaction of business and is in good standing under the laws of each
other jurisdiction in which it owns or leases property, or conducts any
business, so as to require such qualification, except where the failure
to so qualify would not have a material adverse effect on the
condition, financial or otherwise, or the business affairs or prospects
of the Company and its subsidiaries, taken as a whole (such adverse
effect to be hereinafter referred to as a "Material Adverse Effect");
and each of the Company's subsidiaries has been duly incorporated and
is validly existing as a corporation in good standing under the laws of
its jurisdiction of incorporation, with power and authority (corporate
and other) to own its properties and to conduct its business as
described in the Prospectus, and has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases
property, or conducts any business, so as to require such
qualification, except where the failure to so qualify would not have a
Material Adverse Effect;
(v) All the issued shares of capital stock of each
subsidiary of the Company have been duly and validly authorized and
issued, are fully paid and non-assessable and are owned directly or
indirectly by the Company free and clear of all liens, encumbrances,
equities, security interests, or claims except to the extent
specifically stated in the Prospectus; and there are no outstanding
options, warrants or other rights calling for the issuance of, and
there are no commitments, plans or arrangements to issue, any shares of
capital stock of any subsidiary or any security convertible or
exchangeable or exercisable for capital stock of any subsidiary; except
for the shares of stock of each subsidiary owned directly or indirectly
by the Company, neither the Company nor any subsidiary owns directly or
indirectly any shares of capital stock of any corporation or have any
equity interest in any firm, partnership, joint venture, association or
other entity;
3
<PAGE> 4
(vi) The Company has all requisite power and authority to
execute, deliver and perform its obligations under this Agreement; the
execution, delivery and performance by the Company of its obligations
under this Agreement have been duly and validly authorized by all
requisite corporate action of the Company; and this Agreement
constitutes the legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally
and except as enforceability of those provisions relating to indemnity
may be limited by Federal securities laws and principles of public
policy;
(vii) Neither the Company nor any of its subsidiaries has
sustained since the date of the latest audited financial statements
included in the Prospectus, any loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered
by insurance, or from any labor dispute or court or governmental
action, order or decree, which loss or interference is material to the
Company and its subsidiaries, taken as a whole; and, since the
respective dates as of which information is given in the Registration
Statement and the Prospectus, there has not been, and prior to the Time
of Delivery (as defined in Section 4 hereof) there will not be, any
change in the capital stock (other than shares issued pursuant to
exercise of employee stock options that the Prospectus indicates are
outstanding (the "Employee Option Shares") or short-term debt or
long-term debt of the Company or any of its subsidiaries, or any
material adverse change, or any development involving a prospective
material adverse change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries, taken as whole,
otherwise than as set forth or contemplated in the Prospectus;
(viii) The Company and its subsidiaries have good and
marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them, in each case
free and clear of all liens, encumbrances and defects except such as
are described or contemplated by the Prospectus, or such as do not
materially adversely interfere with the use made and proposed to be
made of such property by the Company and its subsidiaries, and any real
property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions that do not adversely affect or interfere
with the use made and proposed to be made of such real property and
buildings by the Company and its subsidiaries;
(ix) The Company has an authorized, issued and outstanding
capitalization as set forth in the Registration Statement, and all the
issued shares of capital stock of the Company (including the Securities
to be sold by the Selling Stockholders) have been duly and validly
authorized and issued, are fully paid and non-assessable, are free of
any preemptive rights, rights of first refusal or similar rights, were
issued and sold in compliance with the applicable Federal and state
securities laws and conform in all material respects to the description
in the Prospectus; except as described in the
4
<PAGE> 5
Prospectus, there are no outstanding options, warrants or other rights
calling for the issuance of, and there are no commitments, plans or
arrangements to issue, any shares of capital stock of the Company or
any security convertible or exchangeable or exercisable for capital
stock of the Company; there are no holders of securities of the Company
who, by reasons of the filing of the Registration Statement have the
right (and have not waived such right) to request the Company to
include in the Registration Statement securities owned by them;
(x) The Securities to be issued and sold by the Company
to the Underwriters hereunder have been duly and validly authorized
and, when issued and delivered against payment therefor as provided
herein, will be duly and validly issued, fully paid and
non-assessable, and will conform in all material respects to the
description thereof in the Prospectus and will be quoted on the Nasdaq
National Market as of the Effective Date;
(xi) The performance of this Agreement, the consummation
of the transactions herein contemplated and the issue and sale of the
Securities and the compliance by the Company with all the provisions of
this Agreement will not result in a breach or violation of any of the
terms or provisions of, or constitute a default under, or result in the
creation or imposition of any lien, charge, claim, or encumbrance upon,
any of the property or assets of the Company or any of its subsidiaries
pursuant to, any indenture, mortgage, deed of trust, loan agreement or
other material agreement or instrument to which the Company or any of
its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, nor will such action
result in any violation of the provisions of the Certificate of
Incorporation or the Bylaws (or other constituent documents), in each
case as amended to the date hereof, of the Company or any of its
subsidiaries or any statute or any order, rule or regulation of any
court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties; and no
consent, approval, authorization, order, registration or qualification
of or with any court or governmental agency or body is required for the
issue and sale of the Securities or the consummation of the other
transactions contemplated by this Agreement, except the registration
under the Act of the Securities, and such consents, approvals,
authorizations, registrations or qualifications as may be required
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and state or foreign securities or Blue Sky laws in connection
with the purchase and distribution of the Securities by the
Underwriters;
(xii) Except as set forth in the Prospectus, there are no
legal or governmental proceedings pending to which the Company or any
of its subsidiaries or any of their respective officers or directors is
a party or of which any property of the Company or any of its
subsidiaries is the subject, other than litigation or proceedings
incident to the business conducted by the Company and its subsidiaries
which will not, individually or in the aggregate if determined
adversely to the Company or any of its subsidiaries, have a Material
Adverse Effect; and, to the best of the Company's knowledge, no such
5
<PAGE> 6
proceedings are threatened; and neither the Company nor any of its
subsidiaries is involved in any labor dispute, nor, to the Company's
knowledge, is any labor dispute threatened;
(xiii) The Company and its subsidiaries have such licenses,
permits and other approvals or authorizations of and from governmental
or regulatory authorities ("Permits") as are necessary under applicable
law to own their respective properties and to conduct their respective
businesses in the manner now being conducted and as described in the
Prospectus subject in each case to such qualification as may be set
forth in the Prospectus and except where the failure to have such
Permits would not have a Material Adverse Effect; and the Company and
its subsidiaries have fulfilled and performed all of their respective
obligations with respect to such Permits, and no event has occurred
which allows, or after notice or lapse of time or both would allow,
revocation or termination thereof or result in any other material
impairment of the rights of the holder of any such permits subject in
each case to such qualification as may be set forth in the Prospectus
and except where the failure to fulfill or perform or the occurrence of
such an event would not have a Material Adverse Effect;
(xiv) Except as described in the Registration Statement and
except as would not, singly or in the aggregate, result in a Material
Adverse Effect, (A) neither the Company nor any of its subsidiaries is
in violation of any federal, state, local or foreign statute, law,
rule, regulation, ordinance, code, policy or rule of common law or any
judicial or administrative interpretation thereof, including any
judicial or administrative order, consent, decree or judgment, relating
to pollution or protection of human health, the environment (including,
without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata) or wildlife, including, without
limitation, laws and regulations relating to the release or threatened
release of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum or petroleum products
(collectively, "Hazardous Materials") or to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport
or handling of Hazardous Materials (collectively, "Environmental
Laws"), (B) the Company and its subsidiaries have all permits,
authorizations and approvals required under any applicable
Environmental Laws and are each in compliance with their requirements,
(C) there are no pending or threatened administrative, regulatory or
judicial actions, suits, demands, demand letters, claims, liens,
notices of noncompliance or violation, investigation or proceedings
relating to any Environmental Law against the Company or any of its
subsidiaries and (D) there are no events or circumstances that might
reasonably be expected to form the basis of an order for clean-up or
remediation, or an action, suit or proceeding by any private party or
governmental body or agency, against or affecting the Company or any of
its subsidiaries relating to Hazardous Materials or any Environmental
Laws;
(xv) Deloitte & Touche, L.L.P. who have certified certain
financial statements of the Company and its consolidated subsidiaries
and delivered their report with respect
6
<PAGE> 7
to the audited consolidated financial statements and schedules included
in the Registration Statement and the Prospectus, are independent
public accountants as required by the Act and the rules and regulations
of the Commission thereunder;
(xvi) The consolidated financial statements and schedules
of the Company and its subsidiaries included in the Registration
Statement and the Prospectus present fairly the financial condition,
the results of operations and the cash flows of the Company and its
subsidiaries as of the dates and for the periods therein specified in
conformity with U.S. generally accepted accounting principles
consistently applied throughout the periods involved, except as
otherwise stated therein; and the other financial and statistical
information and data set forth in the Registration Statement and the
Prospectus is accurately presented and, to the extent such information
and data is derived from the financial statements and books and records
of the Company and its subsidiaries, is prepared on a basis consistent
with such financial statements and the books and records of the Company
and its subsidiaries; the pro forma financial information included in
the Registration Statement and the Prospectus have been properly
compiled and comply in form in all material respects with the
applicable accounting requirements of Rule 11-02 of Regulation S-X of
the Commission; no other financial statements or schedules are required
to be included in the Registration Statement and the Prospectus;
(xvii) There are no statutes or governmental regulations, or
any contracts or other documents that are required to be described in
or filed as exhibits to the Registration Statement which are not
described therein or filed as exhibits thereto; and all such contracts
to which the Company or any subsidiary is a party have been duly
authorized, executed and delivered by the Company or such subsidiary,
constitute valid and binding agreements of the Company or such
subsidiary and are enforceable against the Company or subsidiary in
accordance with the terms thereof;
(xviii) The Company and its subsidiaries own or possess
adequate patent rights or licenses or other rights to use patent
rights, inventions, trademarks, service marks, trade names, copyrights,
technology and know-how necessary to conduct the general business now
or proposed to be operated by them as described in the Prospectus
except where the failure to have such rights would not have a Material
Adverse Effect; neither the Company nor any of its subsidiaries has
received any notice of infringement of or conflict with asserted rights
of others with respect to any patent, patent rights, inventions,
trademarks, service marks, trade names, copyrights, technology or
know-how which, singly or in the aggregate, could materially adversely
affect the business, operations, financial condition, income or
business prospects of the Company and its subsidiaries considered as a
whole; and, the discoveries, inventions, products or processes of the
Company and its subsidiaries referred to in the Prospectus do not, to
the Company's knowledge, infringe or conflict with any patent or right
of any third party, or any discovery, invention, product or process
which is the subject of a patent application filed by any third party,
known to the Company;
7
<PAGE> 8
(xix) Neither the Company nor any of its subsidiaries are
in violation of any term or provision of its Certificate of
