COMNET CORPORATION GROUP 1 SOFTWARE, INC.
PROXY STATEMENT AND PROSPECTUS PROXY STATEMENT
This Proxy Statement Prospectus relates to the proposed merger (the
"Merger") of Group 1 Software, Inc., a Delaware corporation ("Group 1"), with
COMNET Corporation, a Delaware corporation ("COMNET"), pursuant to an Agreement
and Plan of Merger, dated June 23, 1998 (the "Merger Agreement"). At the
effective time of the Merger, each outstanding share of Common Stock, par value
$.01 per share, of Group 1 (the "Group 1 Common Stock") will be converted into
the right to receive 1.15 shares of Common Stock, par value $.50 per share, of
COMNET (the "COMNET Common Stock"). COMNET Common Stock is listed for trading on
the National Market of The Nasdaq Stock Market, Inc. under the symbol "CNET."
COMNET and Group 1 are soliciting proxies from their respective stockholders for
use at the Annual Meeting of Stockholders of COMNET (including any adjournments
or postponements thereof, the "COMNET Meeting") and the Special Meeting of
Stockholders of Group 1 (including any adjournments or postponements thereof,
the "Group 1 Meeting"), respectively, each scheduled to be held on September 25,
1998, to consider and vote upon the approval and adoption of the Merger
Agreement providing for the Merger. The Merger is expected to be consummated
immediately after approval of the Merger by the stockholders of COMNET and Group
1.
This Proxy Statement Prospectus constitutes both the proxy statement of
COMNET relating to the solicitation of proxies by its Board of Directors for use
at the COMNET Meeting and the prospectus of COMNET with respect to the COMNET
Common Stock to be issued in the Merger in exchange for outstanding shares of
Group 1 Common Stock. In addition to adopting and approving the Merger Agreement
providing for the Merger, at the COMNET Meeting, holders of COMNET Common Stock
and holders of COMNET 6% Cumulative Convertible Preferred Stock (the "COMNET
Preferred Stock") will be asked to consider and vote upon the following other
proposals (the "Non-Merger Proposals"): (i) an amendment to COMNET's Certificate
of Incorporation increasing the number of shares of COMNET Common Stock that
COMNET is authorized to issue from 10 million to 14 million, (ii) the election
of three members to the Board of Directors of the merged company or, if the
Merger is not approved, COMNET, and (iii) an amendment to COMNET's 1995
Non-Employee Director's Stock Option Plan (the "Plan") to increase the number of
authorized shares of COMNET Common Stock that may be issued under the Plan from
150,000 to 300,000 shares.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
REGULATORS HAS APPROVED THE MERGER DESCRIBED IN THIS PROXY STATEMENT PROSPECTUS
OR THE COMNET COMMON STOCK TO BE ISSUED IN CONNECTION WITH THE MERGER, NOR HAVE
THEY DETERMINED IF THIS PROXY STATEMENT PROSPECTUS IS ACCURATE OR ADEQUATE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Proxy Statement Prospectus is also furnished by Group 1 in connection
with its solicitation of proxies for use at the Group 1 Meeting. Group 1
stockholders will not vote upon any of the Non-Merger Proposals. However, if the
Merger is not approved, Group 1 stockholders will also be asked to elect two
members to the Board of Directors of Group 1.
This Proxy Statement Prospectus is dated August 10, 1998, and is first
being mailed, together with a form of proxy, to stockholders of COMNET and Group
1 on or about August 14, 1998.
See "RISK FACTORS" commencing on page for a description of certain
factors concerning COMNET and its operations following the Merger.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION IN CONNECTION WITH THE COMNET OR THE GROUP 1 PROPOSALS OTHER THAN
THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS PROXY STATEMENT PROSPECTUS,
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED
UPON AS HAVING BEEN AUTHORIZED BY COMNET OR GROUP 1. THIS PROXY STATEMENT
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR A SOLICITATION TO ANY PERSON IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL. THE DELIVERY OF
THIS PROXY STATEMENT PROSPECTUS SHALL UNDER NO CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF COMNET OR GROUP 1
SINCE THE DATE AS OF WHICH INFORMATION IS FURNISHED OR THE DATE HEREOF.
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AVAILABLE INFORMATION
COMNET and Group 1 are both subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and, in
accordance therewith, file reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). The reports, proxy
statements and other information filed by COMNET and Group 1 with the Commission
may be inspected and copied at the Commission's public reference room located at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington D.C. 20549, and
at the public reference facilities in the Commission's regional offices located
at: 7 World Trade Center, 13th Floor, New York, New York 10048; and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, IL 60601. Copies of such
material may be obtained at prescribed rates by writing to the Commission,
Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549.
Certain of such reports, proxy statements and other information are also
available from the Commission over the Internet at http://www.sec.gov. The
shares of COMNET Common Stock and Group 1 Common Stock are listed on the
National Market of The Nasdaq Stock Market, Inc. ("Nasdaq").
This Proxy Statement Prospectus is part of a registration statement on Form
S-4 (together with all amendments and exhibits thereto and documents and
information incorporated by reference therein, the "Registration Statement")
filed with the Commission by COMNET, relating to the registration under the
Securities Act of 1933, as amended (the "Securities Act"), of the shares of
COMNET Common Stock to be issued pursuant to the Merger Agreement. This Proxy
Statement Prospectus does not contain all of the information set forth in the
Registration Statement, certain portions of which have been omitted pursuant to
the rules and regulations of the Commission, to which reference is hereby made
for further information with respect to COMNET and Group 1 and the COMNET Common
Stock offered hereby. Statements contained herein or in any document
incorporated by reference herein concerning any contract or document are not
necessarily complete and, in each instance, reference is made to the copies of
such contract or document filed as exhibits to the Registration Statement or
such other document, each such statement being qualified in its entirety by such
reference.
INCORPORATION BY REFERENCE
This Proxy Statement Prospectus incorporates certain documents by reference
which are not presented herein or delivered herewith. These documents are
available without charge upon request to Edward Weiss, 4200 Parliament Place,
Suite 600, Lanham, MD 20706-1481, telephone 301-918-0400. In order to ensure
timely delivery of these documents, any request should be made by September 11,
1998.
COMNET and Group 1 hereby undertake to provide without charge to each
person, including any beneficial owner of Group 1 Common Stock to whom a copy of
this Proxy Statement Prospectus has been delivered, upon the written or oral
request of any such person, a copy of any and all of the documents referred to
below which have been or may be incorporated herein by reference, other than
exhibits to such documents, unless such exhibits are specifically incorporated
herein by reference. Requests for such documents should be directed to the
person indicated in the immediately preceding paragraph.
The following documents, which have been filed by COMNET or Group 1, as the
case may be, with the SEC pursuant to the Exchange Act, are hereby incorporated
by reference herein:
(a) COMNET's Annual Report on Form 10-K for the year ended March 31, 1998;
and
(b) Group 1's Annual Report on Form 10-K for the year ended March 31, 1998.
All documents filed by COMNET or Group 1 pursuant to Section 13(a), 13(c),
14 or 15(d) of the Exchange Act after the date hereof and prior to the date the
COMNET Meeting and the Group 1 Meeting are held shall be deemed to be
incorporated herein by reference and to be a part hereof from the date of filing
of such documents. All information appearing in this Proxy Statement Prospectus
or in any document incorporated herein by reference is not necessarily complete
and is qualified in its entirety by the information and financial statements
(including notes thereto) appearing in the documents incorporated by reference
herein and should be read together with such information and documents.
Any statement contained in a document incorporated or deemed to be
incorporated herein by reference shall be deemed to be modified or superseded
for purposes of this Proxy Statement Prospectus to the extent that a statement
contained herein or in any other subsequently filed document that is deemed to
be incorporated herein by reference modifies or supersedes such statements. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Proxy Statement Prospectus.
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: Why are the two companies proposing to merge? How will I benefit?
A: The Boards of Directors of COMNET and Group 1 believe that both COMNET and
Group 1 stockholders will benefit from the Merger. We expect that the Merger
will broaden COMNET's stockholder base by increasing the number of shares of
COMNET common stock held by the public, and by reducing costs and other
inefficiencies as well as eliminating the market confusion related to COMNET's
holding company status and Group 1's status as a subsidiary of COMNET.
Q: How did COMNET and Group 1 determine the fairness of the terms of the
Merger?
A: Both COMNET and Group 1 established Special Committees of their respective
Boards of Directors. These Special Committees were comprised of independent,
non-employee directors. Each Special Committee retained its own special legal
counsel and independent financial advisors. Based on the advice of their
respective special legal counsel and financial advisors, each Special Committee
has determined that the terms of the Merger are fair to its stockholders. The
terms of the Merger are described in this Proxy Statement Prospectus and are set
forth in full in the Merger Agreement, which is attached hereto as Exhibit A.
Q: What do I need to do now?
A: If you are a COMNET stockholder:
Just indicate on your proxy card how you want to vote, and sign, date and
return it as soon as possible. If you sign and send in your proxy and do not
indicate how you want to vote, your proxy will be voted in favor of the Merger,
for the nominees for director and in favor of the other proposals set forth in
the COMNET Notice of Annual Meeting. If you do not return your proxy or if you
do not vote or you abstain at the COMNET Meeting, it will have the effect of a
vote not to approve the Merger Agreement and the other proposals.
If you are a Group 1 stockholder:
Just indicate on your proxy card how you want to vote, and sign, date and
return it as soon as possible. If you sign and send in your proxy and do not
indicate how you want to vote, your proxy will be voted in favor of the Merger
and, if the Merger is not approved, for the nominees for director. If you do not
return your proxy or if you do not vote or you abstain at the Group 1 Meeting,
it will have the effect of a vote not to approve the Merger Agreement.
If you are either a COMNET stockholder or a Group stockholder:
You may attend the COMNET Meeting or Group 1 Meeting and vote your shares in
person, rather than completing and returning your proxy card. If you do complete
and return your proxy card, you may revoke it at any time up to and including
the day of the stockholders' meetings by following the directions on page 15.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: Your broker will not vote your shares UNLESS you provide instructions to
your broker on how you want your shares voted.
Q: Should I send in my stock certificates now?
A: No. After the Merger is completed, Group 1 stockholders will receive
instructions on how they may receive their new COMNET stock certificates. COMNET
stockholders will keep their certificates.
Q: What will stockholders receive in the merger?
A: Group 1 stockholders will receive 1.15 shares of COMNET Common Stock in
exchange for each share of Group 1 Common Stock (plus cash for any fractional
shares). COMNET stockholders will retain their existing shares. Following the
Merger, the former Group 1 stockholders (excluding COMNET) will own
approximately 22.1% of the shares of the merged company.
Q: Why will Group 1 stockholders receive shares of COMNET, but COMNET
stockholders will not receive any new shares?
A: Based on the structure of the Merger, COMNET will be the surviving company.
Q: How will the "new" COMNET be operated after the Merger?
A: The Merger Agreement provides that COMNET will be the Surviving Corporation
and will change its name to "Group 1 Software, Inc.". The Surviving Corporation
will continue to develop and distribute application software and services just
as Group 1 had done immediately prior to the Merger. Also, the Merger Agreement
provides that the new Board of Directors of COMNET will consist of 9 members,
made up of 5 persons from COMNET's pre-Merger Board, one person from Group 1's
pre-Merger Board and 3 persons (including 2 management members) who served on
the pre-Merger Boards of both COMNET and Group 1.
Q: Will only COMNET stockholders get to vote for directors of the merged
company?
A: Yes. Once the Merger has been approved by the stockholders of both COMNET
and Group 1, several legal formalities must be completed before Group 1
stockholders can vote on COMNET corporate matters. These formalities cannot be
accomplished before the COMNET Meeting ends. However, if the Merger is not
approved, Group 1 stockholders will also be asked to elect two members to the
Board of Directors of Group 1.
Q: When do you expect the Merger to be completed?
A: The Merger will be completed shortly after its approval at the COMNET
and Group 1 Meetings.
Q: What are the federal income tax consequences of the Merger to me?
A: The Merger will be tax-free for federal income tax purposes. However, Group
1 stockholders will have to pay taxes on any cash they may receive in lieu of
fractional shares. To review the tax consequences to stockholders in greater
detail, see pages 26-27 and the tax opinion which is attached hereto as Exhibit
B.
Q: Who can I talk to if I have more questions?
A: If you have more questions about the Merger you should contact Edward
Weiss, Secretary:
4200 Parliament Place, Suite 600
Lanham, MD 20706-1844
Phone Number: (301) 918-0400
THIS PROXY STATEMENT PROSPECTUS CONTAINS CERTAIN FORWARD LOOKING STATEMENTS WITH
RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND BUSINESS OF COMNET
AND GROUP 1, AND THE SURVIVING CORPORATION FOLLOWING THE CONSUMMATION OF THE
MERGER. WHEN WE USE WORDS SUCH AS "BELIEVES", "EXPECTS", "ANTICIPATES" OR
SIMILAR EXPRESSIONS, WE ARE MAKING FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING
STATEMENTS ALSO INCLUDE STATEMENTS RELATING TO: (1) THE COSTS SAVINGS THAT MAY
BE REALIZED FROM THE MERGER; (2) REVENUES FOLLOWING THE MERGER; (3) COMPETITIVE
PRESSURE IN THE RELEVANT SOFTWARE PRODUCT AND SERVICES MARKETS; (4) POSSIBLE
RISK FACTORS; (5) GENERAL ECONOMIC CONDITIONS, EITHER NATIONALLY OR IN THE
STATES IN WHICH THE SURVIVING COMPANY WILL BE DOING BUSINESS, WHICH COULD AFFECT
THE FINANCIAL RESULTS OF THE SURVIVING COMPANY AFTER THE MERGER IS CONCLUDED.
THESE FORWARD LOOKING STATEMENTS INVOLVE CERTAIN RISKS AND UNCERTAINTIES THAT
MAY CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH
FORWARD-LOOKING STATEMENTS.
<PAGE>
TABLE OF CONTENTS
AVAILABLE INFORMATION
INCORPORATION BY REFERENCE
QUESTIONS AND ANSWERS ABOUT THE MERGER
SUMMARY
RISK FACTORS
THE STOCKHOLDERS' MEETINGS
General
Matters to Be Considered at the Stockholders' Meetings
Record Date; Stock Entitled to Vote; Quorum
COMNET Stockholder Vote Required
Group 1 Stockholder Vote Required
Voting of Proxies
Revocability of Proxies
Solicitation of Proxies
THE PROPOSED MERGER
General
Effective Time
Conversion of Shares; Procedures for Exchange of Certificates;
Fractional Shares
Nasdaq Listings
Background of the Merger
Recommendations of the COMNET Board and COMNET's Reasons for the
Merger
Recommendations of the Group 1 Board and Group 1's Reasons for the
Merger
Opinion of Group 1 Financial Advisors
Certain Transactions; Conflicts of Interest
Board of Directors
Management Post-Merger
Certain Tax Consequences of the Merger
Regulatory Approval and Consents
Certain Provisions of the Merger Agreement
DESCRIPTION OF THE COMPANIES
MARKETS AND MARKET PRICES
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
BENEFICIAL OWNERSHIP
COMPARISON OF STOCKHOLDER RIGHTS
Annual Meetings of Stockholders
Number of Directors
Corporate Opportunity Conflicts - Medco Directors
Classification of Board of Directors
Indemnification
Certain Voting Rights with Respect to Transactions with
Substantial Stockholders
Certain Voting Rights with Respect to Mergers
Removal of Directors; Filling Vacancies on the Board of Directors
Stockholder Action by Written Consent
Amendment of By-laws
DESCRIPTION OF COMNET STOCK
General
COMNET 6% Cumulative Convertible Preferred Stock
Conversion of Group 1 Common Stock
Conversion of Group 1 Common Stock Options
Appraisal Rights
Exchange of Certificates
INTERESTS OF CERTAIN PERSONS IN PROPOSALS TO BE CONSIDERED AT THE
MEETINGS
NASDAQ LISTING OF COMNET COMMON STOCK RECEIVED IN THE MERGER
RESALE OF COMNET COMMON STOCK RECEIVED BY GROUP 1 STOCKHOLDERS
LEGAL MATTERS
EXPERTS
COMNET PROPOSAL 1 -- APPROVAL AND ADOPTION OF THE MERGER AGREEMENT PROVIDING
COMNET FOR THE MERGER BETWEEN COMNET AND GROUP 1
COMNET PROPOSAL 2 -- AMENDMENT TO COMNET CERTIFICATE TO INCREASE NUMBER
OF AUTHORIZED SHARES OF COMNET COMMON STOCK FROM 10,000,000 TO
14,000,000 SHARES
COMNET PROPOSAL 3 -- ELECTION OF COMNET DIRECTORS
COMNET PROPOSAL 4 -- APPROVAL OF AMENDMENT TO THE 1995 NON-EMPLOYEE
DIRECTORS' STOCK OPTION PLAN
GROUP 1 PROPOSAL 1 -- APPROVAL AND ADOPTION OF THE MERGER AGREEMENT PROVIDING
GROUP 1 FOR THE MERGER BETWEEN COMNET AND GROUP 1
GROUP 1 PROPOSAL 2 - ELECTION OF GROUP 1 DIRECTORS
EXHIBIT A - AGREEMENT AND PLAN OF MERGER
EXHIBIT B - OPINION OF PRICEWATERHOUSECOOPERS, LLP
EXHIBIT C - OPINION OF VALUATION RESEARCH, INC.
EXHIBIT D - 1995 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
<PAGE>
SUMMARY
This summary highlights selected information about the Merger from the
Proxy Statement Prospectus and does not contain all the information that is
important to you. To understand the Merger fully and for a more complete
description of the legal terms of the Merger, you should carefully read this
entire document and the documents referred to and incorporated by reference
herein. See "Available Information" (page i). We have included page references
parenthetically to direct you to a more complete description of the topics
presented in this summary.
This Proxy Statement Prospectus relates primarily to the proposed merger (the
"Merger") of Group 1 Software, Inc., a Delaware corporation ("Group 1"), with
and into COMNET Corporation, a Delaware corporation ("COMNET"), pursuant to an
agreement and plan of merger, dated June 23, 1998 (the "Merger Agreement").
Group 1 is a majority-owned subsidiary of COMNET. At the effective time of the
Merger, each outstanding share of common stock, par value $.01 per share, of
Group 1 (the "Group 1 Common Stock") will be converted into the right to receive
1.15 shares of common stock, par value $.50 per share, of COMNET (the "COMNET
Common Stock") and each option to purchase one share of Group 1 Common Stock
will be converted into an option to purchase 1.15 shares of COMNET Common Stock.
The exchange ratio of 1.15 shares of COMNET Common Stock for each one share of
Group 1 Common Stock, as set forth in the Merger Agreement, is hereinafter
referred to as the "Exchange Ratio."
As used in this Proxy Statement Prospectus, the term "COMNET" refers to COMNET
Corporation before consummation of the Merger, and the term "Group 1" refers to
Group 1 Software, Inc. before consummation of the Merger and, unless the context
otherwise requires, its subsidiaries. The term "Surviving Corporation" is
sometimes used herein to refer to COMNET following consummation of the Merger.
The Stockholders' Meetings (page 13)
COMNET. The Annual Meeting of Stockholders of COMNET (the "COMNET Meeting") will
be held at One Liberty Plaza, 46th Floor, New York, New York 10292, at 10:30
a.m. on September 25, 1998. At the COMNET Meeting, COMNET stockholders are being
asked to:
- - approve the Merger Agreement providing for the Merger. See "Proposal
1--Approval and Adoption of the Merger Agreement providing for the Merger
between COMNET and Group 1";
- - approve an amendment to COMNET'S Certificate of Incorporation (the
"Certificate Amendment") increasing the number of shares of COMNET Common
Stock that COMNET is authorized to issue from 10 million to 14 million. See
"COMNET Proposal 2--Amendment of COMNET Certificate to Increase the Number
of Authorized Shares of COMNET Common Stock from 10,000,000 to 14,000,000
Shares."
- - elect three members to the Board of Directors of the Surviving Corporation.
See "COMNET Proposal 3--Election of COMNET Directors"; and
- - approve an amendment to COMNET's 1995 Non-Employee Directors' Stock Option
Plan (the "Option Plan") to increase the number of authorized shares of
COMNET Common Stock that may be issued under the Option Plan from 150,000
to 300,000 shares (the "Option Plan Amendment"). See "COMNET Proposal
4--Approval of Amendment to the 1995 Non-Employee Directors' Stock Option
Plan."
Group 1. A Special Meeting of Stockholders of Group 1 (the "Group 1 Meeting")
will be held at One Liberty Plaza, 46th Floor New York, New York 10292, at 10:00
a.m., on September 25, 1998. At the Group 1 Meeting, Group 1 stockholders are
being asked to approve the Merger Agreement providing for the Merger. See
"Proposal 1--Approval and Adoption of the Merger Agreement Providing for the
Merger between COMNET and Group 1." In addition, if at either the COMNET
Meeting or the Group 1 Meeting the Merger is not approved, Group 1 stockholders
will also be asked to elect two directors to the Group 1 Board. See "Group 1
Proposal 2--Election of Group 1 Directors."
The Parties
COMNET. COMNET is a holding company. As of the Record Date, COMNET owned
approximately 81.2% of the outstanding shares of Group 1 Common Stock. COMNET
conducts no business separate from Group 1's business described below.
Group 1. Group 1 is a majority-owned subsidiary of COMNET. Group 1 develops,
manufactures, licenses, sells and supports software products for specialized
marketing and mail management applications.
COMNET and Group 1 both maintain their principal executive offices at 4200
Parliament Place, Suite 600, Lanham, MD 20706-1481, telephone number (301)
918-0400, fax (301) 918-0430.
Record Date; Voting Power (pages 14)
You are entitled to vote at the COMNET Meeting or the Group 1 Meeting, as the
case may be, if you owned shares of COMNET Common Stock, COMNET 6% Cumulative
Convertible Preferred Stock (the "COMNET Preferred Stock") or Group 1 Common
Stock on July 27, 1998 (the "Record Date").
On the Record Date, there were outstanding 3,298,601 shares of COMNET Common
Stock, 147,500 shares of COMNET Preferred Stock and 4,293,697 shares of Group 1
Common Stock (excluding shares held in the treasury of either company). All
stockholders are entitled to one vote for each share of stock owned by them.
Votes Required (page 14)
COMNET Stockholders:
- - The affirmative vote of the holders of at least a majority of the
outstanding shares of COMNET Common Stock and COMNET Preferred Stock
entitled to vote at the COMNET Meeting is required to approve the Merger
Agreement providing for the Merger. The presence, either in person or by
proxy, of the holders of a majority of the outstanding shares of COMNET
Common Stock and COMNET Preferred Stock entitled to vote at the COMNET
Meeting is necessary to constitute a quorum at the COMNET Meeting.
- - The affirmative vote of the holders of at least a majority of the
outstanding shares of COMNET Common Stock and COMNET Preferred Stock
entitled to vote at the COMNET Meeting is required to approve the
Certificate Amendment.
- - The three persons, duly nominated and qualified, who receive the largest
number of votes shall be elected as directors of the Surviving Corporation
or, if the Merger is not approved, COMNET.
- - The affirmative vote of the holders of at least a majority of the
outstanding shares of COMNET Common Stock and COMNET Preferred Stock
entitled to vote at the COMNET Meeting is required to approve the Option
Plan Amendment.
Group 1 Stockholders:
- - The affirmative vote of the holders of at least a majority of the
outstanding shares of Group 1 Common Stock entitled to vote at the Group 1
meeting is required to approve the Merger Agreement providing for the
Merger. The presence, either in person or by proxy, of the holders of a
majority of the outstanding shares of Group 1 Common Stock entitled to vote
at the Group 1 Meeting is necessary to constitute a quorum at the Group 1
Meeting.
- - The two persons, duly nominated and qualified, who receive the largest
number of votes shall be elected as directors of Group 1.
COMNET OWNED 81.2% OF THE OUTSTANDING SHARES OF GROUP 1 COMMON STOCK AS OF THE
RECORD DATE. COMNET HAS STATED ITS INTENTION TO VOTE ITS SHARES OF GROUP 1
COMMON STOCK IN FAVOR OF THE MERGER AGREEMENT. IF COMNET VOTES ITS HOLDINGS IN
GROUP 1 IN THIS MANNER, THE MERGER WILL BE APPROVED BY GROUP 1.
Share Ownership of Management and Certain Stockholders
(pages 37-38)
At the close of business on the Record Date, the directors and executive
officers of Group 1 owned and were entitled to vote 0.4% of the outstanding
shares of Group 1 Common Stock, 2.7% of the outstanding shares of COMNET Common
Stock and 4.1% of the outstanding shares of COMNET Preferred Stock.
At such time as the Merger becomes effective (the "Effective Time"), Group 1
will be merged with and into COMNET and Group 1 will cease to exist as a
separate corporation. COMNET will be the Surviving Corporation in the Merger,
and will change its name to Group 1 Software, Inc. The shares of common stock of
the Surviving Corporation will continue to be listed on the National Market of
The Nasdaq Stock Market, Inc. ("Nasdaq"). The Surviving Corporation will operate
its business after the Merger in the same manner as Group 1 operated its
business immediately prior to the Merger.