Incorporation or Bylaws (or similar corporate constituent documents),
in each case as amended to the date hereof, or are in violation in any
material respect of any law, ordinance, administrative or governmental
rule or regulation applicable to the Company or any of its
subsidiaries, or of any decree of any court or governmental agency or
body having jurisdiction over the Company or any of its subsidiaries;
(xx) No default exists, and no event has occurred which
with notice or lapse of time, or both, would constitute a default in
the due performance and observance of any term, covenant or condition
of any indenture, mortgage, deed of trust, bank loan or credit
agreement, lease or other agreement or instrument to which the Company
or any of its subsidiaries is a party or by which any of them or their
respective properties is bound or may be affected where such default
would have a Material Adverse Effect;
(xxi) The Company and its subsidiaries have timely filed
all federal and material state tax returns and notices required to be
filed by the Company or its subsidiaries and have paid all material
taxes of any nature whatsoever for all tax years through December 31,
1997, to the extent such taxes have become due. The Company has no
knowledge, or any reasonable grounds to know, of any tax deficiencies
which would have a Material Adverse Effect on the Company or any of its
subsidiaries; the Company and its subsidiaries have paid all taxes
which have become due, whether pursuant to any assessments, or
otherwise, and there is no further liability (whether or not disclosed
on such returns) or assessments for any such taxes, and no interest or
penalties accrued or accruing with respect thereto, except for any such
assessment, fine and penalty that is currently being contested in good
faith or as may be set forth or adequately reserved for in the
financial statements included in the Registration Statement; the
amounts currently set up as provisions for taxes or otherwise by the
Company and its subsidiaries on their books and records are sufficient
for the payment of all their unpaid federal, foreign, state, county and
local taxes accrued through the dates as of which they speak, and for
which the Company and its subsidiaries may be liable in their own
rights, or as a transferee of the assets of, or as successor to any
other corporation, association, partnership, joint venture or other
entity;
(xxii) The Company will not, during the period of 120 days
after the date hereof except pursuant to this Agreement, offer, sell,
contract to sell or otherwise dispose of any capital stock of the
Company (or securities convertible into, or exchangeable for, capital
stock of the Company), directly or indirectly, without the prior
written consent of Schroder & Co. Inc.;
(xxiii) The Company and its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
8
<PAGE> 9
conformity with generally accepted accounting principles and to
maintain accountability for assets; (iii) access to assets is permitted
only in accordance with management's general or specific authorization;
and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences;
(xxiv) Neither the Company nor any of its subsidiaries is in
violation of any applicable law relating to discrimination in the
hiring, promotion or paying of employees nor any applicable wages and
hours laws, nor any provisions of the Employee Retirement Income
Security Act of 1974, as amended, or the rules and regulations
promulgated thereunder, where such violation would have a Material
Adverse Effect;
(xxv) The Company and each of its subsidiaries are insured
by insurers of recognized financial responsibility against such losses
and risks and in such amounts as are prudent and customary in the
businesses in which they are engaged; neither the Company nor any such
subsidiary has been refused any insurance coverage sought or applied
for; and except as described in the Prospectus neither the Company nor
any such subsidiary has any reason to believe that it will not be able
to renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not have a
Material Adverse Effect;
(xxvi) None of the Company or its subsidiaries, or its
officers, directors, employees or agents has used any corporate funds
for any unlawful contribution, gift, entertainment or other unlawful
expense relating to political activity, or made any unlawful payment of
funds of the Company or any subsidiary or received or retained any
funds in violation of any law, rule or regulation;
(xxvii) The Company is not, and upon the issuance and sale of
the Securities as herein contemplated and the application of the net
proceeds therefrom as described in the Prospectus will not be, an
"investment company" or an entity "controlled" by an "investment
company" as such terms are defined in the Investment Company Act of
1940, as amended (the "1940 Act"); and
(xxviii) None of the Company or its subsidiaries, or its
officers, directors, employees or agents has taken or will take,
directly or indirectly, any action designed to or which has constituted
or that might be reasonably be expected to cause or result in
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Securities.
(b) Each Selling Stockholder severally represents and warrants to,
and agrees with, each of the Underwriters, as follows:
(i) To the best knowledge of such Selling Stockholder,
the representations
9
<PAGE> 10
and warranties of the Company contained in Section 1(a) hereof are true
and correct; such Selling Stockholder has reviewed and is familiar with
the Registration Statement and the Prospectus and, to the best
knowledge of such Selling Stockholder, neither the Prospectus nor any
amendments or supplements thereto includes any untrue statement of a
material fact or omits to state a material fact necessary in order to
make the statements therein, in the light of the circumstances under
which they were made, not misleading; such Selling Stockholder is not
prompted to sell the Securities to be sold by such Selling Stockholder
hereunder by any information concerning the Company or any subsidiary
of the Company which is not set forth in the Prospectus;
(ii) Each Selling Stockholder has the full right, power
and authority to enter into this Agreement, a Power of Attorney and a
Custody Agreement and to sell, transfer and deliver the Securities to
be sold by such Selling Stockholder hereunder. The execution and
delivery of this Agreement, the Power of Attorney and the Custody
Agreement and the sale and delivery of the Securities to be sold by
such Selling Stockholder and the consummation of the transactions
contemplated herein and compliance by such Selling Stockholder with its
obligations hereunder have been duly authorized by such Selling
Stockholder and do not and will not, whether with or without the giving
of notice or passage of time or both, conflict with or constitute a
breach of, or default under, or result in the creation or imposition of
any tax, lien, charge or encumbrance upon the Securities to be sold by
such Selling Stockholder or any property or assets of such Selling
Stockholder pursuant to any contract, indenture, mortgage, deed of
trust, loan or credit agreement, note, license, lease or other
agreement or instrument to which such Selling Stockholder is a party or
by which such Selling Stockholder may be bound, or to which any of the
property or assets of such Selling Stockholder is subject, nor will
such action result in any violation of the provisions of the charter or
bylaws or other organizational instrument of such Selling Stockholder,
if applicable, or any applicable treaty, law, statute, rule,
regulation, judgment, order, writ or decree of any government,
government instrumentality or court, domestic or foreign, having
jurisdiction over such Selling Stockholder or any of its properties;
(iii) Such Selling Stockholder has and will at the Time of
Delivery have good and marketable title to the Securities to be sold by
such Selling Stockholder hereunder, free and clear of any security
interest, mortgage, pledge, lien, charge, claim, equity or encumbrance
of any kind, other than pursuant to this Agreement; and upon delivery
of such Securities and payment of the purchase price therefor as herein
contemplated, assuming each such Underwriter has no notice of any
adverse claim, each of the Underwriters will receive good and
marketable title to the Securities purchased by it from such Selling
Stockholder, free and clear of any security interest, mortgage, pledge,
lien, charge, claim, equity or encumbrance of any kind;
(iv) Such Selling Stockholder has duly executed and
delivered, in the form heretofore furnished to the Representatives,
each of the Power of Attorney and the Custody Agreement, with [Richard
K. McClelland] and [Robert P. Capps], or either of
10
<PAGE> 11
them, as attorney(s)-in-fact (the "Attorney(s)-in-Fact") and the
Company, as custodian (the "Custodian"); the Custodian is authorized to
deliver the Securities to be sold by such Selling Stockholder hereunder
and to accept payment therefor; and each Attorney-in-Fact is authorized
to execute and deliver this Agreement and the certificate referred to
in Section 7(k), to sell, assign and transfer to the Underwriters the
Securities to be sold by such Selling Stockholder hereunder, to
determine the purchase price to be paid by the Underwriters to such
Selling Stockholder, to authorize the delivery of the Securities to be
sold by such Selling Stockholder hereunder, to accept payment therefor,
and otherwise to act on behalf of such Selling Stockholder in
connection with this Agreement;
(v) Such Selling Stockholder has not taken, and will not
take, directly or indirectly, any action which is designed to or which
has constituted or which might reasonably be expected to cause or
result in stabilization or manipulation of the price of any security of
the Company to facilitate the sale or resale of the Securities;
(vi) No filing with, or consent, approval, authorization,
order, registration, qualification or decree of, any court or
governmental authority or agency, domestic or foreign, is necessary or
required for the performance by each Selling Stockholder of its
obligations hereunder or in the Power of Attorney and the Custody
Agreement, or in connection with the sale and delivery of the
Securities hereunder or the consummation of the transactions
contemplated by this Agreement, except such as may have previously been
made or obtained or as may be required under the Act or the Exchange
Act or the regulations promulgated thereunder or state securities laws;
(vii) Such Selling Stockholder will not, during the period
of 120 days after the date hereof, offer, sell, contract to sell or
otherwise dispose of any capital stock of the Company (or securities
convertible into, or exchangeable for, capital stock of the Company),
directly or indirectly, without the prior written consent of Schroder &
Co. Inc.; the foregoing sentence shall not apply to the Securities to
be sold hereunder;
(viii) Certificates for all of the Securities to be sold by
such Selling Stockholder pursuant to this Agreement, in suitable form
for transfer by delivery or accompanied by duly executed instruments of
transfer or assignment in blank with signatures guaranteed, have been
placed in custody with the Custodian with irrevocable conditional
instructions to deliver such Securities to the Underwriters pursuant to
this Agreement; and
(ix) Neither such Selling Stockholder nor any of such
Selling Stockholder's affiliates directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common
control with, or has any other association with (within the meaning of
Article I, Section 1(m) of the Bylaws of the National Association of
Securities Dealers, Inc.), any member firm of the National Association
of Securities Dealers, Inc.
2. Subject to the terms and conditions herein set forth, the
Company agrees to issue
11
<PAGE> 12
and sell to the several Underwriters an aggregate of _____________ Firm
Securities and the Selling Stockholders, severally and not jointly, agree to
sell an aggregate of ________ Firm Securities (each to sell the number of Firm
Securities set forth opposite the name of such Selling Stockholder in Schedule
II hereto), and each of the Underwriters agrees, severally and not jointly, to
purchase from the Company and the Selling Stockholders, at a purchase price of
$____ per share, the respective aggregate number of Firm Securities determined
in the manner set forth below. The obligation of each Underwriter to the Company
and the Selling Stockholders shall be to purchase that portion of the number of
shares of Common Stock to be sold by the Company and the Selling Stockholders
pursuant to this Agreement as the number of Firm Securities set forth opposite
the name of such Underwriter on Schedule I bears to the total number of Firm
Securities to be purchased by the Underwriters pursuant to this Agreement, in
each case adjusted by you such that no Underwriter shall be obligated to
purchase Firm Securities other than in 100 shares amounts. In making this
Agreement, each Underwriter is contracting severally and not jointly.
In addition, subject to the terms and conditions herein set forth, the
Company agrees to issue and sell up to _______ Option Securities to the
Underwriters, as required (for the sole purpose of covering over-allotments in
the sale of the Firm Securities), at the purchase price per share of the Firm
Securities being sold by the Company and the Selling Stockholders as stated in
the preceding paragraph. The right to purchase the Option Securities may be
exercised by your giving prior written or telephonic notice (subsequently
confirmed in writing) to the Company of your determination to purchase all or a
portion of the Option Securities. Such notice may be given at any time within a
period of 30 days following the date of this Agreement. Option Securities shall
be purchased severally for the account of each Underwriter in proportion to the
number of Firm Securities set forth opposite the name of such Underwriter in
Schedule I hereto. No Option Securities shall be delivered to or for the
accounts of the Underwriters unless the Firm Securities shall be simultaneously
delivered or shall theretofore have been delivered as herein provided. The
respective purchase obligations of each Underwriter shall be adjusted by you so
that no Underwriter shall be obligated to purchase Option Securities other than
in 100 share amounts. The Underwriters may cancel any purchase of Option
Securities at any time prior to the Option Securities Delivery Date (as defined
in Section 4 hereof) by giving written notice of such cancellation to the
Company.
3. The Underwriters propose to offer the Securities for sale upon
the terms and conditions set forth in the Prospectus.
4. Certificates in definitive form for the Firm Securities to be
purchased by each Underwriter hereunder shall be delivered by or on behalf of
the Company and the Selling Stockholders to you for the account of such
Underwriter, against payment by such Underwriter or on its behalf of the
purchase price therefor by wire transfer, payable in same day funds, to the
order of the Company and the Selling Stockholders, as appropriate, for the
purchase price of the Firm Securities being sold by the Company and the Selling
Stockholders at the office of Schroder & Co. Inc., Equitable Center, 787 Seventh
Avenue, New York, New York, at 9:30 a.m., New York City time, on __________ ___,
1998, or at such other time, date and place as you and
12
<PAGE> 13
the Company may agree upon in writing, such time and date being herein called
the "Time of Delivery."
Certificates in definitive form for the Option Securities to be
purchased by each Underwriter hereunder shall be delivered by or on behalf of
the Company to you for the account of such Underwriter, against payment by such
Underwriter or on its behalf of the purchase price thereof by wire transfer,
payable in same day funds, to the order of the Company for the purchase price of
the Option Securities, in New York, New York, at such time and on such date (not
earlier than the Time of Delivery nor later than ten business days after giving
of the notice delivered by you to the Company with reference thereto) and in
such denominations and registered in such names as shall be specified in the
notice delivered by you to the Company with respect to the purchase of such
Option Securities. The date and time of such delivery and payment are herein
sometimes referred to as the "Option Securities Delivery Date." The obligations
of the Underwriters shall be subject, in their discretion, to the condition that
there shall be delivered to the Underwriters on the Option Securities Delivery
Date opinions and certificates, dated such Option Securities Delivery Date,
referring to the Option Securities, instead of the Firm Securities, but
otherwise to the same effect as those required to be delivered at the Time of
Delivery pursuant to Section 7(d), 7(e), 7(f), 7(i) and 7(j).
Certificates for the Firm Securities and the Option Securities so to be
delivered will be in good delivery form, and in such denominations and
registered in such names as you may request not less than 48 hours prior to the
Time of Delivery and the Option Securities Delivery Date, respectively. Such
certificates will be made available for checking and packaging in New York, New
York, at least 24 hours prior to the Time of Delivery and Option Securities
Delivery Date.
5. The Company covenants and agrees with each of the
Underwriters:
(a) If the Registration Statement has not become
effective, to file promptly the Final Amendment with the Commission and
use its best efforts to cause the Registration Statement to become
effective; if the Registration Statement has become effective, to file
promptly the Rule 430A Prospectus with the Commission; to make no
further amendment or any supplement to the Registration Statement or
Prospectus which shall be disapproved by you after reasonable notice
thereof; to advise you, promptly after it receives notice thereof of
the time when the Registration Statement, or any amendment thereto, or
any amended Registration Statement has become effective or any
supplement to the Prospectus or any amended Prospectus has been filed,
of the issuance by the Commission of any stop order or of any order
preventing or suspending the use of any Preliminary Prospectus or the
Prospectus, of the suspension of the qualification of the Securities
for offering or sale in any jurisdiction, of the initiation or
threatening of any proceeding for any such purpose, or of any request
by the Commission for the amending or supplementing of the Registration
Statement or Prospectus or for additional information; and in the event
of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or the Prospectus or
suspending any such qualification, to use promptly its best efforts to
obtain withdrawal of such order;
13
<PAGE> 14
(b) Promptly from time to time to take such action as you
may request to qualify the Securities for offering and sale under the
securities laws of such jurisdictions as you may request and to comply
with such laws so as to permit the continuance of sales and dealings
therein in such jurisdictions for as long as may be necessary to
complete the distribution, provided that in connection therewith the
Company shall not be required to qualify as a foreign corporation or to
file a general consent to service of process in any jurisdiction or to
take any action that would subject it to service of process in suits
other than those arising out of the offering of the Securities;
(c) To furnish each of the Representatives and counsel
for the Underwriters, without charge, signed copies of the registration
statement originally filed with respect to the Securities and each
amendment thereto (in each case including all exhibits thereto) and to
each other Underwriter, without charge, a conformed copy of such
registration statement and each amendment thereto (in each case without
exhibits thereto) and, so long as a prospectus relating to the
Securities is required to be delivered under the Act, as many copies of
each Preliminary Prospectus, the Prospectus and all amendments or
supplements thereto as you may from time to time reasonably request. If
at any time when a prospectus is required to be delivered under the Act
an event shall have occurred as a result of which the Prospectus as
then amended or supplemented would include an untrue statement of a
material fact or omit to state any material fact necessary in order to
make statements therein, in the light of the circumstances under which
they were made when such Prospectus is delivered, not misleading, or if
for any other reason it shall be necessary to amend or supplement the
Prospectus in order to comply with the Act, the Company will forthwith
prepare and, subject to the provisions of Section 5(a) hereof, file
with the Commission an appropriate supplement or amendment thereto, and
will furnish to each Underwriter and to any dealer in securities,
without charge, as many copies as you may from time to time reasonably
request of an amended Prospectus or a supplement to the Prospectus
which will correct such statement or omission or effect such compliance
in accordance with the requirements of Section 10 of the Act;
(d) To make generally available to its stockholders as
soon as practicable, but in any event not later than 45 days after the
close of the period covered thereby, an earnings (which need not be
audited) statement in form complying with the provisions of Section
11(a) of the Act covering a period of 12 consecutive months beginning
not later than the first day of the Company's fiscal quarter next
following the Effective Date;
(e) To file promptly all documents required to be filed
with the Commission pursuant to Section 13, 14 or 15(d) of the Exchange
Act subsequent to the Effective Date and during any period when the
Prospectus is required to be delivered;
(f) For a period of five years from the Effective Date,
to furnish to its stockholders after the end of each fiscal year an
annual report (including a consolidated balance sheet and statements of
income, cash flow and stockholders' equity of the
14
<PAGE> 15
Company and its subsidiaries certified by independent public accounts);
(g) During a period of five years from the Effective
Date, to furnish to you copies of all reports or other communications
(financial or other) furnished to its stockholders, and deliver to you
(i) as soon as they are available, copies of any reports and financial
statements furnished to or filed with the Commission or the Nasdaq
National Market or any national securities exchange on which any class
of securities of the Company is listed; and (ii) such additional
information concerning the business and financial condition of the
Company as you may from time to time reasonably request in connection
with your obligations hereunder;
(h) To apply the net proceeds from the sale of the
Securities in the manner set forth in the Prospectus under the caption
"Use of Proceeds";
(i) That it will not, and will cause its subsidiaries,
officers, directors, employees, agents and affiliates not to, take,
directly or indirectly, any action designed to cause or result in, or
that might reasonably be expected to cause or result in stabilization
or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Securities;
(j) That prior to the Time of Delivery there will not be
any change in the capital stock (other than shares issued pursuant to
the Company's Amended and Restated 1996 Stock Option Plan) or material
change in the short-term debt or long-term debt of the Company or any
of its subsidiaries, or any material adverse change, or any development
involving a prospective material adverse change in or affecting the
general affairs, management, financial position, stockholders' equity
or results of operations of the Company or any of its subsidiaries,
taken as a whole, otherwise than as set forth or contemplated in the
Prospectus;
(k) That it will not, during the period of 120 days after
the date hereof (other than pursuant to this Agreement), offer, sell,
contract to sell or otherwise dispose of any capital stock of the
Company (or securities convertible into, or exchangeable for, capital
stock of the Company), directly or indirectly, without the prior
written consent of Schroder & Co. Inc., except for grants of stock
options under the Company's Amended and Restated 1996 Stock Option
Plan; and
(l) That it has caused the Securities to be included for
quotation on the Nasdaq National Market as of the Effective Date.