The Merger Agreement is attached hereto as Exhibit A. WE ENCOURAGE YOU TO READ
THE MERGER AGREEMENT CLOSELY. It is the legal document governing the Merger.
What Stockholders Will Receive in the Merger
(pages 17-18 and 43)
As a result of the Merger, Group 1 stockholders will receive:
- - 1.15 shares of COMNET Common Stock for each share of Group 1 Common Stock
owned by them on the Record Date; and
- - a cash payment, based on the market value of COMNET Common Stock, instead
of any fractional share of COMNET Common Stock they would have received.
COMNET will be the Surviving Corporation. As a result, COMNET stockholders will
continue to hold their shares of COMNET Common Stock.
Background (page 18)
See "The Proposed Merger--Background."
Recommendation of the COMNET Board
and COMNET's Reasons for the Merger (page 21)
On June 22, 1998, the board of directors of COMNET (the "COMNET Board")
unanimously approved the Merger Agreement providing for the Merger. The COMNET
Board believes that the terms of the Merger are fair to, and in the best
interests of, COMNET and its stockholders, and unanimously recommends that the
COMNET stockholders vote "FOR" approval and adoption of the Merger Agreement
providing for the Merger. The decision of the COMNET Board is based on its
belief that the Merger will increase the number of shares of COMNET Common
Stock, and will reduce costs and other inefficiencies as well as the market
confusion related to COMNET's holding company status and Group 1's status as a
subsidiary of COMNET. For a more detailed discussion of COMNET's reasons for the
Merger and the factors considered by the COMNET Board in making its
recommendation, see "The Proposed Merger--Recommendation of the COMNET Board and
COMNET's Reasons for the Merger."
Recommendation of the Group 1 Board
and Group 1's Reasons for the Merger (page 22)
On June 22, 1998 the board of directors of Group 1 (the "Group 1 Board")
unanimously approved the Merger Agreement providing for the Merger. The decision
of the Group 1 Board is based upon its belief that the Merger will increase the
number of shares held by the public, providing greater liquidity to
stockholders, and will reduce costs and other inefficiencies as well as the
market confusion related to Group 1's relationship to COMNET as its parent
company. For a more detailed discussion of Group 1's reasons for the Merger and
the factors considered by the Group 1 Board in making its decision, see "The
Proposed Merger--Group 1's Reasons for the Merger."
Financial advisors (page 22)
In deciding to approve the Merger,
- - the COMNET Board and the Group 1 Board each considered the opinion of
Valuation Research, Inc. ("Valuation Research"), as to the fairness from a
financial point of view of the exchange ratio of 1.15 shares of COMNET
Common Stock for each share of Group 1 Common Stock;
- - the COMNET Board further considered the advice of its financial advisor,
Ferris, Baker, Watts, Inc., as to the terms of the Merger from a financial
point of view; and
- - the Group 1 Board also considered the advice of Valuation Research with
respect to other matters related to the Merger.
Opinion of the Group 1 Financial Advisor (page 22)
On June 8, 1998, Valuation Research delivered its final written opinion (the
"Opinion") to the effect that the Exchange Ratio was fair, from a financial
point of view, to Group 1 and its stockholders. In connection with rendering
such Opinion, Valuation Research, among other things, reviewed the Merger
Agreement, held separate discussions with certain senior officers, directors and
other representatives and advisers of Group 1 and COMNET and examined certain
publicly available business and financial information relating to both COMNET
and Group 1. Valuation Research also concluded that an independent valuation of
the individual businesses of COMNET and Group 1 was not required because COMNET
owned approximately 81.2% of the Group 1 Common Stock, Group 1 was COMNET's sole
operation, COMNET's other assets or investments were insignificant and neither
COMNET nor Group 1 had any separate liabilities other than COMNET's obligation
to issue shares of its Common Stock on exercise of outstanding options and on
conversion of outstanding COMNET Preferred Stock and Group 1's intercompany
obligation to COMNET. After taking into account these obligations, Valuation
Research concluded that the 1.15 shares of Common Stock of COMNET to be issued
for each one share of Group 1 Common Stock was fair from a financial point of
view to the Group 1 stockholders.
This summary is qualified in its entirety by reference to the full text of the
Opinion, which contains certain limitations on the review undertaken in
connection with the Opinion. For additional information, see "The Proposed
Merger--Opinion of Group 1 Financial Adviser" and the Opinion attached as
Exhibit C.
Stockholders should read the Valuation Research Opinion, which is attached as
Exhibit C to this Proxy Statement Prospectus, in its entirety. The Opinion does
not constitute a recommendation to any holder of Group 1 Common Stock as to how
to vote with respect to the Merger Agreement and the Merger.
Directors and Management of the Surviving Corporation
Following the Merger (pages 25-26)
The Merger Agreement provides that if the Merger is completed, the board of
directors of the Surviving Corporation will consist of nine members, five of
whom are currently directors of COMNET (James V. Manning, Richard H. Eisenberg,
James P. Marden, Charles J. Sindelar and Bruce J. Spohler); one of whom is
currently a Group 1 director (Thomas S. Buchsbaum); and three of whom currently
serve as a director of both COMNET and Group 1 (Robert S. Bowen, Ronald F.
Friedman and Charles A. Mele). Mark D. Funston, who is currently a director of
COMNET, will resign at the Effective Time of the Merger. The management of the
Surviving Corporation will be the same management as that of Group 1 prior to
the Merger.
Listing of COMNET stock (page 45)
COMNET will file an application to list on Nasdaq the shares of COMNET Common
Stock to be issued in the Merger.
Conditions to the Merger (pages 27-28)
The Merger will be completed only if certain conditions are satisfied,
principally consisting of the following:
- - COMNET stockholders approve the Merger Agreement; and
- - Group 1 stockholders approve the Merger Agreement.
Termination of the Merger Agreement (page 28)
The COMNET Board and the Group 1 Board may jointly agree to terminate the Merger
Agreement at any time without completing the Merger.
In addition, either COMNET or Group 1 may terminate the Merger Agreement if:
- - the stockholders of either COMNET or Group 1 do not approve the Merger
Agreement;
- - either party breaches or does not materially comply with the
representations or warranties it made or obligations it has under the
Merger Agreement, and, as a result, the conditions to completing the Merger
cannot be satisfied; or
- - either the COMNET Board or the Group 1 Board withdraws or materially
modifies its recommendation for the Merger.
Federal Income Tax Considerations (page 26)
Group 1's tax advisors, PricewaterhouseCoopers LLP, have issued an opinion
stating that (i) as a general matter, Group 1 stockholders will not recognize
any gain or loss for federal income tax purposes as a result of the Merger,
except if, and to the extent that, they receive cash in lieu of fractional
shares, and (ii) the Merger will be a tax free transaction for both COMNET and
Group 1. The tax opinion is attached hereto as Exhibit B. WE ENCOURAGE YOU TO
READ THIS TAX OPINION CLOSELY.
COMNET stockholders will not be taxed
as a result of the Merger.
TAX MATTERS ARE VERY COMPLICATED AND THE TAX CONSEQUENCES TO YOU OF THE MERGER
WILL DEPEND ON THE FACTS OF YOUR OWN SITUATION. YOU SHOULD CONSULT YOUR TAX
ADVISORS FOR A FULL EXPLANATION OF THE TAX CONSEQUENCES TO YOU OF THE MERGER.
Comparative Per Share Prices of COMNET Common Stock
and Group 1 Common Stock
Both the COMNET Common Stock and Group 1 Common Stock are traded on Nasdaq. On
April 28, 1998 (the last trading day prior to the public announcement of an
agreement in principle on the Merger and the Exchange Ratio), the high and low
sales prices of the COMNET Common Stock, as reported on Nasdaq, were $12.50 and
$9.38 respectively, and the high and low sales prices of Group 1 Common Stock,
as reported on Nasdaq, were $8.00 and $8.00, respectively. On June 22, 1998 (the
last trading day prior to approval of the Merger Agreement by the COMNET Board
and the Group 1 Board), the high and low sales prices of the COMNET Common
Stock, as reported on Nasdaq, were $13.00 and $12.25, respectively, and the high
and low sales of Group 1 Common Stock, as reported on Nasdaq, were $13.13 and
$13.13, respectively. Stockholders are urged to obtain current market
quotations. See "Markets and Market Prices."
Certain Significant Considerations
In considering whether to approve and adopt the Merger Agreement providing for
the Merger, stockholders of COMNET and Group 1 should carefully consider those
factors described under "RISK FACTORS" as well as the following: (i) the
Exchange Ratio is fixed and will not be adjusted based on changes in the
relative stock prices of the COMNET and Group 1 Common Stock and (ii) the
relative stock prices of COMNET Common Stock and Group 1 Common Stock at the
Effective Time may vary from the prices as of the date on which the Exchange
Ratio was determined or the date of this Proxy Statement Prospectus or on the
date on which stockholders of COMNET and Group 1 vote on the Merger due to
changes in the business, operations or prospects of COMNET or Group 1, market
assessments of the likelihood that the Merger will be consummated and the timing
thereof, general market and economic conditions, and other factors. Group 1 does
not intend to obtain an updated opinion of Valuation Research at or prior to the
Effective Time.
Absence of Appraisal Rights (Page 43)
Stockholders of COMNET and Group 1 are not entitled to appraisal rights under
Delaware law in connection with the Merger.
Accounting Treatment
The Merger Agreement provides that COMNET and Group 1 receive an opinion from
PricewaterhouseCoopers LLP (COMNET's and Group 1's independent accountants) to
the effect that the Merger will qualify as a tax-free transaction.
The Merger will be accounted for under the "purchase" method of accounting, as
described in Accounting Principles Board Opinion No. 16 and the interpretations
thereof, pursuant to which assets and liabilities of Group 1 must be adjusted to
their fair values and included with those of COMNET. As Group 1 is already
reported on the consolidated basis with COMNET any excess of proceeds over the
fair value of the minority interest as recorded on COMNET's books will be
allocated to identifiable intangible assets. Net income of income of COMNET
subsequent to the Effective time will include net income of Group 1, and the
historical results of operations of COMNET prior to the Effective time will not
be restated.
Shareholders Suit
COMNET, Group 1 and certain of Group 1's directors have been named as defendants
in a purported shareholder class action filed on April 28, 1998 in the Court of
Chancery of the State of Delaware (C.A. No. 16349), Brickell Partners,
Individually and on Behalf of All Others Similarly Situated v. Robert S. Bowen,
et al. The suit alleges breaches of fiduciary duties in that COMNET, as majority
stockholder of Group 1, "has greater knowledge [of Group 1] than the public
shareholders and has timed the [merger] transaction to take advantage of Group
1's increased efficiency and prospects for profitability", to the unfair
disadvantage of Group 1's public shareholders. The defendants have not yet filed
their initial responsive pleading. Both COMNET and Group 1 believe that the
complaint is meritless and shall actively pursue dismissal of all of the claims
made by the Plaintiff in the lawsuit.
Summary Historical and Pro forma Financial Data
The table below presents selected historical financial data of COMNET and Group
1, and selected unaudited pro forma financial data giving effect to the Merger.
The COMNET and Group 1 selected historical consolidated financial data for each
of the five years in the period ended March 31, 1998 are derived from the
respective historical consolidated financial statements of COMNET and Group 1,
as audited by PricewaterhouseCoopers LLP, independent public accountants for
both COMNET and Group 1. The pro forma data are not necessarily indicative of
the results of operations or the financial condition that would have been
reported had the Merger been in effect during those periods, or as of those
dates, or that may be reported in the future. Pro forma combined per share data
of COMNET and Group 1 give effect to the exchange of each share of Group 1
Common Stock for 1.15 shares of COMNET Common Stock.
The information is only a summary and should be read in conjunction with
information provided in COMNET's and Group 1's Annual Report on Form 10-K which
is incorporated by reference herein and the unaudited Pro Forma Combined
Condensed Financial Statement of COMNET and Group 1 which are included elsewhere
in this Proxy Statement Prospectus.
The unaudited pro forma earnings do not reflect any potential savings that are
expected to result from the consolidation of the operations of COMNET and Group
1 and are not necessarily indicative of the future results of the Surviving
Corporation. While the Surviving Corporation expects to achieve benefits, there
can be no assurance that such benefits will be realized and, if realized, the
extent of such benefits.
The results of COMNET and Group 1 for the years ended March 31, 1998 and 1997
are not necessarily indicative of the results for any subsequent period. Also,
pro forma amounts are not necessarily indicative of results of operations or the
financial position of the Surviving Corporation that would have resulted had the
Merger been consummated at the beginning of the earliest period indicated.
<PAGE>
<TABLE>
<CAPTION>
Selected Consolidated Financial Data
(In Thousands, except per share data)
Year Ending March 31,
---------------------------------------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
COMNET-HISTORICAL
Statement of Earnings Data:
Revenue $ 61,004 $ 54,547 $ 45,873 $ 37,883 $ 31,370
Earnings (loss) from continuing operations $ 2,335 $ (2,710) $ 5,472 $ 5,241 $ 3,303
Net earnings (loss) from continuing operations $ 1,150 $ (1,600) $ 2,832 $ 2,658 $ 1,776
Net loss from discontinued operations $ -- $ -- $ -- $ (282) $ (1,571)
Net earnings (loss) $ 1,150 $ (1,600) $ 2,832 $ 2,376 $ 204
Basic earnings (loss) from continuing operations
per share of common stock $ 0.30 $ (0.54) $ 0.85 $ 0.82 $ 0.54
Basic loss from discontinued operations per share
of common stock $ -- $ -- $ -- $ (0.09) $ (0.53)
Basic net earnings (loss) per share of common
stock $ 0.30 $ (0.54) $ 0.85 $ 0.73 $ 0.01
Basic weighted average number of shares 3,274 3,263 3,140 3,016 2,978
Diluted earnings (loss) from continuing operations
per share of common stock $ 0.29 $ (0.54) $ 0.79 $ 0.78 $ 0.47
Diluted loss from discontinued operations per
share of common stock $ -- $ -- $ -- $ (0.09) $ (0.46)
Diluted net earnings (loss) per share $ 0.29 $ (0.54) $ 0.79 $ 0.69 $ 0.01
Diluted weighted average number of shares 3,299 3,263 3,340 3,164 3,386
Balance Sheet Data:
Working capital $ 6,692 $ 4,491 $ 6,829 $ 6,787 $ 8,958
Total assets $ 70,630 $ 75,856 $ 67,192 $ 57,148 $ 49,047
Long-term debt $ 389 $ 304 $ 320 $ 561 $ 719
Stockholders' equity $ 27,158 $ 26,212 $ 27,433 $ 24,881 $ 20,337
GROUP 1 - HISTORICAL
Statement of Earnings Data:
Revenue $ 61,006 $ 54,550 $ 45,875 $ 37,921 $ 31,312
Earnings (loss) from operations $ 2,961 $ (1,803) $ 5,653 $ 5,073 $ 3,548
Net earnings (loss) $ 1,403 $ (1,648) $ 3,701 $ 3,272 $ 2,474
Basic earnings (loss) per share of common stock $ 0.33 $ (0.38) $ 0.86 $ 0.76 $ 0.58
Basic weighted average number of shares and common
equivalent shares 4,294 4,294 4,293 4,293 4,293
Diluted earnings (loss) per share $ 0.33 $ (0.38) $ 0.86 $ 0.76 $ 0.57
Diluted weighted average number of shares
outstanding 4,298 4,294 4,323 4,307 4,313
Balance Sheet Data:
Working capital $ 5,874 $ 3,154 $ 5,424 $ 6,970 $ 8,403
Total assets $ 69,462 $ 74,548 $ 65,851 $ 55,181 $ 45,731
Long-term debt $ 389 $ 304 $ 320 $ 561 $ 719
Stockholders' equity $ 30,398 $ 29,059 $ 30,421 $ 26,624 $ 23,378
UNAUDITED PRO FORMA COMBINED
Statement of Earnings Data:
Revenue $ 61,004
Earnings from operations $ 2,048
Net earnings $ 1,127
Net earnings per share of common stock $ 950
Basic earnings available to common stockholders 0.23
Diluted earnings per share of common stock 0.22
Balance Sheet Data:
Working capital $ 6,417
Total assets $ 74,643
Long-term liabilities $ 7,071
Stockholders' equity $ 36,579
<FN>
See Notes to the unaudited pro forma combined condensed financial data
appearing elsewhere in this Proxy Statement Prospectus.
</FN>
</TABLE>
<PAGE>
RISK FACTORS
In addition to the other information in this Proxy Statement Prospectus,
the following risk factors should be considered carefully by the stockholders of
COMNET and Group 1 in evaluating whether to approve and adopt the Merger
Agreement providing for the Merger.
Risk Factors That COMNET and Group 1 Stockholders Share
Technological Advances. The software industry in which Group 1 competes has
experienced, and will continue to experience, rapid technological advances,
changes in customer requirements and frequent new product introductions and
enhancements. Developments and advancements in both software technology and
hardware capability will require substantial product development investments.
Any failure to anticipate or respond adequately to technological developments
and customer requirements, or any significant delays in product development or
introduction, could have a material adverse effect on the Surviving
Corporation's results of operations. There can be no assurance that the
Surviving Corporation's new products or product enhancements intended to respond
to technological change or evolving customer requirements will achieve market
acceptance.
Attraction and Retention of Technical Employees. The Surviving Corporation
believes that its future success will depend in large part upon its ability to
attract, retain and motivate highly skilled employees, including, particularly,
technical employees. The employees who are in highest demand by the Surviving
Corporation as well as the industry in general are software programmers,
software developers, application integrators and information technology
consultants. These employees are likely to remain a limited resource for the
foreseeable future. There can be no assurance that the Surviving Corporation
will be able to attract and retain sufficient numbers of highly skilled
technical employees. The loss of a significant number of the Surviving
Corporation's technical employees could have a material adverse effect on the
business and results of operations of the Surviving Corporation.
Regulatory Compliance. The mailing efficiency software licensed by Group 1
must adhere to various regulations issued by the United States Postal Service
("USPS"), Canada Post Corporation ("CPC"), and other postal regulatory
authorities. Group 1 has, at times in the past, experienced significant costs in
order to comply with changes in such postal regulatory requirements. There is no
guaranty that the requirements imposed by postal regulatory agencies in the
future may not significantly increase the degree of difficulty in responding to
customers' needs as well as increasing operating costs associated with delivery
of mailing efficiency products to Group 1 customers.
Year 2000 Compliance. Currently, there is significant uncertainty in the
software industry and among software users regarding the impact of the Year 2000
on installed software. For example, many customers historically captured only
two digit entries in the date code field and such two digit entries are used in
the reports produced by Group 1's software. Current versions of virtually all of
Group 1's products are designed to be "Year 2000" compliant. Group 1 does not
believe that the effects of any Year 2000 non-compliance in Group 1's installed
base of software will result in any material adverse impact on the Group 1's
business or financial condition. However, there can be no assurance that the
Surviving Corporation will not be exposed to potential claims resulting from
system problems associated with the century change. Further, Group 1 is unable
to predict the impact, if any, on Group 1 as a result of its customers being
distracted from their automation needs as their attention is redirected or
customer resources are diverted to becoming Year 2000 compliant.
Fluctuations in Operating Results. Group 1 has experienced and may in the
future continue to experience fluctuations in its quarterly operating results
reflecting in part the fact that sales cycles, from initial evaluation to
purchase, vary substantially from customer to customer. Delays in the sales
cycle frequently occur as a result of competition, changes in customer
personnel, overall budgets and spending priorities. Group 1 has typically
operated with little backlog for license revenues because software products
generally are shipped soon after orders are received. As a result, license
revenues in any quarter are substantially dependent on orders booked and shipped
in that quarter. The delay of customer orders for licenses could adversely
affect the license revenues for a given fiscal quarter. Group 1 has historically
achieved a substantial portion of its license revenues in the last weeks of any
particular quarter, and has historically experienced its highest license
revenues in the fourth quarter of its fiscal year. This timing pattern makes
Group 1's financial results for each quarter or year particularly vulnerable to
any delay in closing licensing agreements in such period.
Risk of Software Defects. Complex software products, such as those offered
by Group 1, can contain undetected errors or performance problems. Such defects
are most frequently found during the period immediately following introduction
of new products or enhancements of existing products. Group 1's products have
from time to time contained software errors that were discovered after
commercial introduction. There can be no assurance that performance problems or
errors will not be discovered in Group 1's products in the future. Any future
software defects discovered after shipment of the Group 1 products, if material,
could result in loss of revenues, delays in customer acceptance or potential
product liability.
Dividends. To date, neither COMNET nor Group 1 has paid any cash dividends
on their respective Common Stock, and do not expect to declare or pay any cash
or other dividends in the foreseeable future. The COMNET Preferred Stock pays a
dividend of $1.20 per share out of funds legally available to pay dividends.
Competition. The computer software and service industry is highly
competitive. No published data are available regarding Group 1's relative
position in the markets in which it operates. Although no major competitor
currently competes against Group 1 across its entire product line, competitive
products offer many similar features. Group 1's existing and potential
competitors include companies having greater financial, marketing and technical
resources than Group 1. Group 1 believes that there are at least 34 companies
that offer products competitive with one or more of Group 1's products. Group 1
believes that six companies offer customer information management systems and at
least 12 companies offer database marketing systems. At least four competitors
are in the document composition and production marketplace. For mailing
efficiency products, at least two competitors offer products that compete with
Group 1 on open system and mainframe platforms. Group 1 experiences strong
competition in the market for postal coding and presorting software from these
competitors. There can be no assurance that one or more of these competitors
will not develop products that are equal or superior to the products Group 1 is
marketing or expects to market in the future. In addition, many potential
clients at which Group 1's products are targeted have in-house capability to
develop computer software programs.
Limited Product Protection. Group 1 regards its software, in sources and
object code as proprietary, and relies upon a combination of contract, trade
secret and copyright laws to protect its products and related manuals and
documentation. The license agreements under which clients use Group 1's products
generally restrict a client's use to its own operations and always prohibit
unauthorized disclosure to third persons. Notwithstanding these restrictions, it
may be possible for other persons to use of Group 1's products without
authorization.
Risk Factors That COMNET and Group 1 Do Not Share.
Liquidation Preference. Currently, upon liquidation of Group 1, the holders
of Group 1 Common Stock would be entitled to receive the proceeds from the
liquidation of Group 1's assets after secured creditors (and any other senior
creditors that may be approved by the appropriate judicial authority) have been
paid. Former holders of Group 1 Common Stock, who will own COMNET Common Stock
following and as a result of the Merger would also be subordinate to holders of
COMNET Preferred Stock in the event of a liquidation of the Surviving
Corporation.
Dilution. Following consummation of the Merger, former Group 1 stockholders
(excluding COMNET as a Group 1 stockholder), who own 18.2% of Group 1's
outstanding Common Stock as of the Record Date, will own approximately 22.1% of
the Common Stock of the Surviving Corporation. The interest of holders of COMNET
Common Stock is subject to dilution as a result of the exercise of outstanding
stock options with respect to COMNET Common Stock and conversion of the COMNET
Preferred Stock to COMNET Common Stock. See "Description of COMNET Stock--COMNET
6% Cumulative Convertible Preferred Stock." Holders of COMNET Common Stock, who
owned 100% of COMNET Common Stock as of the Record Date, will own approximately
77.9% of the Common Stock of the Surviving Corporation following the Merger.
<PAGE>
THE STOCKHOLDERS' MEETINGS
General
This Proxy Statement Prospectus is being furnished to holders of COMNET
Common Stock in connection with the solicitation of proxies by the COMNET Board
for use at the COMNET Meeting to be held at One Liberty Plaza, 46th Floor, New
York, New York 10292, at 10:30 a.m., on September 25, 1998.
This Proxy Statement Prospectus is also being furnished to holders of Group
1 Common Stock in connection with the solicitation of proxies by the Group 1
Board for use at the Group 1 Meeting to be held at One Liberty Plaza, 46th
Floor, New York, New York 10292, at 10:00 a.m., on September 25, 1998.
This Proxy Statement Prospectus and the accompanying forms of proxy are
first being mailed to stockholders of COMNET and Group 1 on or about August 14,
1998.
Matters to Be Considered at the Stockholders' Meetings
COMNET. At the COMNET Meeting, stockholders of COMNET will be asked to
consider and vote upon (i) a proposal to approve and adopt the Merger Agreement
providing for the Merger; (ii) a proposal to amend COMNET's Certificate of
Incorporation (the "COMNET Certificate"), increasing the number of shares of
COMNET Common Stock COMNET is authorized to issue from 10 million to 14 million,
(iii) the election of three directors to serve until the third annual meeting of
stockholders of the Surviving Corporation or, if the Merger is not approved,
COMNET, following their election and until the election and qualification of
their successors, (iv) a proposal to amend the COMNET 1995 Non-Employee
Director's Stock Option Plan (the "Plan") to increase the number of shares of
COMNET Common Stock that may be issued under the Plan from 150,000 to 300,000
shares; and (iv) such other matters as may properly come before the COMNET
Meeting.