6. The Company covenants and agrees with the several Underwriters
that the Company will pay or cause to be paid: (i) the fees, disbursements and
expenses of counsel and accountants for the Company and the Selling
Stockholders, and all other expenses, in connection with the preparation,
printing and filing of the Registration Statement and the Prospectus and
amendments and supplements thereto and the furnishing of copies thereof,
including charges for
15
<PAGE> 16
mailing, air freight and delivery and counting and packaging thereof and of any
Preliminary Prospectus and related offering documents to the Underwriters and
dealers; (ii) the cost of printing this Agreement, the Agreement Among
Underwriters, the Selling Agreement, communications with the Underwriters and
selling group and the Preliminary and Supplemental Blue Sky Memoranda and any
other documents in connection with the offering, purchase, sale and delivery of
the Securities; (iii) all expenses in connection with the qualification of the
Securities for offering and sale under securities laws as provided in Section
5(b) hereof, including filing and registration fees and the fees, disbursements
and expenses for counsel for the Underwriters in connection with such
qualification and in connection with Blue Sky surveys or similar advice with
respect to sales; (iv) the filing fees incident to securing any required review
by the National Association of Securities Dealers, Inc. of the terms of the sale
of the Securities; (v) all fees and expenses in connection with quotation of the
Securities on the Nasdaq National Market; and (vi) all other costs and expenses
incident to the performance of their obligations hereunder which are not
otherwise specifically provided for in this Section 6, including the fees of the
Company's Transfer Agent and Registrar, the cost of any stock issue or transfer
taxes on sale of the Securities to the Underwriters, the cost of the Company's
personnel and other internal costs, the cost of printing and engraving the
certificates representing the Securities and all expenses and taxes incident to
the sale and delivery of the Securities to be sold by the Company to the
Underwriters hereunder. It is understood, however, that, except as provided in
this Section, Section 8 and Section 11 hereof, the Underwriters will pay all
their own costs and expenses, including the fees of their counsel, stock
transfer taxes on resale of any of the Securities by them, and any advertising
expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder shall be
subject, in their discretion, to the condition that all representations and
warranties and other statements of the Company and the Selling Stockholders
herein are, at and as of the Time of Delivery, true and correct, the condition
that the Company shall have performed all its obligations hereunder theretofore
to be performed, and the following additional conditions:
(a) The Registration Statement shall have become
effective, and you shall have received notice thereof not later than
10:00 p.m., New York City time, on the date of execution of this
Agreement, or at such other time as you and the Company may agree; if
required, the Prospectus shall have been filed with the Commission in
the manner and within the time period required by Rule 424(b); no stop
order suspending the effectiveness of the Registration Statement shall
have been issued and no proceeding for that purpose shall have been
issued and no proceeding for that purpose shall have been initiated or
threatened by the Commission; and all requests for additional
information on the part of the Commission shall have been complied with
to your reasonable satisfaction;
(b) All corporate proceedings and related legal matters
in connection with the organization of the Company and the
registration, authorization, issue, sale and delivery of the Securities
shall have been reasonably satisfactory to Akin, Gump, Strauss, Hauer &
Feld, L.L.P. ("Akin Gump"), counsel to the Underwriters, and Akin Gump
shall have been timely furnished with such papers and information as
they may reasonably have
16
<PAGE> 17
requested to enable them to pass upon the matters referred to in this
subsection;
(c) You shall not have advised the Company that the
Registration Statement or Prospectus, or any amendment or supplement
thereto, contains an untrue statement of fact or omits to state a fact
which in your judgment is in either case material and in the case of an
omission is required to be stated therein or is necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading;
(d) Crouch & Hallett, L.L.P., counsel to the Company and
the Selling Stockholders, shall have furnished to you their written
opinion, dated the Time of Delivery, in form and substance satisfactory
to you, to the effect that:
(i) The Company has been duly and validly
incorporated and is validly existing as a corporation in good
standing under the laws of the State of Delaware, and is
qualified to do business and is in good standing in each
jurisdiction in which, to the knowledge of such counsel, the
ownership or leasing of properties requires such qualification
or the conduct of its business requires such qualification
(except where the failure to so qualify would not have a
Material Adverse Effect); and the Company has all necessary
corporate power and all material governmental authorizations,
permits and approvals required to own, lease and operate its
properties and conduct its business as described in the
Prospectus;
(ii) Each of the Company's subsidiaries has been
duly and validly incorporated and is validly existing as a
corporation in good standing under the laws of the
jurisdiction of its incorporation, and is qualified to do
business and is in good standing in each jurisdiction in
which, to the knowledge of such counsel, the ownership or
leasing of properties requires such qualification or the
conduct of its business requires such qualification (except
where the failure to so qualify would not have a Material
Adverse Effect); and each such subsidiary has all necessary
corporate power and all material governmental authorizations,
permits and approvals required to own, lease and operate its
properties and to conduct its business as described in the
Prospectus;
(iii) All the outstanding shares of capital stock
of each of the Company's subsidiaries have been duly
authorized and are validly issued and outstanding, are fully
paid and non-assessable and, except as otherwise set forth in
the Prospectus, are owned by the Company of record and to the
best knowledge of such counsel, (A) beneficially and (B) free
and clear of all liens, encumbrances, equities, security
interests or claims of any nature whatsoever except to the
extent specifically stated in the Prospectus; and neither the
Company nor any of its subsidiaries has granted any
outstanding options, warrants or commitments with respect to
any shares of its capital stock, whether issued or unissued,
except as otherwise described in the Prospectus;
17
<PAGE> 18
(iv) The Company has an authorized capitalization
as set forth in the Registration Statement and all the issued
shares of capital stock of the Company (including the
Securities to be sold by the Selling Stockholders) have been
duly and validly authorized and issued and are fully paid and
non-assessable; are free of any preemptive rights, and were
issued and sold in compliance with all applicable Federal and
state securities laws; except as described in the Prospectus,
to the knowledge of such counsel, there are no outstanding
options, warrants or other rights calling for the issuance of,
and there are no commitments, plans or arrangements to issue,
any shares of capital stock of the Company; the Securities
being sold by the Company have been duly and validly
authorized and, when duly countersigned by the Company's
Transfer Agent and Registrar and issued, delivered and paid
for in accordance with the provisions of the Registration
Statement and this Agreement, will be duly and validly issued,
fully paid and non-assessable; the Securities conform to the
description thereof in the Prospectus; the Securities have
been duly authorized for quotation on the Nasdaq National
Market, as of the Effective Date; and the certificates for the
Securities as are in valid and sufficient form;
(v) To the best of such counsel's knowledge,
there are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries or
any of their respective officers or directors is a party or of
which any property of the Company or any of its subsidiaries
is the subject which, if resolved against the Company or any
of its subsidiaries or any of their respective officers or
directors, individually, or to the extent involving related
claims or issues, in the aggregate, is of a character required
to be disclosed in the Prospectus which has not been properly
disclosed therein;
(vi) This Agreement has been duly authorized,
executed and delivered by the Company and is a legal, valid
and binding agreement of the Company enforceable in accordance
with its terms, except as enforceability of the same may be
limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting creditors' rights generally
and except as enforceability of those provisions relating to
indemnity may be limited by the Federal securities laws,
principles of public policy and general principles of equity;
(vii) The Company has full corporate power and
authority to execute, deliver and perform this Agreement, and
the execution, delivery and performance of this Agreement, the
consummation of the transactions herein contemplated and the
issue and sale of the Securities and the compliance by the
Company with all the provisions of this Agreement will not
result in a breach of any of the terms or provisions of, or
constitute a default under, or result in the creation or
imposition of any lien, charge, claim or encumbrance upon, any
of the property or assets of the Company or any of its
subsidiaries pursuant to, the terms of any indenture,
18
<PAGE> 19
mortgage, deed of trust, loan agreement or other agreement or
instrument filed as an exhibit to the Registration Statement
to which the Company or any of its subsidiaries is a party or
by which the Company or any of its subsidiaries is bound or to
which any of the property or assets of the Company or any of
its subsidiaries is subject, nor will such action result in
any violation of the provisions of the Certificate of
Incorporation or the Bylaws, in each case as amended, of the
Company or any of its subsidiaries, or any statute or any
order, rule or regulation known to such counsel of any court
or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties;
(viii) No consent, approval, authorization, order,
registration or qualification of or with any court or any
regulatory authority or other governmental body is required
for the issue and sale of the Securities or the consummation
of the other transactions contemplated by this Agreement,
except such as have been obtained under the Act and such
consents, approvals, authorizations, registrations or
qualifications as may be required under state or foreign
securities or Blue Sky laws in connection with the purchase
and distribution of the Securities by the Underwriters,
provided that such counsel shall not be required to express
any opinion as to the requirements of state securities or blue
sky laws;
(ix) To the best of such counsel's knowledge,
neither the Company nor any of its subsidiaries is currently
in violation of its Certificate of Incorporation or Bylaws (or
similar constituent documents) or in default under, any
indenture, mortgage, deed of trust, lease, bank loan or credit
agreement or any other material agreement or instrument of
which such counsel has knowledge to which the Company or any
of its subsidiaries is a party or by which any of them or any
of their property may be bound or affected (in any respect
that is material in light of the financial condition of the
Company and its subsidiaries, taken as a whole);
(x) There are no preemptive or other rights to
subscribe for or to purchase, nor any restriction upon the
voting or transfer of, any Securities pursuant to the
Company's Certificate of Incorporation or Bylaws, in each case
as amended to the date hereof, or any agreement or other
instrument known to such counsel; and no holders of securities
of the Company have rights to the registration thereof under
the Registration Statement or, if any such holders have such
rights, such holders have waived such rights;
(xi) To the best of such counsel's knowledge,
there are no contracts or other documents required to be
summarized or disclosed in the Prospectus or to be so filed as
an exhibit to the Registration Statement, which have not been
so summarized or disclosed, or so filed;
(xii) The statements under the captions "Risk
Factors -- Certain Tax
19
<PAGE> 20
Matters Related to Drivers," "Risk Factors -- Anti-Takeover
Provisions," "Risk Factors -- Shares Eligible for Future Sale;
Possible Adverse Effect on Future Market Prices," "Business
--Regulation," "Business -- Intellectual Property," "Business
-- Legal Proceedings" and "Description of Capital Stock" in
the Prospectus and Items 14 and 15 of Part II of the
Registration Statement insofar as such statements constitute a
summary of legal matters, documents or proceedings referred to
therein, fairly present the information called for with
respect to such legal matters, documents and proceedings;
(xiii) Nothing has come to such counsel's attention
to give such counsel reason to believe that any of the
representations and warranties of the Company contained in
this Agreement or in any certificate or document contemplated
under this Agreement to be delivered are not true or correct
or that any of the covenants and agreements herein contained
to be performed on the part of the Company or any of the
conditions herein contained, or set forth in the Registration
Statement and the Prospectus, to be fulfilled or complied with
by the Company have not been or will not be duly and timely
performed, fulfilled or complied with;
(xiv) Neither the Company nor any of its
subsidiaries is an "investment company" or a person
"controlled" by an "investment company" within the meaning of
the Investment Company Act of 1940, as amended;
(xv) This Agreement has been duly authorized,
executed and delivered by or on behalf of each of the Selling
Stockholders and is a legal, valid and binding agreement of
each of the Selling Stockholders enforceable in accordance
with its terms, except as enforceability of the same may be
limited by bankruptcy, insolvency, reorganization, moratorium
or other similar laws affecting creditors' rights generally
and except as enforceability of those provisions relating to
indemnity may be limited by the Federal securities laws,
principles of public policy and general principles of equity;
(xvi) Each Power of Attorney and Custody Agreement
has been duly executed and delivered by the respective Selling
Stockholders named therein and constitutes a legal, valid and
binding agreement of such Selling Stockholder enforceable in
accordance with its terms, except as enforceability of the
same may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights
generally and except as enforceability of those provisions
relating to indemnity may be limited by the Federal securities
laws and principles of public policy;
(xvii) The execution, delivery and performance of
this Agreement and each Power of Attorney and Custody
Agreement and the sale and delivery of the Securities and the
consummation of the transactions contemplated in this
20
<PAGE> 21
Agreement and compliance by the Selling Stockholders with its
obligations under this Agreement will not constitute a default
under, or result in the creation or imposition of any lien,
charge, claim, tax or encumbrance upon the Securities or any
property or assets of the Selling Stockholders pursuant to the
terms of any indenture, mortgage, deed of trust, loan or
material agreement or instrument known to such counsel to
which any Selling Stockholder is a party or by which it may be
bound, or to which any of the property or assets of the
Selling Stockholders is subject, nor will such action result
in any violation of the provisions of the charter or bylaws of
the Selling Stockholders, if applicable, or any statute or any
order, rule or regulation known to such counsel of any court
or governmental agency or body having jurisdiction over such
Selling Stockholder or any of its properties;
(xviii) To the best of such counsel's knowledge,
each Selling Stockholder has valid and marketable title to the
Securities to be sold by such Selling Stockholder pursuant to
this Agreement, free and clear of any pledge, lien, security
interest, charge, claim, equity or encumbrance of any kind,
and has full right, power and authority to sell, transfer and
deliver such Securities pursuant to this Agreement. Upon
purchase of the Securities to be sold by the Selling
Stockholders as provided in this Agreement, each of the
Underwriters (assuming that it is a bona fide purchaser within
the meaning of the Uniform Commercial Code) will acquire good
and marketable title to such securities, free and clear of any
pledge, lien, security interest, charge, claim, equity or
encumbrance of any kind; and
(xix) The Registration Statement has become
effective under the Act, the Prospectus has been filed in
accordance with Rule 424(b) of the rules and regulations of
the Commission under the Act, including the applicable time
periods set forth therein, or such filing is not required and,
to the knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued
and no proceedings for that purpose have been instituted or
are pending or threatened under the Act, and the Registration
Statement, the Prospectus and each amendment or supplement
thereto, as of their respective effective or issue dates,
comply as to form in all material respects with the applicable
requirements of the Act and the rules and regulations
thereunder; it being understood that such counsel need express
no opinion as to the financial statements and schedules or
other financial data contained in the Registration Statement
or the Prospectus;
Such counsel shall also state that nothing has come to such
counsel's attention that would lead such counsel to believe that the
Registration Statement, the Prospectus or any amendment thereto (other
than the financial statements and schedules or other financial data
contained in the Registration Statement, as to which such counsel need
express no opinion) at the time such Registration Statement or any
amendment thereto
21
<PAGE> 22
become effective, contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, or that the
Prospectus or any amendment or supplement thereto (other than the
financial statements and schedules or other financial data contained in
the Prospectus, as to which such counsel need express no opinion) at
the time the Prospectus was issued, at the time any such amended or
supplemented prospectus was issued, or at the Time of Delivery,
contained or contains an untrue statement of a material fact or omitted
or omits to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they were made,
not misleading.