THE COMNET BOARD HAS ADOPTED THE RECOMMENDATIONS OF THE COMNET SPECIAL
COMMITTEE REGARDING THE TERMS OF THE MERGER. THE COMNET BOARD HAS DETERMINED
THAT THE MERGER IS IN THE BEST INTERESTS OF THE COMNET STOCKHOLDERS. THE COMNET
BOARD THEREFORE UNANIMOUSLY RECOMMENDS THAT COMNET STOCKHOLDERS VOTE "FOR" THE
MERGER. THE COMNET BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
ELECTION OF THE NOMINEES FOR DIRECTOR AND THE OTHER PROPOSAL SET FORTH IN THE
NOTICE OF ANNUAL MEETING OF COMNET STOCKHOLDERS.
Group 1. At the Group 1 Meeting, stockholders of Group 1 will be asked to
consider and vote upon (i) a proposal to approve the Merger Agreement providing
for the Merger, (ii) if the Merger is not approved, the election of two
directors to serve until the third annual meeting of stockholders of Group 1
following their election and until the election and qualification of their
successors, and (iii) such other matters as may properly come before the Group l
Meeting.
THE GROUP 1 BOARD HAS ADOPTED THE RECOMMENDATIONS OF THE GROUP 1 SPECIAL
COMMITTEE REGARDING THE TERMS OF THE MERGER. THE GROUP 1 BOARD HAS DETERMINED
THAT THE MERGER IS IN THE BEST INTERESTS OF THE GROUP 1 STOCKHOLDERS. THE GROUP
1 BOARD THEREFORE UNANIMOUSLY RECOMMENDS THAT GROUP 1 STOCKHOLDERS VOTE "FOR"
THE MERGER AGREEMENT.
Record Date; Stock Entitled to Vote; Quorum
COMNET. The COMNET Board has fixed the close of business on July 27, 1998,
as the record date for the COMNET Meeting (the "Record Date"). Only holders of
record of shares of COMNET Common Stock and holders of COMNET Preferred Stock on
the Record Date are entitled to notice of, and to vote at, the COMNET Meeting.
On the Record Date, there were 3,298,601 shares of COMNET Common Stock and
147,500 of COMNET Preferred Stock issued and outstanding.
Each holder of record of COMNET Common Stock and COMNET Preferred Stock on
the Record Date is entitled to cast one vote per share on each proposal being
presented at the COMNET Meeting. The presence, in person or by proxy, of holders
of a majority of the outstanding shares of COMNET Common Stock and COMNET
Preferred Stock entitled to vote is necessary to constitute a quorum at the
COMNET Meeting.
As of the Record Date, the directors and executive officers of COMNET were
entitled to vote approximately 3.3% of the outstanding shares of COMNET Common
Stock and 4.1% of the outstanding shares of COMNET Preferred Stock. Each
director and executive officer of COMNET who owns shares of COMNET Common Stock
and/or COMNET Preferred Stock has advised COMNET that he intends to vote or
direct the vote, of all such shares over which he has voting control, subject to
and consistent with any fiduciary obligations in the case of shares held as a
fiduciary, in favor of approval of the Merger.
Group 1. The Group 1 Board has also fixed the close of business on July 27,
1998, as the Record Date for the Group 1 Meeting. Only holders of record of
shares of Group 1 Common Stock on the Record Date are entitled to notice of, and
to vote at, the Group 1 Meeting. On the Record Date, there were 4,293,697 shares
of Group 1 Common Stock issued and outstanding.
Each holder of record of Group 1 Common Stock on the Record Date is
entitled to cast one vote per share on each proposal being presented at the
Group 1 Meeting. The presence, in person or by proxy, of the holders of a
majority of the outstanding shares of Group 1 Common Stock entitled to vote is
necessary to constitute a quorum at the Group 1 Meeting.
COMNET Stockholder Vote Required
The affirmative vote of the holders of at least a majority of the total
number of outstanding shares of COMNET Common Stock and COMNET Preferred Stock,
considered as one class, entitled to vote at the COMNET Meeting is required to
adopt the Merger Agreement providing for the Merger.
Group 1 Stockholder Vote Required
The affirmative vote of the holders of at least a majority of the total
number of outstanding shares of Group 1 Common Stock entitled to vote at the
Group 1 Meeting is required to adopt the Merger Agreement providing for the
Merger.
AS OF THE RECORD DATE, COMNET OWNED 81.2% OF THE ISSUED AND OUTSTANDING
SHARES OF GROUP 1 COMMON STOCK. COMNET INTENDS TO VOTE ITS SHARES OF GROUP 1
COMMON STOCK IN FAVOR OF THE MERGER AND THE OTHER PROPOSALS SET OUT IN THIS
PROXY STATEMENT. IF COMNET VOTES ITS GROUP 1 COMMON STOCK IN THIS MANNER, THE
MERGER WILL BE APPROVED BY A MAJORITY OF THE STOCKHOLDERS OF GROUP 1.
Voting of Proxies
Shares represented by properly executed proxies and received prior to or at
the COMNET Meeting, and not revoked, will be voted at the COMNET Meeting in
accordance with the instructions indicated thereon. Shares represented by
properly executed proxies and received prior to or at the Group 1 Meeting, and
not revoked, will be voted at the Group 1 Meeting in accordance with the
instructions indicated thereon. Proxies that do not contain voting instructions
will be voted in favor of the election of the nominees for director and FOR
approval of the proposals set forth in the Notice of Annual Meeting of
Stockholders of COMNET Meeting and the Notice of Special Meeting of Stockholders
of Group 1, respectively.
Abstentions and broker non-votes will be included in the calculation of the
number of shares represented at the respective meetings for purposes of
determining whether there is a quorum, but will be counted as a vote against the
proposals to be considered and voted upon at the COMNET and Group 1 Meetings.
Revocability of Proxies
The grant of a proxy on the enclosed form of proxy does not preclude a
stockholder from attending and voting in person at the COMNET Meeting or the
Group 1 Meeting, as the case may be.
A COMNET stockholder may revoke a proxy at any time prior to its exercise
by delivering to the Secretary of COMNET a duly executed proxy or revocation of
proxy bearing a later date or by voting in person at the COMNET Meeting.
Attendance at the COMNET Meeting will not in and of itself constitute a
revocation of a proxy.
A Group 1 stockholder may revoke a proxy at any time prior to its exercise
by delivering to the Secretary of Group 1 a duly executed proxy or revocation of
proxy bearing a later date or by voting in person at the Group 1 Meeting.
Attendance at the Group 1 Meeting will not of itself constitute revocation of a
proxy.
Solicitation of Proxies
COMNET and Group 1 will bear the cost of the solicitation of proxies from
their respective stockholders, except that COMNET and Group 1 will share equally
in the cost of printing this Proxy Statement Prospectus and the applicable fees
associated with the filing of this Proxy Statement Prospectus with the
Commission. In addition to solicitation by mail, the directors, officers and
employees of each of COMNET and Group 1 may solicit proxies from stockholders of
such company by telephone or telegram or in person. Arrangements will also be
made with brokerage houses and other custodians, nominees and fiduciaries for
the forwarding of solicitation material to the beneficial owners of voting
securities of COMNET and Group 1, and COMNET and Group 1 will reimburse such
custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses
in connection therewith.
Corporate Investor Communications, Inc. of New Jersey (the "Soliciting
Agent") will assist COMNET and Group 1 in the solicitation of proxies. The
Soliciting Agent will receive fees for its services not to exceed $7,000.
Neither the COMNET Board nor the Group 1 Board is aware of any matter other
than those set forth in this Proxy Statement Prospectus that will be brought
before the COMNET Meeting or the Group 1 Meeting, respectively. If, however,
other matters are properly presented at either the COMNET Meeting or the Group 1
Meeting, proxies will be voted in accordance with the discretion of the holders
of such proxies.
<PAGE>
THE PROPOSED MERGER
General
The following is a brief summary of certain aspects of the Merger. This
summary does not purport to be complete and is qualified in its entirety by
reference to the Merger Agreement, which is attached to this Proxy Statement
Prospectus as Exhibit A and is incorporated by reference herein.
At the Effective Time, Group 1 will be merged with and into COMNET, and
Group 1 will cease to exist as a separate corporation. COMNET will be the
surviving corporation in the Merger and will change its name to Group 1
Software, Inc. COMNET, renamed as Group 1 Software, Inc., will continue Group
1's current business of developing and licensing software products and related
services. See "Description of the Companies." The certificate of incorporation
of COMNET (the "COMNET Certificate") and the by-laws of COMNET (the "COMNET
By-Laws") in effect immediately prior to the Merger will be the certificate of
incorporation and the by-laws of the Surviving Corporation following the Merger.
At the Effective Time, each then-outstanding share of Group 1 Common Stock
(other than shares held in the treasury of Group 1 and shares held by COMNET)
will be converted into the right to receive 1.15 shares of COMNET Common Stock.
The exchange ratio of 1.15 shares of COMNET Common Stock for each share of Group
1 Common Stock, as set forth in the Merger Agreement, is hereinafter referred to
as the "Exchange Ratio." Notwithstanding the foregoing, no fractional shares of
COMNET Common Stock will be issued in the Merger, and holders of Group 1 Common
Stock whose shares are converted in the Merger will be entitled to a cash
payment in lieu of fractional shares of COMNET Common Stock.
None of the shares of COMNET Common Stock will be converted or otherwise
modified in the Merger. All of such shares will continue to be outstanding
capital stock of COMNET, as the Surviving Corporation, after the Effective Time.
A description of the relative rights, privileges and preferences of the
shares of COMNET Common Stock, including certain material differences between
the shares of COMNET Common Stock and the Group Common Stock, is set forth under
"Description of COMNET Stock" and "Comparison of Stockholder Rights."
Effective Time
The Merger will become effective at such time as the certificate of merger
required under Delaware law is filed with the Secretary of State of the State of
Delaware (the "Effective Time"). The filing of the certificate of merger will
occur as soon as practicable, but no later than the third business day after the
last to occur of the following events: (i) the receipt of the necessary
stockholder approvals required to consummate the Merger, and (ii) satisfaction
of the conditions to the consummation of the Merger set forth in the Merger
Agreement, unless another date is agreed to by COMNET and Group 1.
Conversion of Shares; Procedures for Exchange of Certificates;
Fractional Shares
The conversion of shares of Group 1 Common Stock into the right to receive
COMNET Common Stock will occur automatically at the Effective Time. As soon as
practicable after the Effective Time, American Stock Transfer & Trust Co., as
the Exchange Agent, will send a transmittal letter to each Group 1 stockholder.
The transmittal letter will contain instructions on how to obtain shares of
COMNET Common Stock in exchange for shares of Group 1 Common Stock.
GROUP 1 STOCKHOLDERS SHOULD NOT RETURN THEIR STOCK CERTIFICATES WITH THE
ENCLOSED PROXY CARD. IF THE MERGER IS CONSUMMATED, STOCK CERTIFICATES SHOULD BE
DELIVERED IN ACCORDANCE WITH INSTRUCTIONS SET FORTH IN A LETTER OF TRANSMITTAL
WHICH WILL BE SENT TO GROUP 1 STOCKHOLDERS BY THE EXCHANGE AGENT PROMPTLY AFTER
THE EFFECTIVE TIME OF THE MERGER.
After the Effective Time, each certificate that previously represented
shares of Group 1 Common Stock will represent only the right to receive the
number of shares of COMNET Common Stock into which such shares were converted in
the Merger and the right to receive cash in lieu of fractional shares of COMNET
Common Stock as described below.
All shares of COMNET Common Stock issued upon conversion of shares of Group
1 Common Stock (including any cash paid in lieu of fractional shares) will be
deemed to have been issued in full satisfaction of all rights pertaining to such
shares of Group 1 Common Stock.
No fractional shares of COMNET Common Stock will be issued to any Group 1
stockholder upon the surrender for exchange of certificates representing Group 1
Common Stock. Promptly after the Effective Time, each holder of a fractional
share interest will be paid an amount in cash equal to the product obtained by
multiplying (i) the fractional share interest to which such holder (after taking
into account all fractional share interests then held by such holder) would
otherwise be entitled to receive by (ii) the closing sale price of a share of
COMNET Common Stock as reported on Nasdaq on the trading day immediately
preceding the date of the Effective Time. No interest will be paid on any cash
amounts paid in lieu of fractional shares.
Nasdaq Listings
It is a condition to the consummation of the Merger that the COMNET Common
Stock issued in the Merger in exchange for Group 1 Common Stock be authorized
for listing on Nasdaq subject to official notice of issuance.
Background of the Merger
At a June 24, 1997 meeting, the COMNET Board directed management to develop
a preliminary recommendation and plan, for the COMNET Board's consideration, to
merge COMNET and Group 1. Similarly, the Group 1 Board directed management to
evaluate the benefits and effects of such a merger for consideration by the
Group 1 Board. Management of the companies reviewed the matter with particular
emphasis on the cost savings they believed could be expected to result from
merging the two companies and the benefit of having a greater number of shares
of COMNET Common Stock available in the market following the Merger. Management
of COMNET and Group 1 met with Valuation Research and another merger valuation
firm to explore how a merger between COMNET and Group 1 could be effected in a
manner most advantageous to the stockholders of COMNET and Group 1, with counsel
to the companies to discuss the legal implications of a possible merger and with
PricewaterhouseCoopers LLP (the independent accountants for both companies) to
preliminarily discuss the tax and accounting treatment of a merger. These
meetings were preliminary in nature and did not involve substantive analysis or
negotiations on the Merger.
Based on preliminary advice received from financial and legal advisors,
both the COMNET Board and Group 1 Board concluded that a merger of the two
companies warranted further and more serious consideration, and that the
appointment of Special Committees for the purpose of considering the merger
would be appropriate. At its October 30, 1997 meeting, the Group 1 Board
constituted a Special Committee comprised of Messrs. Thomas Buchsbaum and Joseph
Sullivan (the "Group 1 Committee"). Both directors serve only on the Group 1
Board and are not employees of either Group 1 or COMNET. The Group 1 Committee
was charged with evaluating, on behalf of Group 1, the issues of concern to
Group 1 related to the Merger; to retain legal counsel and financial advisors to
assist the Group 1 Committee in its work; to negotiate with independent
representatives of COMNET over the terms and conditions of the Merger; and to
present a report and recommendations regarding the Merger to the entire Group 1
Board for its review and approval.
The COMNET Board constituted its own Special Committee (the "COMNET
Committee") by action taken at its November 6, 1997 meeting. The COMNET
Committee consists of Messrs. James Marden and Bruce Spohler each of whom is an
independent director. The COMNET Committee was charged with the responsibility
of evaluating, on behalf of COMNET, the issues of concern to COMNET related to
the Merger; to retain independent legal counsel and financial advisors to assist
that committee in its work; to negotiate the terms and conditions of the Merger
with the members of the Group 1 Special Committee and to present a report and
recommendations regarding the Merger to the entire COMNET Board for its review
and approval. The COMNET Committee convened a meeting, reviewed the question of
retaining legal counsel and agreed to retain the law firm of Cadwalader,
Wickersham & Taft ("Cadwalader") to act as special legal counsel to the COMNET
Committee, and to advise that committee on the discharge of its
responsibilities.
On November 16, 1997, the Group 1 Committee met and retained the law firm
of Arent Fox Kintner Plotkin & Kahn PLLC ("Arent Fox") to serve as special
counsel to that committee. Both Cadwalader and Arent Fox have performed legal
work for COMNET and Group 1 in the past, but neither is currently engaged in any
material project for either company. For the next several weeks the Group 1
Committee considered whether to retain a financial advisor to assist the
Committee, what the scope of such an engagement would involve and who should be
retained to perform it. At its December 23, 1997 meeting, the Group 1 Committee
determined that it was advisable to retain a financial advisor to assist it, and
to render an opinion as to the fairness of the financial terms of the Merger to
Group 1 stockholders. Since COMNET owns approximately 81% of the outstanding
shares of Group 1 Common Stock and has the power to elect all directors and to
approve or disapprove the Merger, the Group 1 Committee determined that it was
important to obtain an independent evaluation of fairness of the terms. At that
meeting, the Group 1 Committee also determined that it wished to interview
Valuation Research for this engagement. Valuation Research was then invited to
join the meeting. Valuation Research presented its qualifications to serve as
the financial advisors to the Group 1 Committee and to render an opinion as to
the fairness of the terms of the Merger, once such terms have been agreed upon
by COMNET and Group 1. The Group 1 Committee determined that Valuation Research
was qualified to assist the Group 1 Committee as its financial advisor and to
render a fairness opinion. Accordingly, the Group 1 Committee retained Valuation
Research to perform these services.
The COMNET Committee convened on several occasions in late 1997 and early
1998 with Cadwalader, its legal counsel, and also concluded that it would be
appropriate to retain a financial advisor to assist it in the structuring of a
fair proposal for the merger, to consider the impact of certain capital issues
(such as the outstanding stock options and COMNET Preferred Stock), to assist in
the negotiations with the Group 1 Committee and to assist in evaluating the
appropriateness of the fairness opinions obtained by the Group 1 Committee.
On January 8 and 9, 1998, the COMNET Committee and Cadwalader interviewed
several qualified financial advisors and shortly thereafter engaged the
investment banking firm of Ferris, Baker, Watts, Inc. ("FBW") to act as an
independent advisor to the COMNET Committee.
On January 29, 1998, Cadwalader and FBW met with the COMNET Special
Committee and outlined a number of financial issues to be considered and the due
diligence efforts to be undertaken by Cadwalader and FBW in connection with the
transaction. On February 19, 1998, Cadwalader and FBW met with senior executives
and the respective Chief Legal and Chief Financial Officers of COMNET and Group
1 in an effort to evaluate the financial, legal and capital structure issues
relevant to the proposed merger. This meeting and the subsequent review and
analysis focused on the capital structure of COMNET, particularly the
outstanding options and COMNET Preferred Stock, intercompany agreements and
accounts, tax sharing arrangement, assets of COMNET (other than its majority
interest in Group 1) and direct liabilities of COMNET (absolute or contingent).
COMNET and Group 1 officers, both at the meeting and subsequently, provided all
information and documentation requested by either Cadwalader or FBW in order to
complete their due diligence analysis. The Group 1 Committee independently and
in conjunction with Valuation Research conducted its own corresponding due
diligence and reviewed and analyzed the capital structure of COMNET, any COMNET
assets and liabilities that are not shared by Group 1, the dilutive effect on
Group 1 public stockholders of the COMNET Preferred Stock and the outstanding
COMNET options and the intercompany accounts between Group 1 and COMNET.
In late February 1998, the COMNET Committee met and conferred with
Cadwalader and FBW to review the due diligence survey that had been conducted
and to consider making a proposal to the Group 1 Committee. The COMNET Committee
concluded that it would be appropriate to offer an exchange ratio of .9428
shares of COMNET Common Stock for each share of Group 1 Common Stock. The
proposal was promptly forwarded to the Group 1 Committee by FBW and Cadwalader.
At a meeting between the COMNET Committee and its legal and financial advisors
and the Group 1 Committee and its legal and financial advisors, the Group 1
Committee advanced a counter proposal whereby the exchange ratio would be
approximately 1.29. Extensive negotiations followed concerning the relevant
factors in each of the proposals during the meeting and over the next several
days. Particular emphasis was placed on the value of the extensive COMNET stock
options outstanding, the impact of the COMNET Preferred Stock, the intercompany
payable owed by Group 1 to COMNET and the value of the COMNET management
agreements. Also, considered were the impact of increased liquidity for the
stockholders of both companies, the reduction of expenses after the merger that
are presently incurred as a result of having two public companies and a number
of other factors.
On April 23, 1998, after numerous negotiating sessions between the advisors
of the companies, the COMNET Committee offered, and the Group 1 Committee
accepted, a proposal whereby the exchange ratio in the Merger would be 1.15
shares of COMNET Common Stock for each share of Group 1 Common Stock. This
proposal was considered by Valuation Research which has opined that the
transaction is fair from a financial point of view to Group 1 stockholders. FBW
subsequently reviewed the Opinion of Valuation Research and advised the COMNET
Committee that the Opinion had considered the appropriate factors and was
properly and professionally done and that it was not unreasonable to rely on the
Opinion as it was not inconsistent with its analysis.
At a special meeting of the Group 1 Board held on April 27, 1998, a
detailed presentation was made by the Group 1 Committee as well as Group 1's
general counsel regarding the Merger between COMNET and Group 1. With its legal
counsel available, the Group 1 Committee reported to the full Group 1 Board on
the progress of negotiations with the COMNET Committee. The Group 1 Committee
detailed for the Group 1 Board the various issues considered, including
examination of any COMNET assets and liabilities that are not shared by Group 1,
the dilutive effect on Group 1 public stockholders at the Merger of the
outstanding COMNET options and the intercompany accounts between COMNET and
Group 1.
At a special meeting of the COMNET Board held on April 27, 1998, the COMNET
Board reviewed in detail the discussions held to that date between COMNET and
Group 1, the due diligence investigation conducted by management and a draft of
the proposed Merger Agreement. The legal presentation focused on the COMNET
Board's fiduciary responsibilities and the terms and conditions of the draft
Merger Agreement. FBW's presentation focused on evaluations of COMNET and Group
1 and analyses of COMNET strategic alternatives, including remaining
independent. At that meeting, the Exchange Ratio and the general terms of the
Merger were approved by the COMNET Board subject to completion of negotiations
of a definitive merger agreement.
On June 22, 1998, upon completion of the negotiations, the COMNET and Group
1 Boards each held a special meeting to review and consider the terms of a
merger agreement between the two companies. Following detailed discussion the
COMNET Board and the Group 1 Board each determined that the Merger was in the
best long-term interests of their respective stockholders. The COMNET Board and
the Group 1 Board each approved the Merger Agreement providing for the Merger at
their respective meetings.
Recommendations of the COMNET Board
and COMNET's Reasons for the Merger
THE COMNET BOARD HAS ADOPTED THE RECOMMENDATIONS OF THE COMNET COMMITTEE.
THE COMNET COMMITTEE HAS DETERMINED THAT THE MERGER IS FAIR TO, AND IN THE BEST
INTERESTS OF, COMNET AND ITS STOCKHOLDERS. THE COMNET BOARD UNANIMOUSLY
RECOMMENDS TO THE STOCKHOLDERS OF COMNET THAT THEY VOTE "FOR" APPROVAL OF THE
MERGER AGREEMENT PROVIDING FOR THE MERGER.
The COMNET Board believes that the Merger will serve the best interests of
the COMNET stockholders because the Merger will increase the number of shares of
COMNET Common Stock held by the public. In addition, the COMNET Committee
expects that the Merger will reduce costs and other inefficiencies as well as
the market confusion related to COMNET's holding company standing.
In reaching its conclusion to recommend approval of the Merger Agreement
providing for the Merger, the COMNET Committee consulted with COMNET's
management, as well as its special legal counsel and its independent financial
advisors, and considered a number of factors, including the following:
(i) The presentation of FBW, the COMNET Committee's financial advisors;
(ii) The expectation that the Merger would benefit COMNET by increasing the
number of shares held by the public, reducing costs and other inefficiencies as
well as the market confusion related to COMNET's holding company status; and
(iii) The fact that the exchange of Group 1 Common Stock for COMNET Common
Stock can be effected on a tax-free basis for COMNET.
The foregoing discussion of information and factors considered and given
weight by the COMNET Board is not intended to be exhaustive, but includes all
material factors considered by the COMNET Board. In reaching its decision with
respect to the Merger, the COMNET Board did not find it practicable to, and did
not, quantify or otherwise attempt to assign relative weights to the foregoing
factors in reaching determinations. In addition, individual members of the
COMNET Board may have given different weights to different factors.
Recommendations of the Group 1 Board
and Group 1's Reasons for the Merger
THE GROUP 1 BOARD HAS ADOPTED THE RECOMMENDATIONS OF THE GROUP 1 COMMITTEE.
THE GROUP 1 COMMITTEE HAS DETERMINED THAT THE MERGER IS FAIR TO, AND IN THE BEST
INTERESTS OF, GROUP 1 AND ITS STOCKHOLDERS. THE GROUP 1 BOARD UNANIMOUSLY
RECOMMENDS TO THE STOCKHOLDERS OF GROUP 1 THAT THEY VOTE "FOR" APPROVAL OF THE
MERGER AGREEMENT PROVIDING FOR THE MERGER.
In reaching its decision to recommend approval of the Merger Agreement, the
Group 1 Special Committee considered the following, without assigning any
relative or specific weight:
(i) The perceived efficiencies of Group 1, and the potential benefits to
Group 1 stockholders of increasing the number of shares held by the public,
reducing costs and other inefficiencies as well as the market confusion related
to COMNET's holding company status, may result from consolidation of Group 1
into COMNET through the Merger;
(ii) The fact that the exchange of Group 1 Common Stock for COMNET Common
Stock can be effected on a tax-free basis for Group 1 stockholders; and
(iii) The opinion of Valuation Research that the terms of the Merger
Agreement are fair to the stockholders of Group 1 from a financial point of
view.
On the basis of these considerations, the Merger Agreement was approved,
and GROUP 1'S BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT GROUP 1
STOCKHOLDERS VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT PROVIDING FOR THE
MERGER.
Opinion of Group 1 Financial Advisors
Pursuant to an engagement letter dated January 7, 1998, as amended (the
"Engagement Letter"), Group 1 retained Valuation Research to provide financial
advisory services in connection with the Merger. At a meeting of the Group 1
Board held on June 8, 1998, the Valuation Research opinion was discussed and the
Group 1 Board was advised that the Exchange Ratio was fair, from a financial
point of view, to Group 1 and its stockholders. The final opinion, a copy of
which is attached as Exhibit C to this Proxy Statement, is dated as of June 8,
1998 (the "Opinion"). The following summary of the Opinion, which contains
certain limitations on the review undertaken by Valuation Research in connection
with such Opinion.
In arriving at its Opinion, Valuation Research, among other things,
reviewed the Merger Agreement and held separate discussions with certain senior
officers, directors and other representatives and advisors of COMNET and Group 1
concerning the businesses of COMNET and Group 1, examined certain publicly
available business and financial information relating to both COMNET and Group
1, and examined other information and data concerning COMNET and Group 1
provided by or otherwise discussed with management of COMNET and Group 1.
Valuation Research also reviewed the terms of the Merger as set forth in the
Merger Agreement in relation to, among other things, current and historical
market prices and trading volumes of COMNET Common Stock and Group 1 Common
Stock, the historical earnings and other operating data of COMNET and Group 1
and the capitalization and financial condition of COMNET and Group 1. Valuation
Research also considered to the extent publicly available, the financial terms
of certain other exchange transactions recently effected which were considered
relevant in evaluating the Merger. In addition to the foregoing, it conducted
such other analyses and examinations and considered such other financial,
economic and market criteria as it deemed appropriate in arriving at the
Opinion.
Valuation Research determined that the independent valuation of the
individual businesses of COMNET and Group 1 was not required since COMNET owned
approximately 81.2% of the Group 1 Common Stock, Group 1 was COMNET's sole
operation, COMNET's other assets or investments were insignificant and neither
COMNET nor Group 1 had any separate liabilities other than those specifically
discussed below. To reach its Opinion, Valuation Research first determined a
ratio which would maintain the percentage ownership relationship which existed
prior to the Merger. This ratio was then adjusted for the substantive
differences in financial position between COMNET and Group 1, namely that COMNET
had 147,500 shares of COMNET Preferred Stock outstanding, and had approximately
1.15 million options outstanding (the "COMNET Options"), while Group 1 had a
debt obligation to COMNET. Since neither the COMNET Preferred Stock nor the
COMNET Options were traded in the marketplace, Valuation Research appraised
their fair market values. The exchange ratio was then adjusted upward to reflect
the fair market values of the Preferred Stock and the COMNET Options and
adjusted downward to reflect the stated debt owned by Group 1 to COMNET.
Valuation Research concluded that the 1.15 shares of Common Stock of COMNET to
be issued for each 1 share of Group 1 Common Stock held by the stockholders of
Group 1 on the Effective Date was fair from a financial point of view to the
Group 1 stockholders.
As stated in the Opinion, Valuation Research assumed, without independent
verification, the accuracy and completeness of the information furnished to it
by COMNET and Group 1, including the financial statements and other operating
and financial benefits anticipated from the Merger, and that such data was
reasonably prepared. Valuation Research did not make any independent valuation
or appraisal of the assets or liabilities of COMNET or Group 1, respectively,
nor was Valuation Research furnished with any such appraisals. Valuation
Research assumed that the Merger would be accounted for as a purchase in
accordance with generally accepted accounting principles and that the Merger
would be treated as a tax-free reorganization pursuant to the Internal Revenue
Code of 1986 and that the Merger would be consummated in accordance with the
terms set forth in the Merger Agreement, without any waiver of any material
terms or conditions by Group 1.
The following is a summary of the analyses performed by Valuation Research
in rendering the Opinion. The goal of the procedures employed by Valuation
Research was to attempt to provide that the Group 1 stockholders would have the
same proportionate interest in the earnings, assets and operations of Group 1
following the Merger as such stockholders had prior to the Merger without
dilution for the COMNET Options and Preferred Stock.
(a) Stock Trading History. Valuation Research examined the history of
the trading prices and volumes for the shares of COMNET Common Stock and
Group 1 Common Stock. This examination showed that during the period from
February 1996 to March 1998, the trading price of COMNET Common Stock
ranged from $6.00 per share to $16.00 per share and that the trading price
of Group 1 Common Stock ranged from $6.00 per share to $16.75 per share
during the same period.
(b) COMNET Options. Valuation Research examined the terms of COMNET's
Options, including the exercise prices, which ranged from $6.625 to $30.50,
and the expiration dates, which ranged from October 4, 1999 to March 31,
2013. It also reviewed historical information regarding the percentages of
options exercised as distinct from the percentage of options expiring
unexercised, the volatility in the trading prices of the COMNET Common
Stock over the past ten years and the purposes for which the COMNET Options
were granted. In this respect, Valuation Research recognized that the
COMNET Options were granted primarily to Group 1 employees as incentive
compensation and thus Group 1 stockholders benefited since their interest
in Group 1 was not subject to dilution. On the other hand, Valuation
Research compared the absence of dilution to the Group 1 stockholders to
the benefit that the COMNET stockholders recognized since COMNET, as long
as it owned an 80% or greater interest in Group 1, was able to consolidate
its operations with those of Group 1 for tax purposes and thus
significantly reduce COMNET's consolidated income taxes. Valuation Research
also valued the COMNET Options using generally accepted option valuation
method referred to as Black-Scholes. The following weighted-average
assumptions were used in the Black-Scholes Option Pricing Formula: current
stock price of $7.78 (the average last traded price for the 20 business
days preceding April 1, 1998), dividend yield of 0%, expected volatility of
81.5%, risk-free interest rate of 5.70%, and an expected term of 5.1 years.
Pursuant to its historical review of COMNET options termination and
expiration history, Valuation Research concluded that approximately 350,000
of the 1.226 million option outstanding at April 1, 1998 would expire or be
terminated upon termination of employment. Utilizing the Black-Scholes
model, Valuation Research determined the remaining 882,000 COMNET Options
had a weighted average fair value of $4.42 each. The total fair value of
the COMNET Option was considered a liability. As a consequence, Valuation
Research concluded that additional shares had to be issued to the Group 1
stockholders to maintain their proportional interest in the business and
assets of Group 1 following the Merger.
(c) COMNET Preferred Stock. Valuation Research also examined the
COMNET Preferred Stock and determined that the fair market value of the
100,000 shares of COMNET Preferred Stock held by persons who were not
directors or officers was only $12.00 per share and that conversion of the
COMNET Preferred Stock was unlikely since the conversion ratio of one to
one would result in the purchase of Common Stock for $20 a share as
compared to the market price of $7.375 per share at April 1, 1998.
Valuation Research concluded that the COMNET Preferred Stock would remain
outstanding and therefore would be available for conversion at a later date
with the result that some adjustment was required to reflect the subsequent
conversion.
(d) Inter-Company Debt. Valuation Research felt that the Exchange
Ratio had to be adjusted downward to reflect the repayment by Group 1 of
its $663,226 obligation at February 28, 1998 to COMNET.
(e) No Other Liabilities. Finally, Valuation Research believed COMNET
had no liabilities other than the COMNET Preferred Stock and COMNET
Options.
Valuation Research's final report concludes that an exchange ratio of 1.15
shares of COMNET Common Stock for each 1 share of Group 1 Common Stock was fair
from a financial point of view to the Group 1 stockholders.
Pursuant to the terms of the Engagement Letter, Group 1 agreed to pay
Valuation Research $46,000 for acting as financial advisor in connection with
the Merger. Of this amount, $15,000 was paid upon the engagement. The balance is
now due. Group 1 also agreed to indemnify Valuation Research and its directors,
officers and controlling persons against certain liabilities, including
liabilities under the Federal securities laws, arising out of or in connection
with the services rendered by Valuation Research under its Engagement Letter.
The full text of the Valuation Research Opinion, which sets forth, among
other things, the assumptions made, the procedures followed, the matters
considered and limitations of the scope of the review undertaken by Valuation
Research in rendering the Opinion, is attached as Appendix B to this Proxy
Statement Prospectus. Group 1 stockholders are urged to, and should, read the
Valuation Research Opinion carefully and in its entirety. The Valuation Research
Opinion was directed to the Group 1 Board and addresses only the fairness, from
a financial point of view, of the consideration to be paid by COMNET pursuant to
the Merger Agreement and does not constitute a recommendation to any holder of
Group 1 Common Stock as to how to vote with respect to the Merger Agreement and
the Merger. The summary of the Valuation Research Opinion set forth in this
Proxy Statement Prospectus is qualified in its entirety by reference to the full
text of the Opinion.
Certain Transactions; Conflicts of Interest
Certain members of Group 1's and COMNET's Boards and management have
interests in the Merger in addition to their interests solely as COMNET or Group
1 stockholders, as described below.
Board of Directors
The Merger Agreement provides that, following the Merger, the COMNET Board
will continue to consist of nine directors. The board of directors of the
Surviving Corporation will consist of five persons who are currently directors
of COMNET (James V. Manning, Richard H. Eisenberg, James P. Marden, Charles J.
Sindelar and Bruce J. Spohler), one who is currently a Group 1 director (Thomas
S. Buchsbaum), and three who are currently directors of both COMNET and Group 1
(Robert S. Bowen, Ronald F. Friedman and Charles A. Mele). Following the Merger,
the COMNET Board will be divided into three classes, each of which shall consist
of three directors and each one of which shall have one current director of
Group.
Management Post-Merger
At the Effective Time, COMNET's Chief Executive Officer, Robert S. Bowen,
will be Chief Executive Officer of the Surviving Corporation, Mark D. Funston
will be Chief Financial Officer of the Surviving Corporation and Edward Weiss
will be Secretary and General Counsel of the Surviving Corporation. The
remaining officers of Group 1 shall retain their respective positions under and
with respect to the Surviving Corporation after the Merger.
Certain Tax Consequences of the Merger
General. In the opinion of PricewaterhouseCoopers LLP the following
discussion, subject to the limitations set forth herein, describes the material
federal income tax consequences of the Merger.
The discussion is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), U.S. treasury regulations promulgated thereunder, and judicial and
administrative interpretations thereof, all as in effect on the date of this
Proxy Statement Prospectus, and is subject to any changes in these or other laws
occurring after such date. The discussion does not address the effects of any
state, local, foreign or other tax laws.
The tax consequences of the Merger to an individual stockholder may vary
depending upon such stockholder's particular situation, and certain stockholders
(particularly any stockholder who, at the Effective Time, is not a U.S. Person,
is a tax-exempt entity, securities dealer, broker-dealer, insurance company or
financial institution or is an individual who acquired his or her COMNET Common
Stock pursuant to an employee stock option or otherwise as compensation) may be
subject to special rules not discussed below. For purposes of the discussion
below, a U.S. Person is (1) a citizen or resident of the United States for U.S.
federal income tax purposes, (2) a corporation or partnership created or
organized in or under the laws of the United States or any political subdivision
thereof, (3) an estate, the income of which is subject to U.S. federal income
tax regardless of the source, or (4) a trust with respect to which a court
within the United States is able to exercise primary supervision over its
administration and one or more U.S. fiduciaries have the authority to control
all its substantial decisions.
EACH GROUP 1 STOCKHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR AS
TO THE PARTICULAR TAX CONSEQUENCES TO HIM OR HER OF THE MERGER, INCLUDING THE
APPLICABILITY AND EFFECT OF ANY STATE, LOCAL OR FOREIGN TAX LAWS, AND OF CHANGES
IN ANY APPLICABLE TAX LAWS.
The obligations of the parties to consummate the Merger are conditioned on
Group 1 and COMNET's receipt of an opinion of PricewaterhouseCoopers LLP to the
effect that (1) the Merger will be treated for federal income tax purposes as a
reorganization qualifying under the provisions of Section 368(a) of the Code,
(2) Group 1 and COMNET will each be a party to that reorganization within the
meaning of Section 368(b) of the Code, and (3) the Merger will be viewed as a
Section 332 liquidation with respect to COMNET. Stockholders should be aware
that an opinion of PricewaterhouseCoopers LLP is not binding on the IRS or the
courts. Stockholders should also be aware that the opinion of
PricewaterhouseCoopers LLP will be based on current law and on certain
representations regarding factual matters made by COMNET and Group 1 which, if
incorrect, may jeopardize the conclusions reached by PricewaterhouseCoopers LLP
in its opinion.
Assuming that the Merger will qualify as a reorganization within Section
368(a) of the Code, the Merger will have the federal income tax consequences
discussed below.
Tax Implications to Group 1 Stockholders. Except to the extent Group 1
stockholders receive cash in lieu of fractional shares of COMNET Common Stock,
Group 1 stockholders who exchange Group 1 Common Stock in the Merger solely for
COMNET Common Stock will not recognize gain or loss for federal income tax
purposes upon the receipt of COMNET Common Stock in exchange for their Group 1
Common Stock. The aggregate tax basis of COMNET Common Stock received as a
result of the Merger will be the same as the stockholder's aggregate tax basis
in the Group 1 Common Stock surrendered in the exchange, reduced by the portion
of the stockholder's tax basis properly allocated to the fractional share
interest, if any, for which the stockholder receives cash. The holding period of
the COMNET Common Stock received by Group 1 stockholders as a result of the
Merger will include the period during which the stockholder held the Group 1
Common Stock exchanged in the Merger, provided that the Group 1 Common Stock so
exchanged were held as capital assets at the Effective Time. A Group 1
stockholder that receives cash in lieu of a fractional share interest in COMNET
Common Stock in the Merger will be treated as having received the fractional
share interest in COMNET Common Stock in the Merger and as having received the
cash in redemption of the fractional share interest. The cash payment will be
treated as a distribution in payment of the fractional interest deemed redeemed
under Code Section 302, with the result that the Group 1 stockholder should
generally recognize gain or loss on the deemed redemption in an amount equal to
the difference between the amount of cash received and the stockholder's
adjusted tax basis allocable to such fractional share. Such gain or loss will be
capital gain or loss if such stockholder's Group 1 Common Stock are held as a
capital asset at the Effective Time. Recently enacted legislation provides
different capital gains rates for individuals depending on such person's holding
period. For individuals, capital gains will be taxed at rates that vary
depending upon whether the holding period of the stock exchanged was one year or
less, more than one year but not more than 18 months, or more than 18 months.
Tax Implications to COMNET. COMNET will not recognize any gain or loss for
federal income tax purposes as a result of the Merger.
Backup Withholding. Under the U.S. backup withholding rules, a holder of
Group 1 Common Stock may be subject to backup withholding at the rate of 31%,
unless the stockholder (1) is a corporation or comes within certain other exempt
categories and, when required, demonstrates this fact, or (2) provides a correct
taxpayer identification number, certifies that such stockholder is not subject
to backup withholding and otherwise complies with applicable requirements of the
backup withholding rules. Any amount withheld under these rules will be credited
against the stockholder's federal income tax liability. COMNET may require
holders of Group 1 Common Stock to establish an exemption from backup
withholding or to make arrangements which are satisfactory to COMNET to provide
for the payment of backup withholding. A stockholder that does not provide
COMNET with its current taxpayer identification number may be subject to
penalties imposed by the IRS.
Regulatory Approval and Consents
No approval of, or filing with, any governmental authority is required for
the consummation of the Merger. Consummation of the Merger may, however, require
the consent of, or waiver from, parties to certain agreements to which either
COMNET and Group 1 is a party and may constitute a default under such agreements
resulting in termination, cancellation or acceleration thereunder if such
consents or waivers are not obtained. Pursuant to the Merger Agreement, the
parties agreed to use their reasonable efforts to obtain all consents, licenses,
permits, waivers, approvals, authorizations or orders of all third parties and
government entities that are necessary for the consummation of the Merger.
Certain Provisions of the Merger Agreement
General. The COMNET Board and the Group 1 Board have approved the Merger
Agreement, which provides for the Merger of COMNET and Group 1, with COMNET
being the Surviving Corporation. This section of the Proxy Statement Prospectus
describes certain aspects of the Merger, including certain provisions of the
Merger Agreement. The description of the Merger Agreement does not purport to be
complete and is qualified in its entirety by reference to the Merger Agreement,
a copy of which is attached hereto as Exhibit A and which is incorporated herein
by reference. Stockholders of Group 1 and COMNET are urged to read carefully the
Merger Agreement.
Conditions to the Merger. Each party's obligation to effect the Merger is
subject to the satisfaction or waiver on or prior to the Closing Date of various
conditions which include, in addition to other customary closing conditions, the
following: (i) the Registration Statement, of which this Proxy Statement
Prospectus is a part, shall have become effective and no stop order suspending
such effectiveness shall have been issued and remain in effect; (ii) the
stockholders of COMNET and Group 1 shall have approved the Merger Agreement;
(iii) the shares of COMNET Common Stock issuable to Group 1's stockholders
pursuant to the Merger having been approved for listing on Nasdaq, upon official
notice of issuance; (iv) COMNET and Group 1 shall have received a letter from
PricewaterhouseCoopers LLP (the independent accountants of COMNET and Group 1)
to the effect that the Merger qualifies as a tax-free reorganization within the
meaning of the Code.
In addition, each party's obligation to effect the Merger is also subject
to the satisfaction or waiver on the Closing Date of the following additional
conditions: (i) the representations and warranties of each party to the Merger
Agreement set forth in the Merger Agreement are true and correct in all material
respects; (ii) each party to the Merger Agreement has performed in all material
respects all obligations required to be performed by it under the Merger
Agreement on or prior to the Effective Time; and (iii) all consents, waivers,
approvals, authorizations or orders required to be obtained, and all filings
required to be made, by either party for the authorization, execution and
delivery of the Merger Agreement and the consummation by either party of the
transactions contemplated by the Merger Agreement shall have been obtained and
made by such party.
Termination. The Merger Agreement may be terminated at any time prior to
the Effective Time, whether before or after adoption thereof by the stockholders
of COMNET or Group 1: (i) by mutual written consent of the boards of directors
of Group 1 and COMNET; or (ii) by either Group 1 or COMNET, if the other party
has breached any material representations, warranties, covenants or other
agreements contained in the Merger Agreement, or if any representation or
warranty becomes untrue, in either case so that the conditions to the Merger
cannot be satisfied and such breach is not cured within 30 days after written
notice thereof from the nonbreaching party.
Conduct of Business Pending the Merger. Pursuant to the Merger Agreement,
COMNET and Group 1 have both agreed to conduct business in the ordinary course
of business in a manner consistent with past practice and use their respective
reasonable best efforts to preserve intact business organizations. In addition,
each of COMNET and Group 1 has agreed that, among other things and subject to
certain exceptions, neither it nor any of its subsidiaries will, without the
prior written consent of the other: (i) adjust, split, combine or reclassify any
capital stock, declare or pay any dividend on, or make any other distribution in
respect of, its outstanding shares of capital stock; (ii) redeem, purchase or
otherwise acquire any shares of its capital stock or any options, warrants,
conversion or other rights to acquire any shares of its capital stock; effect
any reorganization or recapitalization; purchase or otherwise acquire any assets
or stock of any corporation, bank or other business or liquidate, sell, dispose
of or encumber any assets; (iii) issue, deliver, award, grant or sell, any
shares of any class of its capital stock (including shares held in treasury) or
any rights, warrants or options to acquire, any such shares; (iv) propose or
adopt any amendments to its articles of incorporation or bylaws; (v) other than
in the ordinary course of business consistent with past practice, incur any
indebtedness for borrowed money; (vi) except for transactions in the ordinary
course of business consistent with past practice, enter into or terminate any
material contract or agreement, or make any change in any of its material leases
or material contracts; (vii) take any action that would prevent or impede the
Merger from qualifying as a reorganization within the meaning of Section 368 of
the Code; (viii) take any action that is intended or may reasonably be expected
to result in any of its representations and warranties set forth in the Merger
Agreement being or becoming untrue in any material respect at any time prior to
the Effective Time, or in any of the conditions to the Merger set forth in the
Merger Agreement not being satisfied or in a violation of any provision of the
Merger Agreement, except, in each case, as may be required by applicable law; or
(ix) take any action or fail to take any action which individually or in the
aggregate can be reasonably expected to have a Material Adverse Effect on, in
the case of COMNET or, in the case of Group 1, COMNET.
Certain Employment Agreements. The employment agreement between Group 1 and
Ronald F. Friedman, and the employment agreement between Group 1 and Robert S.
Bowen will be assumed by COMNET on the Effective Date. See "COMNET Proposal
3--Election of COMNET Directors--Employment Agreements."
Amendment and Waiver. The Merger Agreement may be amended by an instrument
in writing signed on behalf of each party at any time prior to the Effective
Time. At any time prior to the Effective Time, either party may, in an
instrument in writing signed by the party or parties to be bound thereby, waive
compliance with any of the agreements or conditions contained in the Merger
Agreement. In the event of a failure to obtain the tax opinion described under
the caption "The Merger--Conditions to the Consummation of the Merger" and a
determination by the parties to waive such condition to the consummation of the
Merger, each of COMNET and Group 1 will re-solicit the votes of its stockholders
in connection with the Merger.
Expenses. All reasonable out-of-pocket expenses (including, without
limitation, all fees and expenses of counsel, accountants, investment bankers,
experts and consultants) incurred in connection with the Merger Agreement, the
Stock Option Agreements and the transactions contemplated thereby will be paid
by the party incurring such expenses, except that COMNET and Group 1 will share
equally the expenses incurred in connection with filing and printing this Proxy
Statement Prospectus and the Registration Statement of which it is a part and
all other regulatory filing fees incurred in connection with the Merger
Agreement.
Representations and Warranties. The Merger Agreement contains customary
mutual representations and warranties relating to, among other things: (i)
corporate organization and qualification of each party and their subsidiaries;
(ii) articles of incorporation and bylaws of each party and its subsidiaries
having been made available; (iii) the capitalization of each party and its
subsidiaries; (iv) corporate power and authority of each party; (v) absence of
conflict with (a) its articles of incorporation and bylaws, (b) applicable law
or (c) certain agreements; (vi) compliance with applicable laws; (vii) the
timely filing of documents filed by each of COMNET and Group 1 with the
Commission and the accuracy of information contained therein; (viii) absence of
material changes or events with respect to each of COMNET and COMNET; (ix)
absence of litigation; (x) matters relating to environmental matters; (xi)
filing of tax returns and payment of taxes; (xii) required stockholder votes;
and (xiii) receipt of fairness opinions.
Indemnification and Insurance. The Merger Agreement provides that the
Surviving Corporation will indemnify, defend and hold harmless, to the fullest
extent permitted by law, the present and former officers and directors of Group
1 against all losses, expenses, claims, damages, liabilities or amounts that are
paid in settlement of or otherwise in connection with, any claim, action, suit,
proceeding or investigation based in whole or in part on the fact that such
person is or was a director or officer of Group 1 and arising out of actions or
omissions occurring at or prior to the Effective Time to the fullest extent
permitted under the DBCL and COMNET's corporate governance documents. The Merger
Agreement provides that, for a period of not less than two years after the
Effective Time, COMNET will use its reasonable best efforts to maintain
directors' and officers' liability insurance and fiduciary liability insurance
that is substantially equivalent to coverage of COMNET's current insurance;
provided that Associated will not be required to pay an annual premium for such
insurance in excess of 150% of COMNET's last annual premium paid prior to the
date of the Merger Agreement.
Treatment of Stock Options Outstanding Under Group 1 Stock Plan. At the
Effective Time, each option granted by Group 1 to purchase shares of Group 1
Common Stock which is outstanding and unexercised will be assumed by COMNET.
Such options shall cease to represent a right to acquire such shares and will be
converted automatically into an option to purchase shares of COMNET Common Stock
in an amount and at an exercise price determined as provided below:
(i) the number of shares of COMNET Common Stock to be subject to the new
option shall be equal to the product of the number of shares of Group 1 Common
Stock subject to the original option and 1.15; provided that any fractional
shares of COMNET Common Stock resulting from such multiplication shall be
rounded down to the nearest whole share; and
(ii) the exercise price per share of COMNET Common Stock under the new
option shall be equal to the exercise price per share of Group 1 Common Stock
under the original option divided by 1.15; provided that such exercise price
shall be rounded up to the nearest whole cent.
<PAGE>
DESCRIPTION OF THE COMPANIES
General
COMNET, through its subsidiary, Group 1, develops, manufactures, licenses,
sells and supports software products for specialized marketing and mail
management applications. COMNET owned approximately 81.2% of the outstanding
shares of Group 1 Common Stock as of the Record Date.