In rendering their opinions set forth in Section 7(d) above,
such counsel may rely, to the extent deemed advisable by such counsel,
(a) as to factual matters, upon certificates of public officials and
officers of the Company and the Selling Stockholders, and (b) as to the
laws of any jurisdiction other than the United States and jurisdictions
in which they are admitted, on opinions of counsel (provided, however,
that you shall have received a copy of each of such opinions which
shall be dated the Time of Delivery, addressed to you or otherwise
authorizing you to rely thereon, and Crouch & Hallett, L.L.P. in its
opinion to you delivered pursuant to this subsection, shall state that
such counsel are satisfactory to them and Crouch & Hallett, L.L.P. has
no reason to believe that the Underwriters and they are not justified
to so rely);
In addition, such counsel may state that its opinion is
limited to matters governed by the federal laws of the United States of
America and the corporate laws of the States of Delaware and Texas and
that such counsel is not admitted in the State of Delaware. The
foregoing opinion may be qualified by a statement to the effect that
such counsel does not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the
Registration Statement or Prospectus, except to the extent stated in
(xix) above.
(e) Akin Gump, counsel to the Underwriters, shall have
furnished to you their written opinion or opinions, dated the Time of
Delivery, in form and substance satisfactory to you, with respect to
the incorporation of the Company, the validity of the Securities, the
Registration Statement, the Prospectus and other related matters as you
may reasonably request, and such counsel shall have received such
papers and information as they may reasonably request to enable them to
pass upon such matters;
(f) At the time this Agreement is executed and also at
the Time of Delivery, Deloitte & Touche, L.L.P. shall have furnished to
you a letter or letters, dated the date of this Agreement and the Time
of Delivery, in form and substance satisfactory to you, to the effect,
that:
(i) They are independent accountants with
respect to the Company and its subsidiaries within the meaning
of the Act and the applicable published rules and regulations
thereunder;
22
<PAGE> 23
(ii) In their opinion the consolidated
financial statements of the Company and its subsidiaries
(including the related schedules and notes) included in the
Registration Statement and Prospectus and covered by their
reports included therein comply as to form in all material
respects with the applicable accounting requirements of the
Act and the published rules and regulations thereunder;
(iii) On the basis of specified procedures as of
a specified date not more than three days prior to the date of
their letter (which procedures do not constitute an
examination made in accordance with generally accepted
auditing standards), consisting of a reading of the latest
available unaudited interim consolidated financial statements
of the Company and its subsidiaries, a reading of the latest
available minutes of any meeting of the Board of Directors and
stockholders of the Company and its subsidiaries since the
date of the latest audited financial statements included in
the Prospectus, inquiries of officials of the Company and its
subsidiaries who have responsibility for financial and
accounting matters, and such other procedures or inquiries as
are specified in such letter, nothing came to their attention
that caused them to believe that:
(A) The unaudited consolidated
condensed financial statements of the Company and
its subsidiaries included in the Prospectus do not
comply in form in all material respects with the
applicable accounting requirements of the Act and
the rules and regulations promulgated thereunder or
are not presented in conformity with generally
accepted accounting principles applied on a basis
substantially consistent with that of the audited
consolidated financial statements included in the
Registration Statement and the Prospectus;
(B) as of a specified date not more
than three days prior to the date of their letter,
there was any change in the capital stock, or
increases in the long-term debt or short-term debt
of the Company and its subsidiaries on a
consolidated basis, or any decrease in total assets,
total current assets or stockholders' equity or
other items specified by the Representatives, of the
Company and its subsidiaries on a consolidated
basis, each as compared with the amounts shown on
the September 30, 1997 Consolidated Balance Sheet
included in the Registration Statement and the
Prospectus, except in each case for changes,
increases or decreases which the Prospectus
discloses have occurred or may occur; and
(C) for the period from September 30,
1997 to a specified date not more than three days
prior to the date of such letter, there was any
decrease, as compared with the corresponding period
of the preceding
23
<PAGE> 24
fiscal year, in the following consolidated amounts:
gross margin, earnings (loss) from operations,
earnings (loss) before income taxes, net earnings
(loss) or earnings (loss) per common and common
equivalent share of the Company and its
subsidiaries, except in all instances for decreases
which the Registration Statement discloses have
occurred or may occur;
(D) in addition to the examination
referred to in their reports included in the
Registration Statement and the Prospectus and the
limited procedures referred to in clause (iii)
above, they have carried out certain specified
procedures, not constituting an audit, with respect
to certain amounts, percentages and financial
information specified by the Representatives, which
are derived from the general accounting records of
the Company and its subsidiaries which appear in the
Prospectus, or in Part II of, or in exhibits and
schedules to, the Registration Statement, and have
compared such amounts and financial information with
the accounting records of the Company and its
subsidiaries, and have found them to be in agreement
and have proved the mathematical accuracy of certain
specified percentages; and
(E) on the basis of a reading of the
pro forma consolidated financial statements included
in the Registration Statement and the Prospectus,
carrying out certain specified procedures that would
not necessarily reveal matters of significance with
respect to the comments set forth in this clause
(v), inquiries of certain officials of the Company
and its consolidated subsidiaries who have
responsibility for financial and accounting matters
and proving the arithmetic accuracy of the
application of the pro forma adjustments to the
historical amounts in the pro forma consolidated
financial statements, nothing came to their
attention that caused them to believe that the pro
forma consolidated financial statements do not
comply in form in all material respects with the
applicable accounting requirements of Rule 11-02 of
Regulation S-X or that the pro forma adjustments
have not been properly applied to the historical
amounts in the compilation of such statements.
(g) Neither the Company nor any of its subsidiaries shall
have sustained since the date of the latest audited financial
statements included in the Prospectus, any material loss or
interference with its business from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor
dispute or court or governmental action, order or decree other than as
set forth or contemplated in the Prospectus; and since the respective
dates as of which information is given in the Prospectus, there shall
not have been any change in the capital stock (other than shares issued
pursuant to the Company's Amended and Restated 1996 Stock Option Plan)
or short-term debt or long-term debt of the Company or any of its
subsidiaries nor any change or any development involving a prospective
material adverse change, in or
24
<PAGE> 25
affecting the general affairs, management, consolidated financial
position, stockholders' equity or results of operations of the Company
and its subsidiaries, otherwise than as set forth or contemplated in
the Prospectus, the effect of which, in any such case is in your
judgment so material and adverse as to make it impracticable or
inadvisable to proceed with the public offering or the delivery of the
Securities on the terms and in the manner contemplated in the
Prospectus;
(h) Between the date hereof and the Time of Delivery
there shall have been no declaration of war by the Government of the
United States; at the Time of Delivery there shall not have occurred
any material adverse change in the financial or securities markets in
the United States or in political, financial or economic conditions in
the United States or any outbreak or material escalation of hostilities
or other calamity or crisis, the effect of which is such as to make it,
in the judgment of the Representatives, impracticable to market the
Securities or to enforce contracts for the resale of Securities and no
event shall have occurred resulting in (i) trading in securities
generally on the New York Stock Exchange or in the Common Stock on the
principal securities exchange or market in which the Common Stock is
listed or quoted being suspended or limited or minimum or maximum
prices being generally established on such exchange or market, or (ii)
additional material governmental restrictions, not in force on the date
of this Agreement, being imposed upon trading in securities generally
by the New York Stock Exchange or in the Common Stock on the principal
securities exchange or market in which the Common Stock is listed or
quoted or by order of the Commission or any court or other governmental
authority, or (iii) a general banking moratorium being declared by
either Federal, New York or Texas authorities;
(i) The Company shall have furnished or caused to be
furnished to you at the Time of Delivery certificates signed by the
chief executive officer and the chief financial officer, on behalf of
the Company, satisfactory to you as to such matters as you may
reasonably request and as to (i) the accuracy of the Company's
representations and warranties herein at and as of the Time of
Delivery; (ii) the performance by the Company of all its obligations
hereunder to be performed at or prior to the Time of Delivery; (iii)
the fact that they have carefully examined the Registration Statement
and Prospectus and, (A) as of the Effective Date, the statements
contained in the Registration Statement and the Prospectus were true
and correct and neither the Registration Statement nor the Prospectus
omitted to state a material fact required to be stated therein or
necessary to make the statements therein not misleading and (B) since
the Effective Date, no event has occurred that is required by the Act
or the rules and regulations of the Commission thereunder to be set
forth in an amendment of, or a supplement to, the Prospectus that has
not been set forth in such an amendment or supplement; and (iv) the
matters set forth in subsections (a) and (g) of this Section 7;
(j) A certificate, dated the Time of Delivery and
addressed to you, signed by or on behalf of each of the Selling
Stockholders to the effect that the representations and warranties of
such Selling Stockholder in this Agreement are true and correct, as if
made
25
<PAGE> 26
at and as of the Time of Delivery, and such Selling Stockholder has
complied with all the agreements and satisfied all the conditions on
his part to be performed or satisfied prior to the Time of Delivery;
(k) Each director and executive officer of the Company
and Selling Stockholder shall have delivered to you an agreement not to
offer, sell, contract to sell or otherwise dispose of any shares of
capital stock of the Company (or securities convertible into, or
exchangeable for, capital stock of the Company), directly or
indirectly, for a period of 120 days after the date of this Agreement,
without the prior written consent of Schroder & Co. Inc.; and
(l) The Company shall have delivered to you evidence that
the Securities have been authorized for quotation on the Nasdaq
National Market as of the Effective Date.
8. (a) The Company will indemnify and hold harmless each
Underwriter against any losses, claims, damages or liabilities, joint
or several, to which such Underwriter may become subject, under the Act
or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon (i) any
untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus, the Registration Statement or
the Prospectus, or any amendment or supplement thereto, or in any Blue
Sky application or other document executed by the Company specifically
for that purpose or based upon written information furnished by the
Company filed in any state or other jurisdiction in order to qualify
any or all the Securities under the security laws thereof or filed with
the Commission or any securities association or securities exchange
(each, an "Application"), or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary to
make the statements made therein not misleading, or (ii) any untrue
statement or alleged untrue statement made by the Company in Section
1(a) of this Agreement, or (iii) the employment by the Company of any
device, scheme or artifice to defraud, or the engaging by the Company
in any act, practice or course of business which operates or would
operate as a fraud or deceit, or any conspiracy with respect thereto,
in which the Company shall participate, in connection with the issuance
and sale of any of the Securities, and will reimburse each Underwriter
for any legal or other expenses reasonably incurred by such Underwriter
in connection with investigating, preparing to defend, defending or
appearing as a third-party witness in connection with any such action
or claim; provided, however, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission relating to an
Underwriter made in any Preliminary Prospectus, the Registration
Statement, the Prospectus or such amendment or supplement or any
Application in reliance upon and in conformity with written information
furnished to the Company by such Underwriter through you expressly for
use therein and provided, further, that the indemnity agreement
contained in this Section 8(a) with respect to any Preliminary
Prospectus shall not inure
26
<PAGE> 27
to the benefit of any Underwriter (or any persons controlling such
Underwriter) on account of any losses, claims, damages, liability or
litigation arising from the sale of Securities to any person, if such
Underwriter fails to send or give a copy of the Prospectus, as the same
may be then supplemented or amended, to such person, within the time
required by the Act and the untrue statement or alleged untrue
statement or omission or alleged omission of a material fact contained
in such Preliminary Prospectus was corrected in the Prospectus, unless
such failure is the result of noncompliance by the Company with Section
5(c) hereof.
(b) In addition to any obligations of the Company under
Section 8(a), the Company agrees that it shall perform its
indemnification obligations under Section 8(a) (as modified by the last
paragraph of this Section 8(b)) with respect to counsel fees and
expenses and other expenses reasonably incurred by making payments to
the Underwriter within 45 days of receipt of a statement in the amount
of the statements of the Underwriter's counsel or other statements
which shall be forwarded by the Underwriter, and that they shall make
such payments notwithstanding the absence of a judicial determination
as to the propriety and enforceability of the obligation to reimburse
the Underwriters for such expenses and the possibility that such
payments might later be held to have been improper by a court and a
court orders return of such payments.
The indemnity agreement in Section 8(a) shall be in addition
to any liability which the Company may otherwise have and shall extend
upon the same terms and conditions to each person, if any, who controls
any Underwriter within the meaning of the Act or the Exchange Act.
(c) Each Selling Stockholder will indemnify and hold
harmless each Underwriter against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter may become
subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or
are based upon (i) any untrue statement or alleged untrue statement of
a material fact contained in any Preliminary Prospectus, the
Registration Statement or the Prospectus, or any amendment or
supplement thereto, or any Application, or the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary to make the statements made therein not misleading, or
(ii) any untrue statement or alleged untrue statement made by the
Selling Stockholder in Section 1(b) of this Agreement, and will
reimburse each Underwriter for any legal or other expenses reasonably
incurred by such Underwriter in connection with investigating,
preparing to defend, defending or appearing as a third-party witness in
connection with any such action or claim; provided, however, that the
Selling Stockholders shall not be liable in any such case to the extent
that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission
or alleged omission relating to an Underwriter made in any Preliminary
Prospectus, the Registration Statement, the Prospectus or such
amendment or supplement or any Application in reliance upon and in
conformity with written information furnished to the Company by such
Underwriter
27
<PAGE> 28
through you expressly for use therein; provided, further, that in no
event shall the liability of any Selling Stockholder under this Section
8(c) exceed the proceeds received by such Selling Stockholder from the
sale of Securities pursuant to this Agreement and provided, further,
that the indemnity agreement contained in this Section 8(a) with
respect to any Preliminary Prospectus shall not inure to the benefit of
any Underwriter (or any persons controlling such Underwriter) on
account of any losses, claims, damages, liability or litigation arising
from the sale of Securities to any person, if such Underwriter fails to
send or give a copy of the Prospectus, as the same may be then
supplemented or amended, to such person, within the time required by
the Act and the untrue statement or alleged untrue statement or
omission or alleged omission of a material fact contained in such
Preliminary Prospectus was corrected in the Prospectus, unless such
failure is the result of noncompliance by the Company with Section 5(c)
hereof
(d) In addition to any obligations of each of the Selling
Stockholders under Section 8(c), each of the Selling Stockholders
agrees that it shall perform its indemnification obligations under
Section 8(c) (as modified by the last paragraph of this Section 8(d))
with respect to counsel fees and expenses and other expenses reasonably
incurred by making payments to the Underwriter within 45 days of
receipt of a statement in the amount of the statements of the
Underwriter's counsel or other statements which shall be forwarded by
the Underwriter, and that they shall make such payments notwithstanding
the absence of a judicial determination as to the propriety and
enforceability of the obligation to reimburse the Underwriters for such
expenses and the possibility that such payments might later be held to
have been improper by a court and a court orders return of such
payments.
The indemnity agreement in Section 8(c) shall be in addition
to any liability which the Selling Stockholders may otherwise have and
shall extend upon the same terms and conditions to each person, if any,
who controls any Underwriter within the meaning of the Act or the
Exchange Act.
(e) Each Underwriter shall indemnify and hold harmless
the Company and each of its officers, employees and directors and the
Selling Stockholders against any losses, claims, damages or liabilities
to which the Company or any such officer, employee or director or any
of the Selling Stockholders may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue
statement or alleged untrue statement of a material fact contained in
any Preliminary Prospectus, the Registration Statement or the
Prospectus, or any amendment or supplement thereto, or any Application,
or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in
any Preliminary Prospectus, the Registration Statement, the Prospectus
or such amendment or supplement or any Application in reliance upon and
in conformity with written
28
<PAGE> 29
information furnished to the Company by such Underwriter relating to
such Underwriter through you expressly for use therein, and will
reimburse the Company for any legal or other expenses reasonably
incurred by the Company in connection with investigating or defending
any such action or claim.
The indemnity agreement in this Section 8(e) shall be in
addition to any liability which the respective Underwriters may
otherwise have and shall extend, upon the same terms and conditions, to
each officer and director of the Company and to each person, if any,
who controls the Company within the meaning of the Act or the Exchange
Act.
(f) Promptly after receipt by an indemnified party under
Section 8(a), 8(c) or 8(e) of notice of the commencement of any action
(including any governmental investigation), such indemnified party
shall, if a claim in respect thereof is to be made against the
indemnifying party under such subsection, notify the indemnifying party
in writing of the commencement thereof; but the omission so to notify
the indemnifying party shall not relieve it from any liability which it
may have to any indemnified party under Section 8(a), 8(c) or 8(e)
except to the extent it was unaware of such action and has been
prejudiced in any material respect by such failure or from any
liability which it may have to any indemnified party otherwise than
under such Section 8(a), 8(c) or 8(e). In case any such action shall be
brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party
shall be entitled to participate therein and, to the extent that it
shall wish, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, with counsel satisfactory to
such indemnified party, and after notice from the indemnifying party to
such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified
party under such subsection for any legal or other expenses
subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. If,
however, (i) the indemnifying party has authorized the employment of
counsel for the indemnified party at the expense of the indemnifying
party or (ii) an indemnified party shall have reasonably concluded that
representation of such indemnified party and the indemnifying party by
the same counsel would be inappropriate under applicable standards of
professional conduct due to actual or potential differing interests
between them and the indemnified party so notifies the indemnifying
party, then the indemnified party shall be entitled to employ counsel
different from counsel for the indemnifying party at the expense of the
indemnifying party and the indemnifying party shall not have the right
to assume the defense of such indemnified party. In no event shall the
indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to local counsel) for all indemnified parties in
connection with any one action or separate but similar or related
actions in the same jurisdiction arising out of the same set of
allegations or circumstances. The counsel with respect to which fees
and expenses shall be so reimbursed shall be designated in writing by
Schroder & Co. Inc. in the case of parties indemnified pursuant to
Sections 8(a) and 8(c) and by the Company and the Selling Stockholders
in the case of parties indemnified pursuant to Section 8(e).
29
<PAGE> 30
If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and
expenses of counsel as contemplated by Sections 8(b) or 8(d), the
indemnifying party agrees that it shall be liable for any settlement of
any proceeding effected without its written consent if (i) such
settlement is entered into more than 30 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying
party shall not have reimbursed the indemnified party in accordance
with such request prior to the date of such settlement. No indemnifying
party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in
respect of which any indemnified party is or could have been a party
and indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional release of such
indemnified party from all liability on claims that are the subject
matter of such proceeding.
(g) In order to provide for just and equitable
contribution under the Act in any case in which (i) any Underwriter (or
any person who controls any Underwriter within the meaning of the Act
or the Exchange Act) makes claim for indemnification pursuant to
Section 8(a) or 8(c) hereof, but is judicially determined (by the entry
of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of
appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that Section 8(a) or 8(c) provides for
indemnification in such case or (ii) contribution under the Act may be
required on the part of any Underwriter or any such controlling person
in circumstances for which indemnification is provided under Section
8(e), then, and in each such case, each indemnifying party shall
contribute to the aggregate losses, claims, damages or liabilities to
which they may be subject as an indemnifying party hereunder (after
contribution from others) in such proportion as is appropriate to
reflect the relative benefits received by the Company and each of the
Selling Stockholders on the one hand and the Underwriters on the other
from the offering of the Securities. If, however, the allocation
provided by the immediately preceding sentence is not permitted by
applicable law or if the indemnified party failed to give the notice
required under Section 8(f) above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in
such proportion as is appropriate to reflect not only such relative
benefits but also the relative fault of the Company and the Selling
Stockholders on the one hand and the Underwriters on the other in
connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions in respect thereof),
as well as any other relevant equitable considerations. The relative
benefits received by the Company or any of the Selling Stockholders on
the one hand and the Underwriters on the other shall be deemed to be in
the same proportion as the total net proceeds from the offering of the
Securities purchased under this Agreement (before deducting expenses)
received by the Company or any of the Selling Stockholders bear to the
total underwriting discounts and commissions received by the
Underwriters with respect to the Securities purchased under this
Agreement, in each case as set forth in the table on the cover page of
the Prospectus. The
30
<PAGE> 31
relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or
the omission or alleged omission to state a material fact relates to
information supplied by the Company or any of the Selling Stockholders
on the one hand or the Underwriters on the other and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. The Company, the Selling
Stockholders and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 8(g) were
determined by pro rata allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of
allocation which does not take account of the equitable considerations
referred to above in this Section 8(g). The amount paid or payable by
an indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in this
Section 8(g) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding
the provisions of this Section 8(g), (i) no Underwriter shall be
required to contribute any amount in excess of the amount by which the
total price at which the Securities underwritten by it and distributed
to the public were offered to the public exceeds the amount of any
damages which such Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or
alleged omission and (ii) no Selling Stockholder shall be required to
contribute any amount in excess of the proceeds received by such
Selling Stockholder from the sale of Securities pursuant to this
Agreement. No person guilty of a fraudulent misrepresentation (within
the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this Section 8(g)
to contribute are several in proportion to their respective
underwriting obligations and not joint.
(h) Promptly after receipt by any party to this Agreement
of notice of the commencement of any action, suit or proceeding, such
party will, if a claim for contribution in respect thereof is to be
made against another party (the "contributing party"), notify the
contributing party of the commencement thereof; but the omission to so
notify the contributing party will not relieve it from any liability
which it may have to any other party for contribution under the Act
except to the extent it was unaware of such action and has been
prejudiced in any material respect by such failure or from any
liability which it may have to any other party other than for
contribution under the Act. In case any such action, suit or proceeding
is brought against any party, and such party notifies a contributing
party of the commencement thereof, the contributing party will be
entitled to participate therein with the notifying party and any other
contributing party similarly notified.