Group 1 markets a broad range of software solutions in each of these three
major categories: Database Marketing, Electronic Document Systems and Mailing
Efficiency. The operating systems utilized for Group 1's products vary as to
category. Products in the Database Marketing category operate in a client/server
architecture with server support for UNIX or Windows NT (NT) and with client
support in Windows 3.x, 95 and NT. Electronic Document Systems production
engines currently run under MVS, OS/2, UNIX, NT and OS/400. The Electronic
Documents system workstations support both NT and OS/2. Mailing Efficiency
products run on most major computer systems from NT to mainframe. Group 1's
Electronic Document Systems support Kodak, IBM and Xerox print architectures
(AFP, PCL and Metacode) for high-speed, high-volume production laser printing.
As of March 31, 1998, Group 1 offered over 80 software products.
Group 1 distributes all of its products in North America and its Electronic
Document Systems throughout the world. Plans are underway to distribute
additional Group 1 products internationally.
Group 1's software products serve the needs of a wide variety of clients,
including those in the financial, insurance, utility, telecommunications,
manufacturing, retailing, hospitality, publishing and mail order industries,
plus service bureaus, associations and various activities of educational
institutions and governmental agencies. In general, Group 1's software systems
are designed to minimize the costs and maximize the opportunity to sell products
and services to existing and potential customers. Group 1's software systems
also provide solutions where a need exists for highly accurate name and address
data or where address information must be correlated with demographic or
geographic data. Other Group 1 systems provide highly effective document
preparation for customized forms or personalized correspondence. This is
achieved through the use of advanced document design workstation software
coupled with sophisticated host-based document composition software, resulting
in highly targeted and individualized documents (e.g., statements, invoices,
policies, direct mail). Group 1 believes that the continuing growth of database
marketing, data warehousing and targeted, direct communication, together with
increased postal rates and postage discounts for coded and/or sorted mail, can
expand the market potential for Group 1's existing and future products.
Group 1 also offers a broad variety of professional services to its
clients, including systems and business analysis, installation assistance,
operations support, programming services, technical education and training and
operational reviews. These services are designed to assist clients in obtaining
maximum utilization from their Group 1 products and/or in improving efficiency
and effectiveness of their business operations.
Group 1 markets its Electronic Document Systems products directly to its
clients in North America, the United Kingdom and Scandinavia and through
distributors in the remainder of Europe. Mailing Efficiency and Database
Marketing products are marked directly for mainframe and midrange system
configurations.
Discontinued Operations -- Com-Med Systems
COM-MED Systems, a wholly owned subsidiary of COMNET, provided the
long-term health care industry with computer software systems for management and
operations support. As of March 31, 1995, COMNET sold the assets of Com-Med
Systems for up to $4.5 million, to be paid as a percentage of the acquiring
company's future revenues. Additionally, the Company was issued warrants to
acquire up to 25% of the acquiring company's common stock. In September, 1995,
the acquiring company ceased operations, whereupon COMNET repossessed the assets
and sold them, in turn, to another entity. COMNET does not anticipate realizing
any gain from the subsequent sale of these assets. COMNET's Consolidated
Statements of Earnings in the fiscal year ended March 31, 1995, have been
restated to reflect Com-Med Systems as a discontinued operation.
<PAGE>
MARKETS AND MARKET PRICES
COMNET Common Stock and Group 1 Common Stock are listed on the Nasdaq under
the symbol "CNET" and "GSOF," respectively. The following table sets forth the
range of high and low sales prices of COMNET Common Stock and Group Common Stock
as reported by Nasdaq.
COMNET GROUP 1
------ ---------------
CALENDAR QUARTER HIGH LOW HIGH LOW
- ---------------- ---- --- ---- ---
1995: First..................... 11.00 9.00 10.00 9.25
Second.................... 10.50 12.50 9.50 9.50
Third..................... 19.00 12.50 24.50 11.00
Fourth.................... 17.00 10.37 13.50 8.50
1996: First..................... 13.75 10.00 9.75 7.50
Second.................... 15.00 10.00 11.00 7.06
Third..................... 15.50 11.50 16.50 8.00
Fourth.................... 15.50 8.00 11.50 8.00
1997: First..................... 12.00 8.50 9.00 6.75
Second.................... 11.00 7.50 8.00 6.50
Third..................... 9.75 7.12 7.25 6.50
Fourth.................... 9.25 6.50 11.00 6.00
1998: First..................... 8.75 6.00 8.63 6.00
Second.................... 14.63 7.38 15.50 7.50
Third (through July 27)... 13.75 12.06 14.50 12.50
On April 28, 1998, the last trading day before the public announcement of
the Exchange Ratio in the Merger, the closing price per share of COMNET Common
Stock and Group 1 Common Stock as reported by Nasdaq was $11.94 and $8.00,
respectively. Past price performance is not necessarily indicative of likely
future price performance. Holders of COMNET Common Stock and Group 1 Common
Stock are urged to obtain current market quotations for their shares of COMNET
Common Stock and Group 1 Common Stock.
Holders of COMNET Common Stock are entitled to receive dividends from funds
legally available therefor when, as and if declared by the COMNET Board. The
COMNET Board presently intends to continue its policy of not paying dividends
with respect to COMNET Common Stock. COMNET Preferred Stock pays an annualized
dividend of $1.20 per share. See "Description of COMNET Stock--COMNET 6%
Cumulative Convertible Preferred Stock."
THERE CAN BE NO ASSURANCE AS TO THE MARKET PRICE OF THE COMNET COMMON STOCK AND
THE GROUP 1 COMMON STOCK AT ANY TIME BEFORE, AT OR AFTER THE EFFECTIVE TIME OF
THE MERGER. STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR
COMNET COMMON STOCK AND GROUP 1 COMMON STOCK.
<PAGE>
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
The unaudited pro forma condensed combined financial data is provided for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the Merger had been
consummated as of the beginning of the period or the future operating results or
financial position of the combined companies.
<TABLE>
COMNET Corporation and Group 1 Software, Inc.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
MARCH 31, 1998
<CAPTION>
Pro Forma Pro Forma
COMNET(1) Adjustments Combined
--------- ----------- --------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET:
ASSETS
Current Assets:
Cash and cash equivalents $ 3,683,398 $ $ 3,683,398
Trade and installment accounts receivable, less
allowance of $3,603,400 27,232,842 27,232,842
Deferred income taxes 3,408,086 3,408,086
Prepaid expenses and other current assets 3,085,453 3,085,453
----------- ---------- -----------
Total current assets 37,409,779 37,409,779
Installment accounts receivable 3,810,279 3,810,279
Property and equipment, net 3,543,502 3,543,502
Computer software, net 23,358,862 23,358,862
Other assets 2,507,090 4,300,590(2) 6,520,974
(286,706)(3)
----------- ---------- -----------
Total Assets $70,629,512 $4,013,884 $74,643,396
=========== ========== ===========
LIABILITIES AND STOCKHOLDERS EQUITY
Current liabilities:
Short-term borrowings $ 0 $ $ 0
Accounts payable 2,098,820 2,098,820
Current portion of long-term debt 157,017 157,017
Accrued expenses 6,278,611 275,000(4) 6,553,611
Accrued compensation 4,699,110 4,699,110
Current deferred revenues 17,484,138 17,484,138
----------- ---------- -----------
Total current liabilities 30,717,696 275,000 30,992,696
Long-term debt, net of current portion 389,144 389,144
Deferred revenues, long-term 3,653,055 3,653,055
Deferred income taxes 3,029,299 3,029,299
Minority interest in net earnings of consolidated 5,682,486 (5,682,486)(5) 0
subsidiary
----------- ---------- -----------
Total liabilities 43,471,680 (5,407,486) 38,064,194
----------- ---------- -----------
----------- ---------- -----------
Stockholders equity 27,157,832 9,444,321(3) 36,579,202
----------- ---------- -----------
(286,706)(3)
263,755(6)
=========== ========== ===========
Total liabilities and stockholders equity $70,629,512 $4,013,884 $74,643,396
----------- ---------- -----------
----------- ---------- -----------
Book value per share(7) $ 8.29 $ 8.69
=========== ========== ===========
<FN>
The accompanying notes are an integral part of this
unaudited pro forma condensed combined financial data.
</FN>
</TABLE>
<PAGE>
<TABLE>
COMNET Corporation and Group 1 Software, Inc.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
Year ended March 31, 1998
<CAPTION>
Pro Forma Pro Forma
COMNET(1) Adjustments Combined
--------- ----------- --------
<S> <C> <C> <C>
Revenue:
Software license and related revenues $32,786,215 $ $32,786,215
Maintenance and other revenue 28,217,682 28,217,682
----------- -------- -----------
Total revenue 61,003,897 0 61,003,897
----------- -------- -----------
Costs and expenses:
Software license expense 10,491,100 10,491,100
Maintenance and service expense 12,544,100 12,544,100
Research, development and indirect support 2,857,700 2,857,700
Selling and marketing 20,893,408 20,893,408
General and administrative 7,913,233 286,706(3) 8,199,939
Provision for doubtful accounts 3,505,000 3,505,000
----------- -------- -----------
Total costs and expenses 58,204,541 286,706 58,491,247
----------- -------- -----------
Operating income 2,799,356 (286,706) 2,512,650
Non-operating expenses, net (464,651) (464,651)
----------- -------- -----------
Income from operations before provision for income
taxes 2,334,705 (286,706) 2,047,999
Provision for income taxes 921,360 921,360
Minority interest in net earnings of consolidated 263,755 (263,755)(6) 0
subsidiary ----------- -------- -----------
Net earnings 1,149,590 (22,951) 1,126,639
COMNET Preferred Stock dividend requirements (177,000) (177,000)
----------- -------- -----------
Net earnings available to common stockholder $ 972,590 $(22,951) $ 949,639
=========== ======== ===========
Basic earnings per share of common stock $0.30 ($0.07) $0.23
=========== ======== ===========
Diluted earnings per share of common stock $0.29 ($0.07) $0.22
=========== ======== ===========
Basic weighted average shares outstanding 3,273,826 930,475 4,204,301
=========== ======== ===========
Diluted weighted average shares and common
equivalent shares outstanding 3,299,285 930,475 4,229,760
=========== ======== ===========
<FN>
The accompanying notes are an integral part of this
unaudited pro forma condensed combined financial data.
</FN>
</TABLE>
<PAGE>
COMNET Corporation and Group 1 Software, Inc.
NOTES to the Unaudited Pro forma
CONDENSED COMBINED FINANCIAL DATA
The Merger will be accounted for under the purchase method of accounting. The
final allocation of the purchase price has not yet been determined and,
accordingly, the amounts shown below may differ from the amounts ultimately
determined.
Purchase Price:
Value of the COMNET Common Stock* $9,444,321
Transaction fees and expenses related to the Merger 275,000
----------
$9,719,321
----------
*The value of the COMNET Common Stock was determined by multiplying the
930,475 shares of COMNET Common Stock to be issued by $10.15 per share,
the fair market value determined for the transaction.
(1) Group 1 Software, Inc. is consolidated in the COMNET Financials as presented
and therefore is not shown separately in the combining statements.
(2) Represents the identifiable intangible assets arising from the purchase
business combination.
(3) To record amortization of identifiable intangible assets resulting from the
purchase business combination utilizing a 15 year life assuming the combination
occurred at the beginning of the periods presented.
(4) Represents estimated transaction fees and expenses of approximately $60,000
for investment bankers and $125,000 for legal counsel and $75,000 for
accountants, and $15,000 for printing costs.
(5) To eliminate the cumulative minority interest in net earnings of the
consolidated subsidiary resulting from the Merger.
(6) To eliminate the minority interest in net loss of consolidated subsidiary.
(7) Historical book value per share is computed by dividing the total
stockholders' equity by the number of shares of common stock outstanding at the
end of the period. Pro forma book value per share is computed by dividing the
pro forma total stockholders' equity by the pro forma number of shares of common
stock outstanding at the end of the period.
<PAGE>
BENEFICIAL OWNERSHIP
COMNET - Prior to the Merger
The following table sets forth the number of shares of COMNET Common Stock
and COMNET Preferred Stock beneficially owned, as of July 27, 1998, by each
stockholder known to COMNET to be the beneficial owner of more than 5% of the
COMNET Common Stock or COMNET Preferred Stock and the directors and executive
officers of COMNET as a group. Unless otherwise noted, all shares are owned
directly with sole voting and dispositive powers.
Number of Shares of Number of Shares of 6%
Common Stock Cumulative Convertible
Name and Address and and Preferred Stock and
of Beneficial Owner Percentage of Class Percentage of Class
- ------------------- ------------------- -------------------
Medco Containment Services, Inc. 543,345 100,000
100 Summit Avenue 14.2% 67.8%
Montvale, NJ 07645(1)
Robert S. Bowen 259,450(2) 5,937
4200 Parliament Place, Suite 600 7.7% 4.0%
Lanham, MD 20706
John Spohler 236,875(2) 11,875
One Liberty Plaza 6.8% 8.1%
New York, NY 10292
Milton Kaplan * 11,875
1920 Ocean Avenue 8.1%
Brooklyn, New York 11230
Leonard J. Smith * 11,875
451 Ives Dairy Road, #A202 8.1%
North Miami Beach, FL 33179
All directors and executive 558,924 5,937
officers as a group (12 persons) 16.4% 4.0%
- --------------------
*Less than 5%.
(1) Pursuant to an Agreement and Plan of Merger, dated as of July 27, 1993, as
amended, by and among Merck & Co., Inc., a New Jersey corporation
("Merck"), M Acquisition Corp. ("Merger Sub") and Medco Containment
Services, Inc., a Delaware corporation ("Medco"), Medco was merged with and
into Merger Sub and Medco became a wholly owned subsidiary of Merck. Merck
may be deemed to be the indirect beneficial owner, through its ownership of
Medco, of 543,345 shares of COMNET Common Stock, representing approximately
14.2% of the outstanding shares of COMNET Common Stock, 100,000 shares of
COMNET Preferred Stock, which are convertible into 100,000 shares of COMNET
Common Stock. Merck effectively has the sole power to vote and direct the
vote of the shares of COMNET Common Stock and COMNET Preferred Stock held
by Medco, and to dispose and direct the disposal of such shares.
(2) Includes shares of COMNET Common Stock purchasable under options that are
presently exercisable or exercisable within 60 days after July 27, 1998 as
follows: Mr. Bowen - 174,800 shares, Mr. Spohler - 18,750 shares and all
directors and officers as a group - 450,599 shares.
<PAGE>
GROUP 1
The following table sets forth the number of shares of Group 1 Common Stock
beneficially owned, as of July 27, 1998, by each stockholder known to Group 1 to
be the beneficial owner of more than 5% of the Group 1 Common Stock and the
directors and executive officers of Group 1 as a group. Unless otherwise noted,
all shares are owned directly with sole voting and dispositive powers.
Name and Address of Number of Shares Percentage of
Beneficial Owner of Common Stock Class
---------------- --------------- -----
COMNET Corporation 3,484,588 81.2%
4200 Parliament Place, Suite 600
Lanham MD 20706-1844
All directors and executive 108,887(1) 2.5%
officers as a group (9 persons)
- --------------------
(1) Includes 92,800 shares of Group 1 Common Stock purchasable under options
that are presently exercisable or exercisable within 60 days after July 27,
1998.
An aggregate of 56,900 options to purchase Group 1 Common Stock may be
granted to Messrs. Bowen (25,000 shares), Friedman (20,000 shares), Slater
(3,000 shares) and Bebee (300 shares), with the remainder of the options to be
granted to five other employees who are not executive officers of Group 1. The
options will be exercisable at 100% of the fair market price of Group 1 Common
Stock on the date of grant (approximately $13.00 based on the closing price of
Group 1 Common Stock on August 11, 1998). The options will become exercisable in
five equal cumulative installments on each of the first five anniversaries of
the date of grant, and expire ten years from the date of grant, if not
exercised.
COMNET - After Giving Effect to the Merger
The following table sets forth the number of shares of Common Stock of the
Surviving Corporation beneficially owned, giving effect to the Merger as if the
Merger had occurred on July 27, 1998, by each stockholder known to the Surviving
Corporation to be the beneficial owner of more than 5% of the Common Stock of
the Surviving Corporation and the directors and executive officers of the
Surviving Corporation as a group. See "COMNET Proposal 3--Election of COMNET
Directors" and "Group 1 Proposal 2 -- Election of Group 1 Directors" for more
detailed beneficial ownership information. Unless otherwise noted, all shares
are owned directly with sole voting and dispositive powers.
Name and Address of Number of Shares Percentage of
Beneficial Owner of Common Stock Class
---------------- --------------- -----
Medco Containment Services, Inc.(1) 543,345 12.9%
100 Summit Avenue
Montvale, NJ 07645
Robert S. Bowen 277,563(2) 6.3%
4200 Parliament Place, Suite 600
Lanham, MD 20706
John Spohler 259,875(3) 6.1%
One Liberty Plaza
New York, NY 10292
All directors and officers 693,171 14.5%
as a group (14 persons)
(1) See footnote 1 to Beneficial Ownership table for COMNET Prior to the Merger
(page 37).
(2) Includes shares of COMNET Common Stock purchasable under options that are
presently exercisable or exercisable within 60 days after July 27, 1998, as
follows: Mr. Bowen - 179,113 shares, Mr. Spohler - 18,750 shares and all
directors and officers as a grup - 557,320 shares.
<PAGE>
COMPARISON OF STOCKHOLDER RIGHTS
As a consequence of the Merger, as of the Effective Time of the Merger,
stockholders of Group 1 will become stockholders of COMNET. The following is a
summary of certain similarities and material differences between the rights of
holders of Group 1 Common Stock and the rights of holders of COMNET Common
Stock. As each of Group 1 and COMNET is organized under the laws of Delaware,
these differences arise solely from differing provisions of the certificates of
incorporation and by-laws of each of Group 1 and COMNET.
The following summary does not purport to be a complete statement of the
rights of Group 1 stockholders under the Certificate of Incorporation of Group 1
(the "Group 1 Certificate") or the By-Laws of Group 1 (the "Group 1 By-Laws"),
as compared to the rights of COMNET stockholders under the COMNET Certificate
(the "COMNET Certificate") or the By-Laws of COMNET (the "COMNET By-Laws"), nor
is this a complete description of the specific provisions referred to herein.
This summary is qualified in its entirety by reference to the governing
corporate instruments, including the aforementioned instruments of Group 1 and
COMNET, copies of which are hereby incorporated herein by reference. In
addition, the COMNET Board is considering adopting a Stockholder Protection
Rights Agreement, which would confer significant rights on holders of COMNET
Common Stock. See "COMNET Proposal 2 - Amendment of COMNET Certificate to
Increase the Number of Authorized Shares of COMNET Common Stock from 10,000,000
to 14,000,000 Shares."
Annual Meetings of Stockholders
Under Delaware law, annual meetings of the stockholders may be called by
the board of directors or such other persons as may be authorized by the
certificate of incorporation or by-laws. Under the Group 1 Certificate and the
Group 1 By-laws, an annual meeting may be called by the Chairman, President or
Secretary of Group 1, upon the approval of a majority of the Group 1 Board or by
a committee empowered by the Group 1 Board to call an annual meeting. The COMNET
Certificate and the COMNET By-Laws provide that an annual meeting of the
stockholders may be called by the Chairman, President or Secretary of COMNET,
upon the written request of a majority of the directors or a committee of the
Board.
Number of Directors
Under Delaware law, the number of directors shall be fixed by or in the
manner provided in the by-laws, unless the certificate of incorporation fixes
the number of directors, in which case a change in the number of directors shall
be made only by amendment to the certificate. The Group 1 Certificate provides
that the number of directors shall consist of not less than three, with the
exact number above this minimum to be determined by a resolution of the majority
of the Group 1 Board or the Group 1 stockholders at the annual stockholders
meeting. The COMNET Certificate also provides that the number of directors shall
consist of not less than three, with the exact number above this minimum to be
determined by a resolution of the majority of the COMNET Board or the
stockholders at the annual stockholders meeting.
Corporate Opportunity Conflicts - Medco Directors
As a result of an agreement between COMNET and Medco Containment Services,
a Delaware corporation ("Medco") effective January 22, 1993, the COMNET
Certificate was amended to provide that any director on the COMNET Board
designated by Medco (a "Medco Director") to serve on the COMNET Board, would not
be obligated to present to COMNET any potential acquisition that had come to the
attention of such Medco Director prior to the date on which he became a director
of COMNET, and any Medco Director would be required to present to COMNET only
those potential acquisitions which were directly related to the existing
businesses of Group 1 (i.e., providing systems and software for non-industry
specific list and mail management and marketing program support, excluding any
such businesses to the extent related to the pharmaceutical or health care
industry and any such businesses no longer engaged in by Group 1) and did not
come to the attention of the Medco Director in his capacity as an officer or
director of Medco or any of its present or future subsidiaries or any successor
to Medco or any such subsidiary. The Certificate of Group 1 was amended
similarly.
Classification of Board of Directors
Delaware law permits a corporation's certificate of incorporation to
provide that a corporation's board of directors be divided into classes, with
each class having a term of office longer than one year but not longer than
three years. Both the Group 1 Certificate and the COMNET Certificate provide
that the companies' respective boards of directors shall have three classes,
which shall be as nearly equal in number as possible. The directors of each
class shall serve for a term ending at the third annual meeting following the
annual meeting at which they were elected.
Indemnification
Both the Group 1 By-Laws and the COMNET By-Laws provide for the
indemnification of any person serving as a director, officer, employee or agent
of the respective corporations or at the request of the respective corporations
as a director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, to the fullest extent
authorized by the Delaware General Corporate Law ("DGCL").
Certain Voting Rights with Respect to
Transactions with Substantial Stockholders
Under the Group 1 Certificate, the approval of a majority of the holders of
Group 1 Common Stock (excluding shares of Group 1 Common Stock held by
interested parties) is required prior to the Group 1 purchasing any Group 1
voting securities held by an entity that owns at least 5% of Group 1's voting
securities, or by an Affiliate of Group 1. The COMNET Certificate contains no
similar provision.
Certain Voting Rights with Respect to Mergers
Under Delaware law, certain mergers and consolidations or the sale of all
or substantially all of the assets of a corporation requires the approval of the
holders of a majority of the outstanding shares of such corporation entitled to
vote thereon, (unless the certificate of incorporation requires a higher
percentage). Neither the Group 1 Certificate nor the COMNET Certificate requires
a higher percentage.
Removal of Directors; Filling Vacancies
on the Board of Directors
Under Delaware law, any or all directors of a corporation which does not
have cumulative voting or a classified board may be removed, with or without
cause, by the holders of a majority of the shares entitled to vote at the
election of directors, unless such corporation's certificate of incorporation
provides otherwise. Group 1 has a classified board and the Group 1 Certificate
provides that directors may be removed without cause by the affirmative vote of
80% of the stockholders, or removed for cause by a majority vote of the
stockholders. The COMNET Certificate also provides for a classified board and
that directors may be removed without cause by the affirmative vote of 80% of
the stockholders, or removed for cause by a majority vote of the stockholders.
Under Delaware law, unless otherwise provided in a corporation's
certificate of incorporation or by-laws, vacancies and newly-created
directorships resulting from any increase in the authorized number of directors
may be filled by a majority of the directors then in office. The By-Laws of
COMNET and Group 1 are consistent with Delaware law in these matters.
Stockholder Action by Written Consent
Under Delaware law, unless otherwise provided in a corporation's
certificate of incorporation, any action which may be taken at any annual
meeting may be taken without a meeting and without prior notice if a consent in
writing, setting forth the action so taken, shall be signed by the holders of
outstanding shares having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. The Group 1 By-Laws authorize
any action that is required or permitted to be taken at a stockholders meeting
may be taken without a meeting upon receipt of the written consent of all of the
stockholders. The COMNET By-Laws provide that any action that is required or
permitted to be taken at a stockholders meeting may be taken without a meeting
upon receipt of the written consent of not less than the minimum number of votes
necessary to authorize or take such action at a meeting of the stockholders.
Amendment of By-laws
Under Delaware law, the power to adopt, amend or repeal by-laws is vested
in the stockholders unless the certificate of incorporation confers the power to
adopt, amend or repeal by-laws upon the directors as well. Under the Group 1
Certificate, the Group 1 By-Laws may be amended or repealed by the vote of 80%
of the outstanding stock of Group 1 or by the approval of Group 1's directors.
However, any by-law amendment that would change the number of directors
constituting the Group 1 Board requires the approval of at least 80% of the
members of the Group 1 Board. Similarly, under the COMNET Certificate, the
COMNET By-Laws may be amended or repealed by the vote of 80% of the outstanding
stock of COMNET or by the approval of COMNET's directors and any by-law
amendment that would change the number of directors constituting the COMNET
Board requires the approval of at least 80% of the members of the COMNET Board.