9. (a) If any Underwriter shall default in its
obligation to purchase the Firm Securities which it has agreed to
purchase hereunder, you may in your discretion arrange for you or
another party or other parties to purchase such Firm Securities on the
terms contained herein. If the aggregate number of Firm Securities as
to which
31
<PAGE> 32
Underwriters default is more than one-eleventh of the aggregate number
of all the Firm Securities and within 36 hours after such default by
any Underwriter you do not arrange for the purchase of such Firm
Securities, then the Company shall be entitled to a further period of
36 hours within which to procure another party or other parties
satisfactory to you to purchase such Firm Securities on such terms. In
the event that, within the respective prescribed periods, you notify
the Company that you have so arranged for the purchase of such Firm
Securities, or the Company notifies you that it has so arranged for the
purchase of such Firm Securities, you or the Company shall have the
right to postpone the Time of Delivery for a period of not more than
seven days, in order to effect whatever changes may thereby be made
necessary in the Registration Statement or the Prospectus or in any
other documents or arrangements, and the Company agrees to file
promptly any amendments to the Registration Statement or the Prospectus
which in you opinion may thereby be made necessary. The term
"Underwriter" as used in this Agreement shall include any person
substituted under this Section with like effect as if such person had
originally been a party to this Agreement with respect to such Firm
Securities.
(b) If, after giving effect to any arrangements for the
purchase of the Firm Securities of such defaulting Underwriter or
Underwriters by you or the Company or both as provided in subsection
(a) above, the aggregate number of such Firm Securities which remain
unpurchased does not exceed one-eleventh of the aggregate number of all
the Firm Securities, then the Company shall have the right to require
each non-defaulting Underwriter to purchase the number of the Firm
Securities which such Underwriter agreed to purchase hereunder and, in
addition, to require each non-defaulting Underwriter to purchase its
pro rata share (based on the number of Firm Securities which such
Underwriter agreed to purchase hereunder) of the Firm Securities of
such defaulting Underwriter or Underwriters for which such arrangements
have not been made; but nothing shall relieve a defaulting Underwriter
from liability for its default.
(c) If, after giving effect to any arrangements for the
purchase of the Firm Securities of a defaulting Underwriter or
Underwriters by you or the Company as provided in subsection (a) above,
the aggregate number of such Firm Securities which remain unpurchased
exceeds one-eleventh of the aggregate number of all the Firm
Securities, or if the Company shall not exercise the right described in
subsection (b) above to require non-defaulting Underwriters to purchase
Firm Securities of a defaulting Underwriter or Underwriters, then this
Agreement shall thereupon terminate without liability on the part of
any non-defaulting Underwriter or the Company, except for the expenses
to be borne by the Company and the Underwriters as provided in Section
6 hereof and the indemnity agreement in Section 8 hereof; but nothing
herein shall relieve a defaulting Underwriter from liability for its
default.
10. The respective indemnities, agreements, representations,
warranties and other statements of the Company, the Selling Stockholders and the
several Underwriters, as set forth in this Agreement or made by or on behalf of
them, respectively, pursuant to this Agreement, shall
32
<PAGE> 33
remain in full force and effect, regardless of any investigation (or any
statement as to the results thereof) made by or on behalf of any Underwriter or
any controlling person of any Underwriter, or the Company, or any officer or
director or controlling person of the Company, or any Selling Stockholder, or
any officer or director or controlling person of any Selling Stockholder and
shall survive delivery of and payment for the Securities.
11. This Agreement shall become effective (a) if the Registration
Statement has not heretofore become effective, at the earlier of 12:00 Noon, New
York City time, on the first full business day after the Registration Statement
becomes effective, or at such time after the Registration Statement becomes
effective as you may authorize the Sale of the Securities to the public by
Underwriters or other securities dealers, or (b) if the Registration Statement
has heretofore become effective, at the earlier of 24 hours after the filing of
the Prospectus with the Commission or at such time as you may authorize the sale
of the Securities to the public by Underwriters or securities dealers, unless,
prior to any such time you shall have received notice from the Company that it
elects that this Agreement shall not become effective, or you, or through you
such of the Underwriters as have agreed to purchase in the aggregate fifty
percent or more of the Firm Securities hereunder, shall have given notice to the
Company that you or such Underwriters elect that this Agreement shall not become
effective; provided, however, that the provisions of this Section and Section 6
and Section 8 shall at all times be effective.
If this Agreement shall be terminated pursuant to Section 9 hereof, or
if this Agreement, by election of you or the Underwriters, shall not become
effective pursuant to the provisions of this Section, the Company shall not then
be under any liability to any Underwriter except as provided in Section 6 and
Section 8 hereof, but if this Agreement becomes effective and is not so
terminated but the securities are not delivered by or on behalf of the Company
as provided herein because the Company has been unable for any reason beyond its
control and not due to any default by it to comply with the terms and conditions
hereof, the Company will reimburse the Underwriters through you for all
out-of-pocket expenses approved in writing by you, including fees and
disbursements of counsel, reasonably incurred by the Underwriters in making
preparations for the purchase, sale and delivery of the Securities, but the
Company shall then be under no further liability to any Underwriter except as
provided in Section 6 and Section 8 hereof.
12. The statements set forth in the last paragraph on the front
cover page of the Prospectus, the paragraph on the inside front cover of the
Prospectus containing stabilization language, the table under the caption
"Underwriting" in the Prospectus and the third and eighth paragraphs under the
caption "Underwriting" in the Prospectus constitute the only information
furnished by any Underwriter made or given by you jointly or by Schroder & Co.
Inc. on behalf of you as the Representatives.
13. In all dealings hereunder, you shall act on behalf of each of
the Underwriters, and the parties hereto shall be entitled to act and rely upon
any statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Schroder & Co. Inc. on behalf of you as the
Representatives.
33
<PAGE> 34
All statements, requests, notices and agreements hereunder, unless
otherwise specified in this Agreement, shall be in writing and, if to the
Underwriters, shall be delivered or sent by mail, telex or facsimile
transmission (with confirmation of receipt) to you as the Representatives in
care of Schroder & Co. Inc., Equitable Center, 787 Seventh Avenue, New York, New
York 10019, Attention: Syndicate Department; if to the Company, shall be
delivered or sent by mail, telex or facsimile transmission (with confirmation of
receipt) to the address of the Company set forth in the Registration Statement,
Attention: Robert P. Capps; and if to any Selling Stockholder, shall be
delivered or sent by mail, telex or facsimile transmission (with confirmation of
receipt) to the address of the Company set forth in the Registration Statement,
Attention: Robert P. Capps, as Attorney-in-Fact; provided, however, that any
notice to any Underwriter pursuant to Section 8(f) hereof shall be delivered or
sent by mail, telex or facsimile transmission (with confirmation of receipt) to
such Underwriter at its principal address, which address will be supplied to the
Company by you upon request. Any such statements, requests, notices or
agreements shall take effect at the time of receipt thereof.
14. This Agreement shall be binding upon, and inure solely to the
benefit of, the Underwriters, the Company, the Selling Stockholders and, to the
extent provided in Section 8 and Section 10 hereof, the officers and directors
of the Company and the Selling Stockholders and each person who controls the
Company, any Underwriter or any Selling Stockholder, and their respective heirs,
executors, administrators, successors and assigns, and no other person shall
acquire or have any right under or by virtue of this Agreement. No purchaser of
any of the Securities from any Underwriter shall be deemed a successor or assign
by reason merely of such purchase.
15. Time shall be of the essence of this Agreement. As used
herein, the term "business day" shall mean any day when the Commission's office
in Washington, D.C. is open for business.
16. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF NEW YORK, WITHOUT GIVING EFFECT TO THE CONFLICTS OF LAWS
PRINCIPLES THEREOF.
17. This Agreement may be executed by any one or more of the
parties hereto in any number of counterparts, each of which shall be deemed to
be an original, but all such counterparts shall together constitute one and the
same instrument.
34
<PAGE> 35
If the foregoing is in accordance with your understanding, please sign
and return to us two counterparts hereof, and upon the acceptance hereof by you,
on behalf of each of the Underwriters, this letter and such acceptance hereof
shall constitute a binding agreement among each of the Underwriters', the
Company and each of the Selling Stockholders. It is understood that your
acceptance of this letter on behalf of each of the Underwriters is pursuant to
the authority set forth in a form of Agreement Among Underwriters, manually or
facsimile executed counterparts of which, to the extent practicable and upon
request, shall be submitted to the Company for examination, but without warranty
on you part as to the authority of the signers thereof.
Very truly yours,
DYNAMEX INC.
By:
-------------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
SELLING STOCKHOLDERS
By:
-------------------------------------------
As Attorney-in-Fact for each of the
several Selling Stockholders named in
Schedule II
35
<PAGE> 36
Accepted as of the date hereof:
SCHRODER & CO. INC.
WILLIAM BLAIR & COMPANY, L.L.C.
HOAK BREEDLOVE WESNESKI & CO.
Representatives of the several Underwriters
By: SCHRODER & CO. INC.
By:
--------------------------------
Name:
---------------------
Title:
--------------------
36
<PAGE> 37
SCHEDULE I
<TABLE>
<CAPTION>
Underwriter Number of Firm Securities
----------- -------------------------
<S> <C>
Schroder & Co. Inc. ...................................
William Blair & Company, L.L.C. .......................
Hoak Breedlove Wesneski & Co. .........................
Total .................................................
</TABLE>
<PAGE> 38
SCHEDULE II
<TABLE>
<CAPTION>
Maximum Number of Option
Number of Firm Securities to Maximum Number of Option
Name of Selling Stockholder be Sold Securities to be Sold by
Name of Selling Stockholder by Selling Stockholder Selling Stockholder
- - --------------------------- ---------------------------- ------------------------
<S> <C> <C>
</TABLE>
<PAGE> 1
EXHIBIT 5.1
(214) 953-0053
April 7, 1998
Dynamex Inc.
1431 Greenway Drive, Suite 345
Irving, Texas 75038
Gentlemen:
We have served as counsel for Dynamex Inc., a Delaware corporation (the
"Company"), in connection with the Registration Statement on Form S-1 (the
"Registration Statement"), filed with the Securities and Exchange Commission
under the Securities Act of 1933, as amended, covering the proposed public
offering of (a) 2,500,000 shares of Common Stock of the Company to be issued and
sold by the Company (the "Primary Shares"), (b) 317,166 shares of Common Stock
of the Company to be sold by the Selling Stockholders named in the Registration
Statement (the "Selling Stockholder Shares") and (c) subject to the exercise of
an over-allotment option, up to an additional 422,575 shares of the Common Stock
of the Company to be issued and sold by the Company (the "Over-Allotment
Shares). The Primary Shares and the Over-Allotment Shares are collectively
referred to as the "Company Shares."
With respect to the foregoing, we have examined such documents and
questions of law as we have deemed necessary to render the opinion expressed
below. Based upon the foregoing, we are of the opinion that:
1. The Company Shares, when sold, issued and delivered in the
manner and for the consideration stated in the Prospectus constituting a part of
the Registration Statement and in the Underwriting Agreement described in the
Registration Statement, will be duly and validly authorized, issued and
outstanding and fully paid and nonassessable.
2. The Selling Stockholder Shares have been duly and validly
authorized, issued and outstanding and are fully paid and nonassessable.
We consent to the use of this opinion as Exhibit 5.1 to the
Registration Statement and to the use of our name in the Registration Statement
and in the Prospectus included therein under the heading "Legal Matters."
Very truly yours,
/s/ Crouch & Hallett, L.L.P.
<PAGE> 1
EXHIBIT 10.1
AMENDMENT NO. 2 TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT
This Amendment No. 2 to Amended and Restated Employment Agreement
("Amendment") is made and entered into on March 20, 1998, between DYNAMEX INC.,
a Delaware corporation, hereinafter referred to as the "Company," and RICHARD K.
MCCLELLAND, hereinafter referred to as "Executive."
WHEREAS, Executive and the Company have entered into an Amended and
Restated Employment Agreement, dated as of July 11, 1995, as amended by
Amendment No. 1 thereto, dated as of July 1, 1996 and effective as of September
27, 1995 (as amended, the "Agreement"); and
WHEREAS, the parties hereto mutually desire to amend certain provisions
of the Agreement;
NOW, THEREFORE, the parties hereto agree as follows.
1. On December 20, 1995, Parcelway Systems Holding Corp. changed
its name to Dynamex Inc. The name "Parcelway Systems Holding Corp." shall be
replaced with "Dynamex Inc." wherever it appears in the Agreement, and the
defined term "Holdings" shall be replaced with the term "Dynamex" wherever it
appears in the Agreement.
2. Section 4 of the Agreement shall hereinafter read as follows:
"4. Grant Options.
(a) The Company has granted to Executive stock
options (the "Grant Options") for the purchase of 48,000
shares (reflecting the 4 for 1 split of Common Stock effective
on June 3, 1996) of the Dynamex Common Stock at an exercise
price of US $4.25 per share ("Exercise Price") pursuant to the
form of option agreement attached hereto as Exhibit B. The
shares of Dynamex Common Stock that are to be issued to
Executive upon exercise of the Grant Options shall be referred
to herein as the "Grant Shares."
(b) The Company shall pay Executive eight equal
bonus payments each in the amount of $25,500 plus interest as
calculated herein, with the first such payment to be made on
the last day of the third month following Executive's exercise
of the Grant Options (the "Exercise Date") and remaining
payments to be made on the last day of each succeeding
three-month period, respectively, with the eighth and last
such payment to be made on the eighteen month anniversary of
the initial payment date. Interest shall be paid along with
each bonus payment and shall accrue from the date the Grant
Options are exercised
<PAGE> 2
on the unpaid balance of all such bonus payments at the rate
announced publicly by NationsBank of Texas, N.A. in Dallas,
Texas, from time to time as its prime rate.
(c) If this Agreement is terminated after the Exercise
Date for any reason other than those set forth in Section 2(a), 2(c) or
2(d), then the entire principal amount of the Option Bonus that is due
and unpaid on such termination date, shall become immediately due and
payable to Executive.
3. Except as set forth above, the other provisions of the
Agreement shall remain in full force and effect.
4. This Amendment shall be governed by and construed in
accordance with the laws of Delaware.
EXECUTED the day, month and year first above written.
DYNAMEX INC.
By:
-------------------------------------------
Robert P. Capps, Vice President
----------------------------------------------
Richard K. McClelland
2
<PAGE> 1
EXHIBIT 11.1
DYNAMEX INC. AND SUBSIDIARIES
CALCULATION OF NET INCOME (LOSS) PER COMMON SHARE
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
FISCAL YEAR ENDED JULY 31, JANUARY 31,
--------------------------- ----------------
1995 1996 1997 1997 1998
------- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Income (Loss)........................ $(1,625) $ 876 $3,512 $ 962 $2,007
======= ====== ====== ====== ======
Weighted Average Common Shares
Outstanding............................ 855 2,543 6,670 6,223 7,387
Common Share Equivalents Related to
Options and Warrants................... 1,163 1,189 169 220 171
------- ------ ------ ------ ------
Common Shares and Common Share
Equivalents............................ 2,018 3,732 6,839 6,443 7,558
======= ====== ====== ====== ======
Common Stock Price used under Treasury
Stock Method........................... $ 11.00 $ 8.00 $ 8.89 $ 9.87 $ 9.50
======= ====== ====== ====== ======
Net Income (Loss) per Common Share:
Basic.................................. $ (1.90) $ 0.34 $ 0.53 $ 0.15 $ 0.27
======= ====== ====== ====== ======
Diluted................................ $ (1.90) $ 0.23 $ 0.51 $ 0.15 $ 0.27
======= ====== ====== ====== ======
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SCHEDULE OF SUBSIDIARIES OF REGISTRANT
1. Dynamex Operations East, a Delaware corporation
10,000 authorized shares of common stock, $0.01 par
value, 1,000 of which are issued and outstanding and
registered in the name of Dynamex Inc.
2. Dynamex Operations West, a Delaware corporation
10,000 authorized shares of common stock, $0.01 par
value, 1,000 of which are issued and outstanding and
registered in the name of Dynamex Inc.
3. Dynamex Canada Inc., a Canadian federal corporation (formerly Parcelway
Courier Systems Canada Ltd., an Alberta corporation)
Unlimited number of authorized common shares, one of
which is issued and outstanding in the name of
Dynamex Inc.; Unlimited number of authorized
preference shares, 3,750,000 of which are issued and
outstanding in the name of Dynamex Inc.
4. Parcelway Courier Systems (B.C.) Ltd., a British Columbia corporation
20,000 authorized common shares, no par value, 65 of
which are issued and outstanding in the name of
Parcelway Courier Systems Canada Ltd.
5. Alpine Enterprises Ltd., a Manitoba corporation
Unlimited number of authorized Class A Voting Common Shares, 290
of which are issued and outstanding in the name of Dynamex
Canada Inc., unlimited Class B Voting Shares, unlimited Class C
Voting Common Shares, unlimited Class D Voting Common Shares,
unlimited Class A Non-Voting Common Shares, unlimited Class B
Non-Voting Common Shares, unlimited Class C Common Non-Voting
Shares, unlimited Class D Common Non-Voting Shares, and an
unlimited number of Preference Shares
6. Road Runner Transportation, Inc.
25,000 authorized common shares (consisting of 7,000
voting, 5,000 non-voting and 13,000 undesignated), no
par value; of which 4,363.9998 non-voting are issued
and outstanding in the name of Dynamex Inc., and of
which 6,545 voting are issued and outstanding in the
name of Dynamex Inc.
<PAGE> 2
7. Regina Mail Marketing Systems, Inc.
Unlimited number of common shares, no par value, 100
of which are issued and outstanding in the name of
Dynamex Canada Inc.,and unlimited number of preferred
shares, none of which are issued and outstanding.
8. New York Document Exchange Corp.
200 shares of common stock are authorized, no par
value, of which 150 shares are issued and outstanding
in the name of Dynamex Inc.
9. U.S.C. Management Systems, Inc.
200 shares of common stock are authorized, no par
value, of which 91.33 shares are issued and
outstanding in the name of Dynamex Inc.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Dynamex Inc. on Form S-1
of our report dated September 19, 1997, except for Notes 3(b) and 14 which are
as of September 29, 1997 and March 20, 1998, respectively on the consolidated
financial statements of Dynamex Inc. and subsidiaries and our report dated
August 1, 1997 on the combined financial statements of New York Document
Exchange Corporation, Eastside-Westside, Inc., and City Courier, Inc.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Deloitte & Touche
Toronto, Canada
April 7, 1998
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Dynamex Inc. on Form S-1
of our report dated April 14, 1997, appearing in the Prospectus, which is part
of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
Deloitte & Touche LLP
Dallas, Texas
April 7, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> JUL-31-1995 JUL-31-1996 JUL-31-1997
<PERIOD-START> AUG-01-1994 AUG-01-1995 AUG-01-1996
<PERIOD-END> JUL-31-1995 JUL-31-1996 JUL-31-1997
<CASH> 505 894 1,326
<SECURITIES> 0 0 0
<RECEIVABLES> 7,330 11,422 21,483
<ALLOWANCES> 122 281 616
<INVENTORY> 0 0 0
<CURRENT-ASSETS> 8,104 12,891 26,091
<PP&E> 1,817 3,132 12,640
<DEPRECIATION> 298 1,085 6,853
<TOTAL-ASSETS> 17,194 34,999 88,151
<CURRENT-LIABILITIES> 6,620 8,805 14,663
<BONDS> 5,924 20,036 32,388
0 0 0
0 0 0
<COMMON> 25 25 73
<OTHER-SE> 4,625 6,133 41,027
<TOTAL-LIABILITY-AND-EQUITY> 17,914 34,999 88,151
<SALES> 21,032 71,812 131,867
<TOTAL-REVENUES> 21,032 71,812 131,867
<CGS> 0 0 0
<TOTAL-COSTS> 14,336 50,018 87,193
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 403 1,655 1,481
<INCOME-PRETAX> (1,622) 1,052 6,332
<INCOME-TAX> 3 176 2,485
<INCOME-CONTINUING> 0 0 0
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 (335)
<CHANGES> 0 0 0
<NET-INCOME> (1,625) 876 3,512
<EPS-PRIMARY> (1.90) 0.34 0.53
<EPS-DILUTED> (1.90) 0.23 0.51
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> JUL-31-1997 JUL-31-1997 JUL-31-1997 JUL-31-1998
<PERIOD-START> FEB-01-1997 NOV-01-1996 AUG-01-1996 AUG-01-1997
<PERIOD-END> APR-30-1997 JAN-31-1997 OCT-31-1996 OCT-31-1997
<CASH> 1,192 1,599 1,372 1,292
<SECURITIES> 0 0 0 0
<RECEIVABLES> 18,700 16,893 15,260 26,865
<ALLOWANCES> 295 469 423 814
<INVENTORY> 0 0 0 0
<CURRENT-ASSETS> 22,280 19,978 17,954 32,290
<PP&E> 10,210 8,555 6,922 12,956
<DEPRECIATION> 5,537 4,338 3,622 6,506
<TOTAL-ASSETS> 68,008 62,104 51,357 111,284
<CURRENT-LIABILITIES> 10,964 10,481 9,677 14,795
<BONDS> 20,301 16,626 9,040 53,933
0 0 0 0
0 0 0 0
<COMMON> 70 69 67 74
<OTHER-SE> 36,673 34,928 32,523 42,482
<TOTAL-LIABILITY-AND-EQUITY> 68,008 62,104 51,357 111,284
<SALES> 34,155 29,946 26,900 46,550
<TOTAL-REVENUES> 34,155 29,946 26,900 46,550
<CGS> 0 0 0 0
<TOTAL-COSTS> 22,501 20,106 17,994 31,514
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 345 236 271 828
<INCOME-PRETAX> 1,947 1,132 1,026 1,689
<INCOME-TAX> 779 453 408 722
<INCOME-CONTINUING> 0 0 0 0
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 (335) 0
<CHANGES> 0 0 0 0
<NET-INCOME> 1,168 679 283 967
<EPS-PRIMARY> 0.17 0.10 0.05 0.13
<EPS-DILUTED> 0.17 0.10 0.05 0.13
</TABLE>