DESCRIPTION OF COMNET STOCK
General
The following summary of the terms of the COMNET Common Stock and the
COMNET Preferred Stock does not purport to be complete and is subject to, and
qualified in its entirety by, reference to the terms set forth in the COMNET
Certificate and in the Certificate of Designation of the COMNET Preferred Stock
incorporated by reference herein. For a discussion of the material differences
between the rights of holders of COMNET Common Stock and the rights of holders
of Group 1 Common Stock, see "COMPARISON OF STOCKHOLDER RIGHTS."
The authorized capital stock of COMNET consists of 10,000,000 shares of
COMNET Common Stock, par value $.50 per share, and 200,000 shares of COMNET
Preferred Stock. As of July 27, 1998, there were 3,298,601 shares of COMNET
Common Stock and 147,500 shares of COMNET Preferred Stock issued and
outstanding.
Holders of shares of COMNET Common Stock are entitled to one vote per share
for each share held.
COMNET 6% Cumulative Convertible Preferred Stock
Dividends. Each share of COMNET Preferred Stock currently issued is
entitled to receive a 6% dividend, semi-annually, prior to the payment of any
cash dividends with respect to the COMNET Common Stock. Dividends are cumulative
from the date of original issue. Dividend payments for the period of time from
the issuance of the COMNET Preferred Stock to July 1, 1998 (the last dividend
payment date) have been paid in full. Dividends payable on the COMNET Preferred
Stock for each full dividend period are computed by dividing the annual dividend
rate by two.
Voting Rights. Each share of COMNET Preferred Stock has the right to one
vote for each whole share of COMNET Common Stock into which it is convertible.
Holders of shares of COMNET Preferred Stock vote together with holders of the
COMNET Common Stock, as a single class (except as otherwise required by Delaware
law).
Conversion. Each share of COMNET Preferred Stock is convertible into one
share of COMNET Common Stock, subject to certain anti-dilution protection,
including provisions adjustments in the conversion ratio in the event of (i)
stock dividends, stock splits or combinations or reclassifications of shares of
COMNET Common Stock, (ii) COMNET issues COMNET Common Stock or rights to
acquire, or securities convertible into, COMNET Common Stock at a price below
the then-market price for COMNET Common Stock, or (iii) mergers, acquisitions or
consolidations of COMNET. COMNET may not declare dividends or distributions with
respect to COMNET Common Stock, except for regular cash dividends or dividends
payable solely in COMNET Common Stock, unless the holders of COMNET Preferred
Stock concurrently receive dividends or distributions equal in amount and kind
to what such holders would have received if they had converted their COMNET
Preferred Stock into COMNET Common Stock.
Preemption Rights. The COMNET Preferred Stock has no preemptive rights with
respect to any subscription rights or grants of options, warrants or other
interests in COMNET Common Stock which may be issued by COMNET. Holders of
COMNET Preferred Stock are entitled to receive prior notice of corporate events
such as dividend payments in capital reorganizations, mergers, acquisitions and
consolidations.
Redemption. The COMNET Preferred Stock may be redeemed at the option of
COMNET at $20.00 per share, plus accrued but unpaid dividends. The redemption
price is to be paid in cash, except that with respect to the 47,500 shares of
COMNET Preferred Stock issued to Dr. Milton Kaplan and Messrs. Robert Bowen,
Leonard Smith and John Spohler, each may, at COMNET's option, be paid by COMNET
issuing promissory notes to these holders secured by a pledge of 250,000 shares
of Group 1 Common Stock owned by COMNET. To date, COMNET has issued no such
promissory notes. COMNET has also agreed to enter into a registration rights
agreement granting holders the right, subject to the terms and conditions of
such agreement, to registration under the Securities Act of 1933, as amended
(the "Securities Act"), of COMNET Common Stock issuable upon conversion of the
shares of the COMNET Preferred Stock. The COMNET Preferred Stock is not be
subject to any sinking fund.
Conversion of Group 1 Common Stock
Assuming the Merger is consummated, at the effective time of the Merger,
each outstanding share of Group 1 Common Stock, other than shares held in Group
1's treasury or directly or indirectly by COMNET or its subsidiaries or by Group
1 or its subsidiaries, will be converted into 1.15 shares of COMNET Common
Stock, with cash being paid in lieu of fractional shares. See "Description of
COMNET Stock".
Each outstanding share of Group 1 Common Stock held in Group 1's treasury
or directly or indirectly by COMNET would be canceled at the effective time of
the Merger and will cease to exist, and no securities of COMNET or other
consideration will be delivered in exchange therefor. All shares of COMNET
Common Stock that are owned by Group 1 or its subsidiaries will become treasury
stock of COMNET.
Conversion of Group 1 Common Stock Options
Assuming the Merger is consummated, at the effective time of the Merger,
each option granted by Group 1 to purchase shares of Group Common Stock (a
"Group 1 Option") pursuant to any stock option plans maintained by Group 1 that
is outstanding and unexercised immediately prior to the effective time of the
Merger will be converted automatically an option to purchase shares of COMNET
Common Stock (a "COMNET Option") with (i) the number of shares of COMNET Common
Stock subject to the COMNET Stock Option being equal to the product of the
number of shares of Group 1 Common Stock subject to the Group 1 Option
multiplied by the Exchange Ratio and rounded down to the nearest share and (ii)
the exercise price per share of COMNET Common Stock subject to the COMNET Option
being equal to the exercise price per share of Group 1 Common Stock under the
Group 1 Option divided by the Exchange Ratio and rounded up to the nearest cent.
The conversion is intended to be effected in such a manner that any Group 1
Options that qualify as "incentive stock options" within the meaning of Section
422 of the Internal Revenue Code shall remain so qualified.
Appraisal Rights
Under the DGCL, holders of Group 1 Common Stock, COMNET Common Stock and
COMNET Preferred Stock would have no appraisal rights in connection with the
Merger.
STOCKHOLDERS SHOULD NOT SEND THEIR
STOCK CERTIFICATES WITH THEIR PROXY CARDS
Group 1. Assuming the Merger is consummated, at or prior to the Effective
Time, COMNET would deposit, or cause to be deposited, with an exchange agent
(the "Exchange Agent"), for the benefit of the holders of certificates of Group
1 Common Stock, certificates representing the shares of COMNET Common Stock (and
cash in lieu of fractional shares of COMNET Common Stock, if applicable).
As soon as is practicable after the Effective Time, and in no event later
than ten business days thereafter, the Exchange Agent would mail a form of
transmittal letter to the holders of certificates representing shares of Group 1
Common Stock. The form of transmittal letter would contain instructions with
respect to the surrender of such certificates in exchange for shares of COMNET
Common Stock (and cash in lieu of fractional shares of COMNET Common Stock, if
applicable).
No dividends or other distributions declared with respect to COMNET Common
Stock with a record date after the Effective Time would be paid to the holder of
any certificate representing shares of Group 1 Common Stock until such
certificate or receipt had been surrendered for exchange. Holders of
certificates representing shares of Group 1 Common Stock would be paid the
amount of dividends or other distributions with a record date after the
Effective Time after surrender of such certificates, without any interest
thereon.
No fractional shares of COMNET Common Stock would be issued to any holder
of Group 1 Common Stock upon consummation of the Merger. In lieu of each
fractional share that would otherwise be issued, COMNET would pay cash in an
amount equal to such fraction multiplied by the average of the closing sale
prices of COMNET Common Stock as reported on the Nasdaq NMS for the five trading
days immediately preceding the date of the Effective Time. No interest would be
paid or accrued on the cash in lieu of fractional shares payable to holders of
such certificates. No such holder would be entitled to dividends, voting rights
or any other rights as a stockholder in respect of any fractional share of
COMNET Common Stock that such holder otherwise would have been entitled to
receive.
None of COMNET, Group 1, the Exchange Agent or any other person would be
liable to any former holder of Group 1 Common Stock or for any amount properly
delivered to a public official pursuant to applicable abandoned property,
escheat or similar laws.
If a certificate representing Group 1 Common Stock has been lost, stolen or
destroyed, the Exchange Agent, in the case of Group 1 Common Stock, would issue
the consideration properly payable in accordance with the Merger Agreement upon
receipt of appropriate evidence as to such loss, theft or destruction,
appropriate evidence as to the ownership of such certificate or receipt by the
claimant, and appropriate and customary indemnification.
For a description of the differences between the rights of the holders of
COMNET Common Stock and Group 1 Common Stock, see "Comparison of Rights of
Holders of Group 1 Common Stock and COMNET Common Stock".
COMNET. Assuming the Merger is consummated, shares of COMNET Common Stock
issued and outstanding immediately prior to the Effective Time would remain
issued and outstanding and be unaffected by the Merger, and holders of such
stock would not be required to exchange the certificates representing such stock
or take any other action by reason of the consummation of the Merger.
American Stock Transfer & Trust Co. is the transfer agent and registrar for
all outstanding COMNET Common Stock and Group 1 Common Stock.
INTERESTS OF CERTAIN PERSONS IN PROPOSALS
TO BE CONSIDERED AT THE MEETINGS
Certain members of COMNET's management and the COMNET Board and Group 1's
management and the Group 1 Board, respectively, could be deemed to have certain
interests in the proposals to be presented at the COMNET Meeting of the Group 1
Meeting, respectively, in addition to their interests as stockholders of COMNET
or Group 1, as the case may be, generally. Specifically, the proposal to approve
the Certificate Amendment, which would permit the implementation of the
Stockholder Protection Rights Plan currently under consideration by the COMNET
Board, without further stockholder approval, may enable management to oppose a
hostile takeover attempt or delay or prevent changes in control or management of
COMNET. See "COMNET Proposal 2 - Amendment of COMNET Certificate to Increase the
Number Of Authorized Shares of COMNET Common Stock from 10,000,000 to 14,000,000
Shares."
NASDAQ LISTING OF COMNET COMMON STOCK RECEIVED IN THE MERGER
Assuming the Group 1 Board approves the Merger, COMNET intends to cause the
shares of COMNET Common Stock that would be issued pursuant to the Merger to be
approved for listing on Nasdaq prior to the Effective Time, subject to official
notice of issuance.
RESALE OF COMNET COMMON STOCK RECEIVED BY GROUP 1 STOCKHOLDERS
The shares of COMNET Common Stock that will be issued to stockholders of
Group 1 upon consummation of the Merger have been registered under the
Securities Act of 1933, as amended (the "Securities Act"). The shares of COMNET
Common Stock that will be issued to stockholders of Group 1 upon consummation of
the Merger may be traded freely without restriction by those stockholders who
are not deemed to be "affiliates" of Group 1 or COMNET, as that term is defined
in rules promulgated under the Securities Act.
The COMNET Common Stock issued pursuant to the Merger will not be subject
to any restrictions on transfer arising under the Securities Act of 1933, except
for shares issued to any COMNET stockholder who may be deemed to be an
"affiliate" of COMNET for purposes of Rule 144 or 145 under the Securities Act.
Each such affiliate has entered into an agreement providing that such affiliate
will not transfer any COMNET Common Stock received in the Merger except in
compliance with the resale provisions of Rule 144 or 145 promulgated under the
Securities Act or as otherwise permitted under the Securities Act and will make
no disposition of any COMNET Common Stock (or any interest therein) received in
connection with the Merger unless, in the opinion of counsel to COMNET, the
transaction will not have any adverse consequences for COMNET with respect to
the treatment of the Merger for tax purposes. In addition, each such affiliate
agreed not to make any such disposition within the 30 days prior to the
Effective Time, and, until after such time as financial results covering at
least 30 days of combined operations of the Surviving Corporation after the
Merger have been published. This Proxy Statement Prospectus does not cover
resales of COMNET Common Stock received by any person upon consummation of the
Merger, and no person is authorized to make any use of this Proxy Statement
Prospectus in connection with any such resale.
LEGAL MATTERS
Assuming the Merger Agreement is approved, the validity of the shares of
COMNET Common Stock issued in connection therewith will be passed upon for
COMNET by Cadwalader, Wickersham & Taft, New York, New York.
EXPERTS
The consolidated balance sheets of COMNET Corporation and Group 1 Software,
Inc., as of March 31, 1998 and 1997, and the consolidated statements of
stockholders' equity, and cash flows for each of the three years in the period
ended March 31, 1998, incorporated by reference in this Proxy Statement
Prospectus have been incorporated herein in reliance on the report of
PricewaterhouseCoopers L.L.P., independent accountants, given on the authority
of that firm as experts in accounting and auditing. Valuation Research, the
Group 1 Financial Advisor, has consented to the inclusion of its Opinion as an
exhibit to this Proxy Statement Prospectus.
STOCKHOLDER PROPOSALS
The eligibility of stockholders to submit proposals, the proper subjects of
stockholder proposals and other issues governing stockholder proposals are
regulated by the rules (the "Stockholder Proposal Rules") adopted under Section
14 of the Exhcnage Act. Stockholder proposals submitted pursuant to Rule 14a-8
under the Exhcnage Act for inclusion in COMNET's proxy materials for the 1999
Annual Meeting of Stockholders must be received by COMNET at its principal
executive office, 4200 Parliament Place, Suite 600, Lanham, MD 20706-1860, no
later than Friday, April 16, 1999.
In addition, in accordance with recent amendments to the Stockholder
Proposal Rules written notice of stockholder proposals to be submitted outside
of Rule 14a-8 described above for consideration at the 1999 Annual Meeting of
Stockholders must be received by COMNET, at the address set forth in the
preceding paragraph, on or before Wednesday, June 30,1999 in order to be
considered timely for purposes of the Stockholder Proposal Rules. The persons
designated as proxies by COMNET in connection with the 1999 Annual Meeting of
Stockholders will have discretionary boting authority with respect to tany
stockholder proposal of which COMNET did not reeceive timely notice.
If the Merger is not approved and, as a result, a 1999 Annual Meeting of
Stockholders of Group 1 will be held, the information set forth above regarding
the submission of COMNET stockholder proposals, including the deadline for
submission or notification or such proposals, also applies to Group 1
stockholder proposals, except that such proposals should be sent to Group 1 at
its principal executive offices, 4200 Parliament Place, Suite 600, Lanham, MD
20706-1860.
<PAGE>
COMNET PROPOSAL 1 -- APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
PROVIDING FOR THE MERGER BETWEEN COMNET AND GROUP 1
The information with respect to this Proposal 1, approval and adoption of
the Merger Agreement providing for the Merger, is set forth in the front part of
this Proxy Statement Prospectus. Both COMNET and Group 1 stockholders are asked
to consider and vote on this proposal.
COMNET PROPOSAL 2 - AMENDMENT TO COMNET CERTIFICATE TO INCREASE
NUMBER OF AUTHORIZED SHARES OF COMNET COMMON STOCK
FROM 10,000,000 TO 14,000,000 SHARES
The COMNET Board recommends that stockholders approve an amendment to the
COMNET Certificate to increase the number of shares of stock that COMNET is
authorized to issue to an aggregate of 14,200,000 shares, of which 200,000
shares will be COMNET Preferred Stock and 14,000,000 shares will be COMNET
Common Stock. The COMNET Certificate currently provides for an aggregate of
10,200,000 authorized shares, of which 200,000 shares are COMNET Preferred Stock
and 10,000,000 shares are COMNET Common Stock.
Upon the effectiveness of the proposed amendment, Article Fifth of the
COMNET Certificate will read in its entirety as follows:
"FIFTH. The corporation shall have the authority to issue
the following classes of stock:
(1) total of fifteen million (14,000,000) shares of COMNET
Common Stock, each of such shares having a par value of $.50
per share; and
(2) a total of two hundred thousand (200,000) shares of
Preferred Stock, each of such shares having a par value of
$.25 per share to be issued (i) in such series and with such
designations, powers, preferences, rights, and such
qualifications, limitations or restrictions thereof as the
Board of Directors shall fix by resolution or resolutions
which are permitted by Section 151 of the Delaware
Corporation Law for any such series of Preferred Stock, and
(ii) in such number of shares in each series as the Board of
Directors shall fix by resolution or resolutions, provided
that the aggregate number of all shares of Preferred Stock
issued does not exceed the number of shares of Preferred
Stock authorized hereby."
The additional shares of COMNET Common Stock to be authorized by adoption
of the proposed amendment will have rights identical to the currently
outstanding shares of COMNET Common Stock. Adoption of the proposed amendment
and issuance of additional shares of COMNET Common Stock would not affect the
rights of the holders of currently outstanding shares of COMNET Common Stock,
except for effects incidental to increasing the number of shares of the COMNET
Common Stock outstanding, such as dilution of the earnings per share and voting
rights of current holders of COMNET Common Stock. If the amendment is adopted,
it will become effective upon the filing of a Certificate of Amendment of the
COMNET Certificate with the Secretary of State of the State of Delaware.
In addition to the 3,298,601 shares of COMNET Common Stock outstanding on
July 27, 1998, the COMNET Board has reserved approximately 1,598,231 shares for
issuance upon exercise of options outstanding or available for grant under the
various COMNET stock option plans.
The additional authorized shares of COMNET Common Stock may be issued upon
the exercise of the rights to be granted pursuant to the Stockholder Protection
Rights Agreement that is currently under consideration by the COMNET Board.
Accordingly, the additional shares of COMNET Common Stock could be used by
COMNET to oppose a hostile takeover attempt or delay or prevent changes in
control or management of COMNET. In addition, the COMNET Board could use the
additional shares of COMNET Common Stock to strategically sell shares of COMNET
Common Stock in a private transaction to purchasers who would oppose a takeover
or favor the current COMNET Board. From time to time, COMNET has received
unsolicited acquisition proposals. Management has considered, and will continue
to consider such proposals in the ordinary course of business to determine
whether such proposals are in the long-term best interests of COMNET and its
stockholders. Although this proposal to increase the authorized COMNET Common
Stock has been prompted by business and financial considerations and not by the
threat of any hostile takeover attempt, nevertheless, stockholders should be
aware that approval of the proposal could facilitate future efforts by COMNET to
deter or prevent changes in control of COMNET, including transactions in which
the stockholders might otherwise receive a premium for their shares over then
current market prices.
Although at present the COMNET Board has no plans to issue additional
shares of COMNET Common Stock (except in connection with the Merger with Group
1), it believes it is desirable to have such shares available to provide
additional flexibility to use its capital stock for business and financial
purposes in the future. Further, the additional shares may be issued for various
purposes, including, without limitation, stock splits, stock dividends,
providing equity incentives to employees, officers or directors, establishing
strategic relationships with other companies and expanding COMNET business or
product lines through the acquisition of other businesses or products. If the
proposed amendment to the COMNET Certificate is approved, the COMNET Board may
determine to take any of the foregoing actions without the need for further
stockholder approval.
The affirmative vote of the holders of a majority of the outstanding shares
of COMNET Common Stock and COMNET Preferred Stock will be required to approve
the proposed amendment to COMNET Certificate. As a result, abstentions and
broker non-votes will have the same effect as negative votes.
The Board of Directors Recommends a Vote "FOR" Approval
of the Amendment of the COMNET Certificate
<PAGE>
COMNET PROPOSAL 3 -- ELECTION OF COMNET DIRECTORS
COMNET stockholders are being asked to elect three members to the COMNET
Board. The three members who are so elected and the other six directors whose
terms continue after the COMNET Meeting will constitute the Board of Directors
of the Surviving Corporation.
As provided in the COMNET Certificate, the directors of COMNET are divided
into three classes, and one class is elected at each annual meeting of
stockholders and serves for a term ending on the third annual meeting of
stockholders following their election and until their respective successors have
been elected and qualified. Under the COMNET By-laws, the election of directors
is determined by the vote of a majority of the shares present in person or
represented by proxy and voting on the matter. Under applicable Delaware law and
the COMNET Certificate and COMNET By-laws, abstentions and broker non-votes on
proposals to elect directors will effectively be treated as shares that are not
present and voting for that matter.
The Board has nominated Messrs. Charles J. Sindelar, James P. Marden and
Charles A. Mele for election at the COMNET Meeting, to serve until the third
annual meeting of stockholders of COMNET following their election and until
their successors have been elected and qualified. Unless otherwise directed, the
persons named as proxies in the proxy enclosed herewith will vote the shares
represented by such proxy FOR the election of such nominees as directors.
If any of the named nominees is not available for election at the time of
the COMNET Meeting, discretionary authority will be exercised to vote for a
substitute or substitutes, unless the COMNET Board chooses to reduce the number
of directors. Each nominee for election to the COMNET Board named above has
consented to being named as a nominee, and management has no reason to believe
that any of the nominees will be unable or unwilling to serve if so elected, and
all nominees have expressed an intention to serve the entire term for which
election is sought.
The following table sets forth certain information, including beneficial
ownership of shares of COMNET Common Stock after giving effect to the Merger as
if the Merger had occurred on July 27, 1998, concerning each director and
nominee for director.
<PAGE>
<TABLE>
NOMINEES FOR ELECTION TO THE COMNET BOARD OF DIRECTORS
<CAPTION>
Number of Shares of
COMNET
Name of Director of Director Principal Occupation, Business Common Stock and
the Company (Age) Since Experience and Directorships Percentage of Class(1)
----------------- ----- ---------------------------- ----------------------
Class III Directors (whose terms will expire at the third annual Pre- Post-
meeting of stockholders following the COMNET Meeting, and the election Merger Merger(2)
and qualification of their successors) ------ ---------
<S> <C> <C> <C> <C>
Charles J. Sindelar 1992 Vice President and General 20,000 20,000
(61) Manager, Digital Video Group, * *
Network Systems Division, and
previously Vice President of
the Business Development
Network Systems Division,
Zenith Electronics Corporation
since December, 1990.
James P. Marden 1992 Private investor since June, 20,000 20,000
(45) 1997. President of The * *
Entertainment Connection, Inc.
from January, 1995 to May,
1997; Vice President -
Acquisitions of Medco and Vice
President - Acquisitions of
Synetic, Inc. ("Synetic") from
1992 to 1994
Charles A. Mele 1992 Executive Vice President - 20,000 37,250
(42) General Counsel and a director * *
of Synetic for more than five
years. For more than five
years, up through July 1994,
he was Executive Vice
President and General Counsel
or Co-General Counsel of
Medco. He is also a director
of Group 1.
</TABLE>
<TABLE>
<CAPTION>
DIRECTORS CONTINUING IN OFFICE
Class I Directors (whose terms will expire at the second annual Pre- Post-
meeting of stockholders following the COMNET Meeting, and the election Merger Merger(2)
and qualification of their successors) ------ ---------
<S> <C> <C> <C> <C>
James V. Manning 1992 Chief Executive Officer of 20,000 20,000
(51) Synetic since September, 1994. * *
Prior to that, he was Senior
Executive Vice President -
Finance and Administration and
a director of Medco for more
than five years. He has also
been a director of Synetic for
more than five years.
Richard H. Eisenberg 1994 President of Great Northern 10,000 10,000
(59) Brokerage Corporation for more * *
than five years. From 1992 to
1995, he was also Senior Vice
President of Kaye Insurance
Association, L.P.
Bruce J. Spohler 1997 Managing Director, High Yield, 23,675 30,000
(38) CIBC Oppenheimer for more than * *
five years.
</TABLE>
<TABLE>
<CAPTION>
Class II Directors (whose terms will expire at the next annual meeting Pre- Post-
of stockholders following the COMNET Meeting, and the election and Merger Merger(2)
qualification of their successors) ------ ---------
<S> <C> <C> <C> <C>
Robert S. Bowen 1983 President and Chief Executive 259,450 277,563
(60) Officer of COMNET for more 7.7% 6.3%
than five years and a
director, Chairman of the
Board and Chief Executive
Officer of Group 1 Software,
Inc. ("Group 1"), for more
than five years.
Ronald F. Friedman 1987 Director, and Chief Operating 136,999 141,929
(54) Officer of Group 1 for more 4.2% 3.2%
than five years. He is also a
director of Group 1.
Mark D. Funston 1996 Vice-President, Chief 6,600 6,600
(38) Financial Officer and * *
Treasurer of Group 1 since
September 1997. Prior to that,
for more than five years he
was Chief Financial Officer of
COMSTAT/RSI. He is also Vice
President and Chief Financial
Officer of COMNET. He also
serves as a director of
COMNET.
<FN>
- --------------------
*Less than 1%
(1) The business address of Messrs. Manning and Mele is River Drive Center 2,
669 River Drive, Elmwood, New Jersey 07407-1361. Mr. Marden's business address
is 850 Third Avenue, 17th Floor, New York, New York 10022. Mr. Eisenberg's
business address is 320 W. 57th St., 5th Floor, New York, New York 10019. The
business address of Mr. Sindelar is 1000 Milwaukee Avenue, Glenview, Illinois
60025. The business address of Mr. Buchsbaum is 1 Dell Way, Round Rock, Texas
78682. The business address of Mr. Spohler is 425 Lexington Avenue, 3rd Floor,
New York, New York 10017. The business address of Messrs. Bowen and Friedman is
4200 Parliament Place, Suite 600, Lanham, Maryland 20706.
(2) Includes shares of COMNET Common Stock purchasable under options that are
presently exercisable or exercisable within 60 days after July 27, 1998, as
follows: Mr. Sindelar - 20,000 shares; Mr. Marden - 20,000 shares; Mr. Mele -
37,250 shares; Mr. Funston - 6,600 shares; Mr. Manning - 20,000 shares; Mr.
Eisenberg - 10,000 shares; Mr. Spohler - 30,000 shares; Mr. Bowen - 179,113
shares; and Mr. Friedman 140,449 shares.
</FN>
</TABLE>
At the Effective Time of the Merger, Mr. Funston will resign from the
COMNET Board and Mr. Thomas S. Buchsbaum, who currently is a director of Group
1, will join the COMNET Board and the COMNET Compensation Committee. Mr.
Buchsbaum, 48, has been the Vice President, Education of Dell Computer
Corporation since March 1997. Prior to joining Dell Computer Corporation, Mr.
Buchsbaum was the Executive Vice President, Federal Systems of Zenith Data
Systems, Inc. Mr. Buchsbaum also serves as a director of Dick Blick Company.
<PAGE>
Family Relationships
There are no family relationships between any director or executive officer
of the Company. Mr. Bruce J. Spohler is the son of Mr. John Spohler, who is a
beneficial holder of more than 5% of the issued and outstanding shares of COMNET
Common Stock, and a former Chairman of the COMNET Board (1984 - 1993).
COMNET Board Committees and Meetings
The By-laws provide for the COMNET Board to appoint the Audit and
Compensation Committees. The Compensation Committee's functions include
establishing principles for setting executive compensation, and reviewing
management proposals pertaining to executive compensation, profit sharing and
stock options. The Compensation Committee recommends management bonuses to the
COMNET Board for COMNET's officers and employees. The Compensation Committee
grants options to employees under and in accordance with COMNET's various stock
option plans. The Compensation Committee is comprised of Messrs. Manning, Marden
and Mele. None of the members of the Compensation Committee has ever been an
employee of the Company.
The Audit Committee's functions include recommending to the COMNET Board
the selection of the Company's independent public accountants and reviewing with
such accountants the plan, scope and results of their audit of the financial
statements and the adequacy of the Company's system of internal accounting
controls. The Audit Committee is comprised of Messrs. Manning, Marden and
Sindelar.
During the fiscal year ended March 31, 1998, the COMNET Board held six
meetings, the Compensation Committee held two meetings and the Audit Committee
held one meeting. No director attended less than 75% of all meetings of the
COMNET Board and the committees on which such director served during that fiscal
year.
Compensation of Directors
No cash payments have been made to directors for attendance at meetings of
the COMNET Board or any committee thereof since April 1985. In September 1995,
COMNET stockholders approved the 1995 Non-Employee Directors' Stock Option Plan,
which provides for an annual, automatic grant of options to non-employee
directors. During the year ended March 31, 1998, Messrs. Manning, Marden, Mele,
Sindelar and Eisenberg were each granted options under the 1995 Non-Employee
Directors' Stock Option Plan to purchase 5,000 shares of COMNET Common Stock. In
January 12, 1993, COMNET stockholders approved certain fee arrangements with
Messrs. Manning, Bowen and Friedman, each of whom is a director of COMNET. See
"--Certain Relationships and Related Transactions--Fee Agreements".
<PAGE>
EXECUTIVE OFFICERS AND COMPENSATION
Executive Officers
The executive officers of COMNET are Robert S. Bowen, Ronald F. Friedman,
Mark D. Funston, Stephen R. Bebee, Alan P. Slater and Edward Weiss. The business
experience for at least the past five years for Messrs. Bowen, Friedman and
Funston is set forth under "--COMNET Directors Continuing in Office." Messrs.
Slater and Bebee have served in sales management positions at Group 1 for at
least the past five years. Mr. Weiss, 47, has been General Counsel and Secretary
of COMNET for at least the past five years.
Executive Compensation
<TABLE>
Summary Compensation Table
<CAPTION>
Annual Compensation Long-term Compensation Awards
--------------------------------- ---------------------------------
All other
Name and Principal Position Year Salary Bonus Stock Options Compensation(1)
- --------------------------- ---- ------ ----- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Robert S. Bowen 1998 $269,213 $231,667(2) -- $67,593
CEO; Director 1997 323,587 -- 18,750(3) 58,736
1996 309,193 564,519(2) 12,500 75,122(4)
Ronald F. Friedman 1998 184,105 66,085 -- 79,318(5)
President - Group 1 1997 184,105 -- 27,000(3) 6,412
Software; Director 1996 183,400 123,740 10,000 3,000
Mark D. Funston 1998 125,039 17,292 -- 9,249
Chief Financial Officer; 1997 64,616(6) 16,500 16,500 782
Director 1996 -- -- -- --
Alan P. Slater 1998 169,018 96,594 -- 7,511
Executive Vice President, 1997 150,580 -- 14,250(3) 7,367
General Manager 1996 140,769 51,067 7,500 3,634
Stephen R. Bebee 1998 134,646 41,859 -- 10,909
Vice President, 1997 87,650 114,333 11,000(3) 9,489
General Manager 1996 77,404 106,336 5,000 3,229
<FN>
- --------------------
(1) Includes COMNET contributions to Defined Contribution Savings Plan
(401(k)), auto allowance and group term life insurance benefits.
(2) Mr. Bowen elected to defer $81,083 and $197,582 of bonus compensation in
1998 and 1996, respectively in accordance with COMNET deferred compensation
plan.
(3) Includes Group 1 Options granted to Mr. Bowen, Mr. Friedman, Mr. Slater and
Mr. Bebee of 18,750, 15,000, 4,250 and 1,000 shares, respectively. All
other options were granted by COMNET to purchase COMNET Common Stock. All
options vest ratably over five years and expire in ten years.
(4) Includes debt forgiveness on a loan from COMNET to Mr. Bowen. See "--Bowen
Loan Agreement."
(5) Includes interest forgiven on a loan from COMNET to Mr. Friedman.
See"--Friedman Loan Agreement."
(6) Mr. Funston's compensation covers only part of the fiscal year ended March
31, 1997.
</FN>
</TABLE>
Employment Agreements
Robert S. Bowen--COMNET Agreement. The Company entered into an amended and
restated employment agreement with Mr. Bowen, as President and Chief Executive
Officer of COMNET, dated as of January 28, 1992 (the "COMNET Employment
Agreement"). The COMNET Employment Agreement was ratified by the stockholders at
the January 22, 1993 meeting. The COMNET Employment Agreement expired on July 1,
1998, and provided for a current total base salary of $340,100 per annum. Mr.
Bowen's base salary was adjusted annually (effective each July 1) by the greater
of (i) changes in the area cost of living, and (ii) the average salary
percentage increase for COMNET employees approved by the COMNET Board as part of
the annual budget. The COMNET Employment Agreement was amended so that from
August 15, 1997 to January 12, 1998, Mr. Bowen's salary was reduced to $170,250,
from $340,500. This reduced level remained in effect until the financial
performance of COMNET had improved sufficiently, in Mr. Bowen's reasonable
determination. The COMNET Employment Agreement provided for a bonus payable to
Mr. Bowen equal to 7-1/2% of the first $1,000,000 of consolidated net income
before taxes, with certain adjustments as defined, and 10% of all such
consolidated net income in excess of $1,000,000. Consolidated net income
includes all earnings attributable to Group 1 and any of COMNET's business
operations or subsidiaries directly related to the particular lines of business
engaged in by Group 1 or any other COMNET subsidiary as of July 1, 1991, from
any source, including gain or loss on the sale of stock or assets of COMNET and
its subsidiaries, but subject to certain specified deletions, including the Cap
Amount (as defined below) provisions. Specified deletions from earnings include,
among other items, any provisions for taxes, any bonus payable under the COMNET
Employment Agreement, any excess of interest income over interest expense from
COMNET's or its affiliates' investments, any charge to income associated with
the exercise of stock options and any interest or dividend income from, or gain
from the sale of, securities held for investment at the time Mr. Bowen joined
COMNET. The 7-1/2% and 10% calculations apply to gain realized upon a sale of
Group 1 and included in consolidated net income only to the extent that such
gain does not exceed an amount equal to the gain that COMNET would realize on a
disposition, if any, of its interest in Group 1 at a price per share of $21.125
(the "Cap Amount"). The COMNET Employment Agreement provided that with respect
to any pretax gain (net of expenses) realized upon a disposition of Group 1 in
excess of the Cap Amount described above, Mr. Bowen will be entitled to the
following percentages of such gain: $0 to $3.3 million - 1%; above $3.3 to $6.6
million - 2%; above $6.6 to $9.9 million - 3%; above $9.9 to $13.2 million - 4%;
and above $13.2 million - 5%. Further, any bonus under the COMNET Employment
Agreement was offset by 40% of all fees theretofore received by Mr. Bowen under
the Bowen Fee Agreement (described below).
Robert S. Bowen--Group 1 Agreement. Group 1 entered into an amended and
restated employment agreement with Mr. Bowen, a director, as Chief Executive
Officer of Group 1 dated as of January 28, 1992 as subsequently amended
(collectively, the "Group 1 Agreement"). Salary and incentive compensation paid
under the Group 1 Agreement were not to be duplicated by payments under the
COMNET Employment Agreement, so long as the COMNET Employment Agreement is
effective. The Group 1 Agreement expires on March 31, 2001 and provides for a
salary of not less than $272,080 per annum subject to adjustments (effective
each July 1) depending upon the amount of professional time dedicated to Group 1
vis-a-vis COMNET and adjusted annually by the greater of (i) any changes in the
area cost of living index, and (ii) the average salary percentage increase for
employees approved by the Group 1 Board as part of its annual budget.
The Group 1 Agreement also includes an annual incentive bonus equal to
7-1/2% of the first $1,000,000 of consolidated net income of Group 1 before
taxes with certain adjustments as defined, and 10% of such income in excess of
$1,000,000, such bonus to be no greater than that determined under a similar
bonus program related to the consolidated earnings of COMNET as long as the
program relating to COMNET is effective. Consolidated net income as defined in
the Group 1 Agreement includes all earnings of Group 1 and its subsidiaries from
any source, subject to certain specified deletions but including gain or loss on
the sale of stock or assets of Group 1 and/or a subsidiary. Specified deletions
from net income include, among other items, any provision for taxes, any bonus
payable under the Group 1 Agreement, any excess of interest income from bank and
other cash deposits over interest expense from loans or other financing, and any
charge to income associated with the exercise of stock options.
If Mr. Bowen's employment with Group 1 is terminated during the term of the
Group 1 Agreement because of his disability or death, his base salary and bonus
will be prorated through the date of termination. If Mr. Bowen terminates his
employment with Group 1 for any reason other than death or disability or if he
is discharged by Group 1 for cause, Mr. Bowen will be entitled to his base
salary, equitably prorated, and any bonuses earned for any fiscal year prior to
the fiscal year in which his termination of employment occurred. If Group 1
terminates Mr. Bowen's employment without cause, Mr. Bowen is entitled to
receive his salary, fringe benefits and bonuses throughout the remaining term of
the Group 1 Agreement. Upon any termination of Bowen's employment under the
Group 1 Agreement, all options held by Bowen to purchase Group 1's common stock
will be treated as provided in the instruments or agreements governing such
options.
The Group 1 Agreement also provides that as long as COMNET owns 25% or more
of the outstanding shares of Group 1 Common Stock, Mr. Bowen will receive no
additional compensation under the Group 1 Agreement, but Mr. Bowen's aggregate
compensation payable under his employment agreement with COMNET will be
allocated between COMNET and Group 1 based on the proportion of his time spent
working for each of the two companies. If COMNET ceases to own 25% or more of
the outstanding shares of Group 1 Common Stock, (i) Mr. Bowen's annual salary
under the Group 1 Agreement is increased to the greater of $240,000 or 160% of
the then current base salary of Group 1's Chief Operating Officer, adjusted
upward or downward to the extent that the proportion of Mr. Bowen's time spent
working for Group 1 is greater or lesser than 50% and adjusted for changes in
the cost of living, (ii) Mr. Bowen's annual salary under his employment
agreement with COMNET is reduced to reflect only the proportion of his time
spent working for COMNET's businesses other than Group 1 and (iii) Mr. Bowen
becomes entitled to receive incentive bonus compensation from Group 1 as
follows: (A) if COMNET disposes of its interest in Group 1 in a registered
public offering, then for each fiscal year, if Group 1's earnings equal budget
targets established by the Group Board in its reasonable business judgment, then
Mr. Bowen's bonus shall be the greater of $200,000 or 160% of the bonus payable
to Group 1's Chief Operating Officer, and if Group 1's earnings are greater or
lesser than such targets, then Mr. Bowen's bonus will vary from the amount
payable to him at the target earnings level to the same proportional extent as
the variation in the bonus payable to Group 1's Chief Operating Officer; and (B)
if COMNET disposes of its interest in Group 1 other than in a registered public
offering, then Mr. Bowen's bonus shall be as determined by the Group 1 Board,
without the participation of any directors affiliated with COMNET.
Under the Merger Agreement, Mr. Bowen's employment agreement with Group 1
will be assumed by COMNET. As a result, Mr. Bowen's employment with COMNET will
be extended until March 31, 2001 (his agreement with COMNET expired on July 1,
1998).
Ronald F. Friedman. Group 1 has entered into an employment agreement, dated
October 31, 1990, with Ronald F. Friedman, a director, as President and Chief
Operating Officer of Group 1. The agreement, as amended, expires on March 31,
1999, and provides for annual base compensation of $183,400 per annum (adjusted
as of April 1, 1995), which may be further adjusted annually for merit increases
upon approval of Group 1's compensation committee. Under his employment
agreement, Mr. Friedman was entitled to receive an annual bonus for the fiscal
year ending March 31, 1997 based on a percentage of Group 1's net income before
income taxes, interest expense, management fees and bonus amounts paid to or for
the benefit of Mr. Friedman and Group 1's Chief Executive Officer and Chief
Financial Officer ("Adjusted Net Income"), which bonus plan for fiscal year 1997
varied from 7.4% of Adjusted Net Income over $5.6 million, up to a maximum of 9%
of Adjusted Net Income over $9.0 million. The bonus was based upon both
achievement of a certain level of Adjusted Net Income and, in the opinion of
Group 1's compensation committee and the Group 1 Board, satisfactory growth over
actual prior year results. A bonus plan has not been put in place yet for the
current fiscal year. If Mr. Friedman retires or becomes totally and permanently
disabled, Mr. Friedman shall be entitled to receive all earned but unpaid
bonuses and any subsequent bonus installments. In the case of death, all earned
but unpaid bonuses and subsequent bonus installments shall be paid promptly in
one sum. If Mr. Friedman is terminated for cause or resigns under circumstances
which would justify termination for cause, all unpaid bonuses will be forfeited
and no longer be payable. If a change in control of Group 1 occurs, Mr.
Friedman, at his option, has the right to resign his position with Group 1 and
Group 1 will continue to pay his compensation and provide him with employee
benefits for one year or until the expiration date of the employment agreement,
whichever is the shorter period, and will pay Mr. Friedman, as a lump sum, all
earned but unpaid bonuses. In addition, bonuses will be paid on a pro-rata basis
for the period through the nearest full fiscal quarter prior to resignation.
Under the Merger Agreement, Mr. Friedman's employment agreement with Group
1 will be assumed by COMNET.
<PAGE>
Option Exercises and Grants During Last Fiscal Year
<TABLE>
OPTION EXERCISES AND
YEAR-END OPTION VALUES
FISCAL YEAR ENDED MARCH 31, 1998
<CAPTION>
Number of Unexercised Options/ Value of Unexercised Options/
SARs at FY-End SARs at FY-End(1)
------------------------------ -----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
COMNET
- ------
Robert S. Bowen 174,800 7,500 $47,850 ---
Ronald F. Friedman 136,999 8,001 $41,250 ---
Mark D. Funston 3,300 13,200 --- ---
Alan P. Slater 18,200 13,500 $ 6,875 ---
Stephen R. Bebee 10,900 11,500 $ 2,062 ---
GROUP 1
- -------
Robert S. Bowen 3,750 15,000 $ 3,750 $15,000
Ronald F. Friedman 3,000 12,000 $ 3,000 $12,000
Mark D. Funston --- --- --- ---
Alan P. Slater 850 3,400 $ 850 $ 3,400
Stephen R. Bebee 200 800 $ 200 $ 800
<FN>
- --------------------
(1) These values are based upon the difference between the exercise prices of
all options awarded and the average price of $8.00 per share for COMNET common
stock and $7.50 per share for Group 1 common stock at March 31, 1998.
</FN>
</TABLE>
No options were granted to or exercised by any of the persons listed in
table during fiscal year 1998.
An aggregate of 56,900 options to purchase Group 1 Common Stock may be
granted to Messrs. Bowen (25,000 shares), Friedman (20,000 shares), Slater
(3,000 shares) and Bebee (300 shares), with the remainder of the options to be
granted to five other employees who are not executive officers of Group 1. the
options will be exercisable at 100% of the fair market price of Group 1 Common
Stock on the date of grant (approximately $13.00 based on the closing price of
Group 1 Common Stock on August 11, 1998). The options will become exercisable in
five equal cumulative installments on each of the first five anniversaries of
the date of grant, and expire ten years from the date of grant, if not
exercised.
Compensation Committee Interlocks
and Insider Participation
During Fiscal Years 1997 and 1998, no member of COMNET's Compensation
Committee served as a director or member of a compensation committee of another
entity, where an executive officer of that entity has served as a Director of
COMNET or a member of COMNET's Compensation Committee.
<PAGE>
- --------------------------------------------------------------------------------
| |
| REPORT ON EXECUTIVE COMPENSATION(1) |
| |
| The Company has established an executive compensation program based on |
| the following on-going principles and objectives: (i) provide compensation |
| opportunities that will help attract, motivate and retain highly qualified |
| managers and executives, (ii) link executive's total compensation to |
| COMNET's performance and the individual performance of the executive and |
| (iii) provide an appropriate balance between incentives focused on |
| achievement of annual business plans and longer term incentives linked to |
| increases in stockholder value. To effectuate these principles and |
| objectives, compensation for each of COMNET's executives consists of base |
| salary compensation, annual incentive compensation (based in most cases on |
| profit performance measured against internal profit targets) and stock |
| option grants. |
| |
| For the fiscal year ended March 31, 1998, the Compensation Committee |
| did not review the base salary or incentive compensation program for Mr. |
| Bowen since these matters are fixed by his employment agreement. Grants of |
| options to executive officers and the compensation programs for executive |
| officers, other than Mr. Bowen, are reviewed annually by the Compensation |
| Committee, including the review conducted for the most recent fiscal year. |
| |
| |
| Compensation Committee |
| ---------------------- |
| James V. Manning |
| James P. Marden |
| Charles A. Mele |
| |
- --------------------------------------------------------------------------------
(1) Pursuant to Item 401(a)(9) of Regulation S-K promulgated by the SEC,
neither COMNET nor Group 1's "Report on Executive Compensation" or the materials
under the caption "Performance Measurement Comparison" shall be deemed to be
filed with the SEC for purposes of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), nor shall such reports or materials be deemed to
be incorporated by reference in any past or future filing by COMNET or Group 1,
if any, under the Exchange Act or the Securities Act of 1933, as amended.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
See discussion in "COMNET Proposal 3--Election of COMNET Directors" above
and the section captioned "Beneficial Ownership" in the front part of the Proxy
Statement Prospectus for information regarding the security ownership of certain
beneficial owners and management.
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Fee Agreement with Mr. Manning
COMNET has agreed, pursuant to fee agreement dated as of January 28, 1992,
to pay Mr. Manning fees of 1/2% of the total consideration paid on acquisitions,
and 1/2% of the pre-tax gain (net of expenses) on dispositions of COMNET's or
its subsidiaries' businesses. Fees payable with respect to a disposition, if
any, by COMNET of its holdings in Group 1 would be payable only if, and to the
extent that, the consideration COMNET receives exceeds $50,000,000. This
agreement terminates on January 27, 2002, unless earlier terminated because Mr.
Manning ceases to be a director, officer or employee of COMNET. This agreement
was approved by the stockholders at the January 22, 1993 meeting. Mr. Manning
has earned no payment according to this fee agreement during the fiscal year
ended March 31, 1998.
Fee Agreement with Mr. Bowen
COMNET has entered into a fee agreement dated as of January 28, 1992 (the
"Bowen Fee Agreement") with Mr. Bowen, President, Chief Executive Officer and a
director of COMNET. The Bowen Fee Agreement was approved by the stockholders at
the January 22, 1993 meeting. Under the Bowen Fee Agreement, Mr. Bowen will be
entitled to a fee of 1/2% of the total consideration payable on acquisitions and
1/2% of the pre-tax gain (net of expenses) on dispositions of COMNET's or its
subsidiaries' businesses. However, this fee will not be paid with respect to a
disposition, if any, of Group 1 or any of COMNET's business operations or
subsidiaries directly related to the particular lines of business engaged in by
such companies as of July 1, 1991, which shall remain subject to the incentive
compensation arrangements in Mr. Bowen's Employment Agreement.
The Bowen Fee Agreement terminates on January 27, 2002, unless Mr. Bowen
ceases to be a director, officer or employee of COMNET, provided that if Mr.
Bowen's employment is terminated without cause (as defined in his COMNET
Employment Agreement), COMNET must either continue this agreement until January
27, 2002 or pay Mr. Bowen the incentive bonus upon a disposition, if any, of
COMNET's interests in Group 1 to which Mr. Bowen would have been entitled under
the COMNET Employment Agreement, as in effect prior to its January 28, 1992
amendment and restatement. Mr. Bowen has earned no payment according to this fee
agreement during the fiscal year ended March 31, 1998.
Fee Agreement with Mr. Friedman
COMNET has entered into a fee agreement with Mr. Friedman, a director,
dated as of January 28, 1992, which was approved by the stockholders at the
January 22, 1993 meeting. Pursuant to this fee agreement, Mr. Friedman will be
entitled to receive on disposition, if any, of COMNET's interest in Group 1 or
on the sale by Group 1 or any of its subsidiaries of any business unit or line
of business of Group 1 or any of its subsidiaries, a fee in an amount equal to
the following percentages of COMNET's pre-tax gain (net of expenses) to the
extent such gain exceeds $21.125 per share of Group 1: $0 to $3.3 million -
0.5%; above $3.3 to $6.6 million - 1%; above $6.6 to $9.9 million - 1.5%; above
$9.9 to $13.2 million - 2%; and above $13.2 million - 2.5%. Such fee shall only
be payable, however, if Group 1's net operating income increases at an average
annualized rate of 20% or more from 1991 until such disposition. If Group 1's
net operating income increases at an average annualized rate of 15% or more, but
less than 20%, Mr. Friedman will be entitled to one-half of the fee percentages
set forth above. This fee agreement terminates on January 27, 2002, unless Mr.
Friedman is no longer a director, officer or employee of COMNET. Because no such
disposition has been made, no payments have been made to Mr. Friedman under his
fee agreement.
Bonus Programs to Other Executives
Mr. Funston is entitled to an annual incentive bonus for the fiscal year
ended March 31, 1998 to be calculated on the basis of Group 1's profit
performance as compared to internal profit targets. Mr. Weiss is entitled to an
annual bonus for the fiscal year ended March 31, 1998 calculated on the basis of
COMNET's profit performance as compared to internal profit targets and the
achievement of certain other objectives.
Deferred Compensation Arrangements
COMNET has adopted a Deferred Compensation Plan by which certain members of
senior management have the option of deferring the receipt of amounts of their
annual bonus compensation, if any, and/or their base compensation (the "Deferred
Compensation Plan"). The Deferred Compensation Plan is intended by COMNET to
qualify as an unfunded plan for federal income tax purposes and the Employee
Retirement Income Security Act (ERISA). The Deferred Compensation Plan is
administered by COMNET. The expenses associated with the establishment and
administration of the Deferred Compensation Plan are borne by COMNET. Any
expenses, however, of implementing any investment option selected by a
participant are charged against that participant's account.
The compensation that is being deferred is paid into a trust designated
solely to administer the Deferred Compensation Program. Currently, Mr. Bowen is
the only participant in COMNET's Deferred Compensation Plan.
Executive Supplementary Benefits
COMNET provides certain of its executive officers with group health
insurance and disability insurance policies that are not available to all
salaried employees. These supplementary benefits to such executive officers are
limited to the cost of the premiums for the coverage. The aggregate cost is less
than $25,000 per year for each covered executive officer.
Bowen Loan Agreement
On January 23, 1992, COMNET entered into a Loan Agreement with Mr. Bowen
under which COMNET agreed to loan him $235,000 on the following terms: (i) the
loan was made in three installments ($78,334 on the date of the Loan Agreement
and $78,333 on the first and second anniversary dates thereof); (ii) in
consideration of each advance of funds, Mr. Bowen delivered an interest -
bearing promissory to COMNET; (iii) each promissory note was deemed satisfied in
full and canceled because, as of its due date, July 1, 1998, Mr. Bowen had
complied with certain conditions set forth in the Loan Agreement including,
without limitation, Mr. Bowen tendering his services to COMNET or an affiliate
of COMNET and complying with certain provisions of his COMNET Employment
Agreement.
Friedman Loan Agreement
The loan is secured by a second mortgage on Mr. Friedman's residence and by
any proceeds from the exercise of stock options and subsequent disposition of
such option shares that Mr. Friedman holds in COMNET or Group 1. Effective with
the January 15, 1997 amendments, the loan was modified so that its term is now
the earlier to occur of 20 years or the termination of his employment with Group
1; the principal balance is now subject to interest at the rate charged to
COMNET (adjusted quarterly); interest is payable quarterly; 30% of Mr.
Friedman's incentive bonus from Group 1 (after salary draw is satisfied) shall
be applied to annual principal payments. The loan's current interest rate is
seven percent (7%). The principal and interest balance on the loan outstanding
as of March 31, 1998 was $388,664.
Spohler Director Arrangement
As compensation for his service as a COMNET director, Mr. Bruce J. Spohler
would have been granted options to purchase COMNET Common Stock in accordance
with the 1995 Non-Employee Directors' Stock Option Plan. However, as an employee
of CIBC Oppenheimer Corp., he is required to transfer to CIBC Oppenheimer
compensation such as these options to purchase COMNET Common Stock. Further,
because COMNET options may only be issued to persons then serving as COMNET
directors and may not be transferred to persons who are not COMNET directors,
COMNET, in lieu of director options, issued transferable warrants to Mr. Spohler
on terms substantially similar to the terms of the options that would otherwise
have been issued to Mr. Spohler under the 1995 Non-Employee Directors' Stock
Option Plan.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Based solely on a review of Forms 3, 4 and 5 and amendments thereto furnished to
COMNET, all directors, officers and beneficial owners of more than ten percent
of any class of stock have filed on a timely basis all Forms 3, Forms 4 and
Forms 5 required to be filed by such directors, officers and beneficial owners
in the fiscal year ended March 31, 1998, except for Mr. Bruce J. Spohler who
filed a Form 3 late.
<PAGE>
PERFORMANCE MEASUREMENT COMPARISON(1)
Comparison of Cumulative Total Return of Company,
Peer Group and Broad Market
[Performance graph]
Fiscal Year Ending
-----------------------------------------------------------
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
COMNET Corp. 100 38.04 44.02 43.48 36.96 34.78
Peer Group 100 101.20 177.23 186.08 204.16 428.98
Broad Market 100 115.57 122.61 164.91 184.50 278.82
The broad market index chosen was the NASDAQ Market Index. The industry
peer group consisted of BGS Systems, Inc., Hathaway Corp., Hyperion Software,
Inc. and Timberline Software, CP. Stockholders are cautioned against drawing any
conclusions from the data contained therein, as past results are not necessarily
indicative of future performance. This data in no way reflects COMNET's forecast
of future financial performance. The performance information set out directly
above is presented in accordance with requirements of the Securities and
Exchange Commission.
COMNET PROPOSAL 4 -- APPROVAL OF AMENDMENT TO THE 1995
NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
COMNET instituted its 1995 Non-Employee Directors' Stock Option Plan (the
"Plan") in September 1995. An aggregate of 150,000 shares of COMNET Common Stock
was authorized for issuance under the Plan in September 1995. As of July 27,
1998, options (net of canceled or expired options) covering an aggregate of
90,000 shares of COMNET Common Stock had been granted under the Plan. No options
have been exercised under the Plan. The Plan is administered by COMNET's
Compensation Committee.
On June 9, 1998, the COMNET Board adopted an amendment to the Plan, subject
to stockholder approval hereby solicited, to enhance the flexibility of the
COMNET Compensation Committee in granting stock options to COMNET non-employee
directors. The amendment increased the number of shares of COMNET Common Stock
authorized for issuance under the Plan. The COMNET Board adopted this amendment
to ensure that COMNET could continue to grant awards to non-employee directors
at levels determined appropriate by the COMNET Compensation Committee. The
COMNET Board believes that the increase in the number of shares in the Plan
would be sufficient to provide an appropriate number of reserved shares for the
next several years.
Stockholders are requested in this Proposal 4 to approve the amendment to
the Plan. The affirmative vote of the holders of a majority of the outstanding
shares entitled to vote will be required to approve the amendment to the Plan.
As a result, abstentions and broker non-votes will have the same effect as
negative votes.
The COMNET Board Recommends A Vote "FOR" The Amendment To The
1995 Non-Employee Directors' Stock Option Plan
The following is a brief description of the principal provisions of the
Plan and is qualified in its entirety by the Plan, a copy of which is attached
hereto as Exhibit D.
Under the Plan, as amended, the aggregate number of shares of COMNET Common
Stock which may be issued pursuant to options is 300,000 shares, subject to
adjustment in certain circumstances, including merger, consolidation,
reorganization, recapitalization, stock dividends, stock splits, combination of
shares, exchange of shares, change of corporate structure or other similar
transactions.
The terms and conditions under which options shall be granted under the
Plan are set forth in the Plan and described below. The COMNET Board or any
executive officer designated by the COMNET Board shall have authority to
interpret the provisions of the Plan, to establish such rules and procedures as
may be necessary or advisable to administer the Plan and to make all
determinations necessary or advisable for the administration of the Plan,
provided that no such interpretation or determination shall change or affect the
selection of participants eligible to receive grants under the Plan, the number
of shares of COMNET Common Stock covered by or the timing of any grant of
options under the Plan or the terms and conditions thereof.
Eligibility. All non-employee directors of COMNET are eligible to receive
options under the Plan. The Company currently has six non-employee directors
eligible to participate in the Plan, of which three such directors are standing
for election to the COMNET Board. See "COMNET Proposal 3 - Election of COMNET
Directors."
Term of Plan; Grant of Options to Non-Employee Directors. The Plan has been
effective as of September 12, 1995, upon approval by the stockholders at the
1995 annual meeting of COMNET. On the first day of each fiscal year during the
term of the Plan, each non-employee director then in office will automatically
be granted an option to purchase 5,000 shares of COMNET Common Stock. In
addition, each non-employee director whose initial term commences after the
effective date of the Plan shall receive an option to purchase 5,000 shares of
COMNET Common Stock at the time such director is first elected to the COMNET
Board. No options may be granted under the Plan after September 10, 2005.
Options shall be evidenced by a stock option agreement in such form as the
COMNET Board or any executive officer of COMNET designated by the COMNET Board
shall from time to time determine consistent with the Plan.
Terms and Conditions of Options. Options granted to non-employee directors
become exercisable at a rate of 20% each successive year from the date of grant.
The purchase price of the COMNET Common Stock under each option will be the fair
market value of the COMNET Common Stock on the date of grant. For purposes of
the Plan, fair market value shall mean (i) the last sales price of a share of
COMNET Common Stock traded on the over-the-counter market, as reported on
Nasdaq, but if no shares of COMNET Common Stock were traded on such date, then
on the last previous date on which a share of COMNET Common Stock was so traded,
(ii) the closing price for a share of COMNET Common Stock on the stock exchange,
if any, on which the shares of COMNET Common Stock are primarily traded, but if
no shares of COMNET Common Stock were traded on such date, then on the last
previous date on which a share of COMNET Common Stock was so traded or (iii) if
none of the above is applicable, the value of a share of COMNET Common Stock for
such date as established by a nationally recognized appraisal firm or investment
bank, using any reasonable method of valuation.
All options expire on the earlier of the fifteenth anniversary of the date
of grant or the date of termination of the optionee's status as a director of
COMNET. Subject to such fifteen year maximum duration, if an optionee ceases to
be a director of COMNET due to retirement upon or after attaining age 65 (or
such earlier date as such optionee shall be permitted to retire under COMNET's
retirement policy then in effect) or disability, he or she shall have thirty
days following his or her termination to exercise his or her options to the
extent exercisable as of such termination, and if an optionee dies while a
director of COMNET or within thirty days following the date of termination of
such optionee's status as a director, such optionee's personal representatives
or heirs shall have one (1) year following such optionee's death to exercise his
or her options, to the extent such options were exercisable as of the date of
the optionee's death.
Under the Plan, an option becomes exercisable in full, whether or not it is
then exercisable, upon a Change in Control (as defined in the Plan). If COMNET
is merged or consolidated with another corporation or in the event of a
reorganization, separation or liquidation of COMNET, the options will be
replaced by options to purchase stock in the successor corporation.
The Plan may be terminated and may be modified or amended by the COMNET
Board at any time, provided, however, that (i) no modification or amendment
increasing the aggregate number of shares which may be issued under options,
materially increasing benefits accruing to participants under the Plan, or
materially modifying the requirements as to eligibility to receive options shall
be effective without stockholder approval within one (1) year of the adoption of
such amendments, (ii) no such termination, modification or amendment of the Plan
shall alter or affect the terms of any then-outstanding options previously
granted, without the consent of the holder thereof and (iii) the provisions of
the Plan with respect to the number of shares of COMNET Common Stock for which
options shall be granted, the timing of such grants and the exercise price for
such options shall not be amended more than once every six months, other than to
comport with changes in the Internal Revenue Code of 1986, as amended, or the
Employee Retirement Income Security Act of 1974, as amended, or the respective
rules thereunder.
Certain Tax Matters. The following is a summary, and does not purport to be
a complete description, of certain federal income tax aspects of the Plan and
transactions thereunder. Furthermore, no information is given with respect to
any state, local, or foreign taxes which may be applicable.
Under the Plan, an optionee will not recognize taxable income, and COMNET
will not be entitled to a deduction, upon the grant of an option. Upon exercise
of such option, the optionee will recognize ordinary income in an amount equal
to the amount by which the fair market value of each share of COMNET Common
Stock on the date of exercise exceeds the option price. The amount so recognized
as income will be deductible by COMNET. Upon any subsequent sale of shares by an
optionee, the optionee's basis in the shares purchased for determining gain or
loss will be their fair market value on the date of exercise, if such shares
were acquired for cash. If the exercise of the option is made by delivery of
shares of COMNET Common Stock in payment of the option price, the shares
delivered are deemed to be exchanged in a tax-free transaction for the
equivalent number of new shares of COMNET Common Stock. Such equivalent number
of new shares has the same basis and holding period as the shares exchanged.
The number of shares received in excess of the number of shares delivered
is included in the optionee's income at the fair market value thereof at the
time of exercise. Any gain or loss recognized upon the sale or other disposition
of these shares will be capital gain or loss, either long-term or short-term
depending upon the holding period of the shares (which begins on the date the
optionee recognizes income with respect to such shares, except for the shares
deemed to be received in a tax-free transaction as described above).
The foregoing is not to be considered as tax advice to the optionee, and
any such person should consult their own tax counsel.
<PAGE>
GROUP 1 PROPOSAL 1 -- APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
PROVIDING FOR THE MERGER BETWEEN COMNET AND GROUP 1
The information with respect to this Proposal 1, approval and adoption of
the Merger Agreement providing for the Merger, is set forth in the front part of
this Proxy Statement Prospectus. Both COMNET and Group 1 stockholders are asked
to consider and vote on this proposal.
GROUP 1 PROPOSAL 2 -- ELECTION OF GROUP 1 DIRECTORS
If the Merger is not approved, Group 1 stockholders are also being asked to
elect two members to the Group 1 Board. The two members who are so elected and
the other four directors whose terms continue after the Group 1 Meeting if the
Merger is not approved, will constitute the Board of Directors of Group 1.
As provided in the Group 1 Certificate, the directors of Group 1 are
divided into three classes, and one class is elected at each annual meeting of
stockholders and serves for a term ending on the third annual meeting of
stockholders following their election and until their respective successors have
been elected and qualified. Under the Group 1 By-laws, the election of directors
is determined by the vote of a majority of the shares present in person or
represented by proxy and voting on the matter. Under applicable Delaware law and
the Group 1 Certificate and Group 1 By-laws, abstentions and broker non-votes on
proposals to elect directors will effectively be treated as shares that are not
present and voting for that matter.
The Board has nominated Messrs. Robert S. Bowen and Mark D. Funston for
election at the Group 1 Meeting, to serve until the third annual meeting of
stockholders of Group 1 following their election and until their successors have
been elected and qualified. Unless otherwise directed, the persons named as
proxies in the proxy enclosed herewith will vote the shares represented by such
proxy FOR the election of such nominees as directors.
If any of the named nominees is not available for election at the time of
the Group 1 Meeting, discretionary authority will be exercised to vote for a
substitute or substitutes, unless the Group 1 Board chooses to reduce the number
of directors. Each nominee for election to the Group 1 Board named above has
consented to being named as a nominee, and management has no reason to believe
that any of the nominees will be unable or unwilling to serve if so elected, and
all nominees have expressed an intention to serve the entire term for which
election is sought.
The following table sets forth certain information, including beneficial
ownership of shares of Group 1 Common Stock after giving effect to the Merger as
if the Merger had occurred on July 27, 1998, concerning each director and
nominee for director.
<TABLE>
NOMINEES FOR ELECTION TO THE GROUP 1 BOARD OF DIRECTORS
<CAPTION>
Number of Shares Voting
Name of Director of Director Principal Occupation, Business Securities and Percent of
the Company (Age) Since Experience and Directorships Class (at Record Date)
----------------- ----- ---------------------------- ----------------------
Class III Directors (whose term will expire at the third annual Group 1 COMNET
meeting of stockholders after the Meeting, and the election and Common Stock Common Stock
qualification of his successor) ------------ ------------
<S> <C> <C> <C> <C>
Robert S. Bowen 1986 Chairman and Chief Executive 15,750(1) 259,450(2)
(60) Officer of Group 1 and * 7.5%
President and Chief Executive
Officer of COMNET for more
than five years. Also serves
as a director of COMNET.
Mark D. Funston 1996 Vice President, Chief 0 6,600(2)
(38) Financial Officer and * *
Treasurer of Group 1 since
September, 1997. Prior to
that, for more than five years
he was Chief Financial Office
of COMSTAR/RSI. He is also
Vice President and Chief
Financial Officer of COMNET.
He also serves as a director
of COMNET.
</TABLE>
DIRECTORS CONTINUING IN OFFICE
<TABLE>
<CAPTION>
Number of Shares Voting
Name of Director of Director Principal Occupation, Business Securities and Percent of
the Company (Age) Since Experience and Directorships Class (at Record Date)
----------------- ----- ---------------------------- ----------------------
Class II Directors (whose term will expire at the second annual Group 1 COMNET
meeting of stockholders after the Meeting, and the election and Common Stock Common Stock
qualification of their successors) ------------ ------------
<S> <C> <C> <C> <C>
Thomas S. Buchsbaum 1989 Since March 1997, Vice 35,000(1) 0
(48) President, Education, Dell * *
Computer Corporation, prior to
that and for more than five
years, Executive (and
previously Senior) Vice
President, Federal Systems for
Zenith Data Systems, Inc. for
more than five years. Also
serves as a director for Dick
Blick Company.
Ronald F. Friedman 1986 President and Chief Operating 4,287(1) 136,999(2)
(54) Officer of Group 1 and its * 4.0%
President and Chief Operating
Officer of Group 1 and its
predecessor. Also serves as a
director of COMNET.
</TABLE>
<TABLE>
<CAPTION>
Number of Shares Voting
Name of Director of Director Principal Occupation, Business Securities and Percent of
the Company (Age) Since Experience and Directorships Class (at Record Date)
----------------- ----- ---------------------------- ----------------------
Class I Directors (whose term will expire at the next annual meeting Group 1 COMNET
of stockholders after the Meeting, and the election and qualification Common Stock Common Stock
of their successors) ------------ ------------
<S> <C> <C> <C> <C>
Joseph R. Sullivan 1986 Vice President, Marketing and 37,750(1) 2,700
(53) Business Development of the * *
Display Division of Zenith
Electronic Corporation for
more than five years.
Charles A. Mele 1992 Executive Vice President - 15,000(1) 20,000(2)
(42) General Counsel and a director * *
of Synetic, Inc. ("Synetic")
for more than five years. Also
serves as a Director of
COMNET.
<FN>
- --------------------
Less than 1%
(1) Includes shares of Group 1 Common Stock purchasable under options that are
presently exercisable or exercisable within 60 days after July 27, 1998, as
follows: Mr. Bowen - 3,750 shares; Mr. Buchsbaum - 35,000 shares; Mr.
Friedman - 3,000 shares; Mr. Sullivan - 35,000 shares; and Mr. Mele -
15,000 shares.
(2) Includes shares of COMNET Common Stock purchasable under options that are
presently exercisable or exercisable within 60 days after July 27, 1998, as
follows: Mr. Bowen - 174,800 shares; Mr. Funston - 6,600 shares; Mr.
Friedman - 136,999 shares; and Mr. Mele - 20,000 shares.
</FN>
</TABLE>
Family Relationships
There are no family relationships among any of the directors or executive
officers of Group 1.
Group 1 Board Committees and Meetings
The Group 1 Board currently has the following standing committees: the
Executive, Audit and Compensation Committees. The Executive Committee has and
may exercise all of the powers of the Board within the limits set out by General
Corporation Law Delaware. The Executive Committee is comprised of Messrs. Bowen
and Friedman.
The Audit Committee's functions include recommending to the Group 1 Board
the selection of Group 1's independent public accountants and reviewing with
such accountants the plan, scope and results of their audit of the financial
statements and the adequacy of Group 1's system of internal accounting controls.
The Audit Committee is comprised of Messrs. Mele and Sullivan.
The Compensation Committee's functions include reviewing management
proposals pertaining to executive compensation, profit sharing and stock
options. The Compensation Committee recommends management bonuses to the Group 1
Board for Group 1's officers and employees. It may grant options and rights to
employees under and in accordance with Group 1's 1995 Incentive Stock Option,
Non-Qualified Stock Option and Stock Appreciation Unit Plan. The Compensation
Committee is comprised of Messrs. Buchsbaum and Sullivan. Mr. Buchsbaum has
never been an employee of Group 1. Mr. Sullivan as not been an officer of
Group 1 since October, 1988.
During the fiscal year ended March 31, 1998, the Group 1 Board held five
meetings, the Executive Committee held two meetings, the Compensation Committee
held six meetings and the Audit Committee held one meeting. No director attended
less than 75% of all meetings of the Group 1 Board and the committees on which
such director served during that fiscal year.
Compensation of Directors
No cash payments have ever been made to directors for attendance at
meetings of or otherwise serving on the Board or any committee thereof. In
September, 1995, the stockholders approved the Group 1 Software, Inc. Stock
Option Plan for Non-Employee Directors, which provides for the annual, automatic
grant of options to non-employee directors. During the year ended March 31,
1998, Messrs. Buchsbaum, Sullivan and Mele were each granted options under this
plan to purchase 5,000 shares of Group 1 Common Stock.
EXECUTIVE OFFICERS AND COMPENSATION
Executive Officers and Compensation
The Executive Officers of Group 1 are Robert S. Bowen, Ronald F. Friedman,
Alan P. Slater, Steven R. Bebee, Mark D. Funston and Edward Weiss. See "COMNET
Proposal 3--Election of COMNET Directors--Executive Officers and Compensation"
for the business experience of, the compensation paid to or earned by, each of
Messrs. Bowen, Friedman, Slater, Bebee, Funston and Weiss.
Compensation Committee Interlock
Mr. Sullivan, a member of Group 1's Compensation Committee beginning in
fiscal year 1996, served as Chief Financial Officer of Group 1 from September
1986 to October 1988, and as Vice President and Chief Financial Officer of
COMNET from September 1985 to October 1988.
- --------------------------------------------------------------------------------
| |
| REPORT ON EXECUTIVE COMPENSATION(1) |
| |
| Group 1 has established an executive compensation program based on the |
| following ongoing principles and objectives: (i) provide compensation |
| opportunities that will help attract, motivate and retain highly qualified |
| managers and executives, (ii) link executive's total compensation to Group 1 |
| performance and the individual performance of the executive and (iii) |
| provide an appropriate balance between incentives focused on achievement and |
| annual business plans and longer term incentives linked to increases in |
| shareholder value. To effectuate these principles and objectives, |
| compensation for each of the executives of Group 1 consists of base salary |
| compensation, annual incentive compensation (based in most cases on profit |
| performance measured against internal profit targets) and stock option |
| grants. |
| |
| For Fiscal Year 1998, the Compensation Committee did not review the |
| base salary or incentive compensation program for Mr. Bowen, nor the base |
| salary for Mr. Friedman since in regard to both executives these matters are |
| fixed by employment agreements between Group 1 and the respective |
| executives. Grants of options to Messrs. Bowen and Friedman, increases to |
| Mr. Friedman's base salary and his incentive compensation program, and the |
| entire compensation program for the remaining executives, are reviewed |
| annually by the Compensation Committee, including the review conducted for |
| the most recent fiscal year. |
| |
| |
| Compensation Committee |
| ---------------------- |
| Thomas S. Buchsbaum |
| Joseph R. Sullivan |
| |
- --------------------------------------------------------------------------------
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
See discussion in "COMNET Proposal 3--Election of COMNET Directors" above
and the section captioned "Beneficial Ownership" in the front part of the Proxy
Statement Prospectus for information regarding the security ownership of certain
beneficial owners and management.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
COMNET-Group 1 Management Services Agreement
Effective April 1, 1997, Group 1 renewed its Management and Services
Agreement with COMNET (the "Management Services Agreement") under which COMNET
provides to Group 1 certain management and other services through March 31,
2000. Group 1 believes that these arrangements are fair and reasonable. By
having entered into the Management Services Agreement, Group 1 believes the
possibility of conflicts of interest with COMNET regarding providing these
services will be minimized because the terms under which benefits and services
are to be exchanged will be generally governed by the Management Services
Agreement and need not be separately negotiated in each instance. However, no
assurance can be given that conflicts of interest will not occur.
Under the Management Services Agreement, COMNET provides on an actual or
estimated cost or usage basis, not intended to provide a profit to COMNET, all
accounting and finance support, legal and administrative support, human
resources support, office space and certain liability and property insurance
relating to this office space and its usage. Group 1 has retained the right,
upon 120 days notice, except for the providing of office space, to acquire the
services and benefits from a third party or to provide such services or benefits
itself.
Group 1 agreed to reimburse COMNET 80% of its salary and fringe benefit
expenses for Robert S. Bowen or his successor(s) as Chief Executive Officer of
Group 1 in return for Mr. Bowen's or his successor's services in such capacity.
The percentage represents the estimated portion of Mr. Bowen's professional time
presently spent on Group 1 affairs. Group 1 has also agreed to reimburse COMNET
for that portion of Mr. Bowen's or his successor's incentive bonus award, if
any, that is attributable to Group 1's earnings.
Group 1 has agreed to reimburse COMNET for a portion of its salary and
fringe benefit expenses for Mark D. Funston or his successor(s) as Chief
Financial Officer of Group 1 ("CFO") in return for Mr. Funston's or his
successor's services in such capacity. The portion of the CFO's salary and
fringe benefit expenses to be reimbursed will be determined as a percent of the
estimated portion of Mr. Funston's professional time spent on Group 1 affairs.
For the year ended March 31,1998, 80% of the CFO's salary and fringe benefit
expense was reimbursed under this formula. Group 1 has agreed to reimburse
COMNET for that portion of Mr. Funston's or his successor's incentive bonus
award, if any, that is attributable to Group 1's earnings.
Group 1 has agreed to reimburse COMNET for all costs that COMNET incurred
for the benefit of Group 1 to deliver the services to Group 1 of COMNET's
Finance Department, Legal Department, Corporate Administrative Department and
Human Resources Department.
Group 1 has agreed to pay COMNET a management fee in recognition of the
provision by COMNET of services and benefits, including certain senior
management services, at cost. This management fee shall be based on Group 1's
annual pre-tax earnings (before the cost of any management fee) as a percentage
of Group 1's total annual revenues (the "Pre-Tax Margin"), ranging from 1% of
the total Group 1 revenues if the Pre-Tax margin is 20.99% or under, and
increasing by equal increments to 2.0% of Group 1's total revenues if the
Pre-Tax Margin is 30% or more. Total amount charged by COMNET to Group 1 for
management and other services under the Management Services Agreement totaled
$3,831,978 for the year ended March 31,1998, including the management fee paid
for the fiscal year ended March 31, 1998, of $610,059.
Tax Sharing Agreement
On April 1, 1991, Group 1 and COMNET renewed their tax sharing agreement
("Tax Sharing Agreement"). Under current law and so long as COMNET owns at least
80% of the total value of the stock of Group 1 and owns stock possessing at
least 80% of the voting power of Group 1, Group 1 will, at the election of
COMNET, continue to be included in COMNET's consolidated Federal income tax
returns. Group 1 will pay to COMNET the amount of the separate income tax
liability that Group 1 would have been obligated to pay had it filed a separate
return. Group 1's separate income tax liability will be computed by reference to
Group 1's items of income, deduction and credit in the current and prior years.
For the purposes of the Tax Sharing Agreement, carryforwards and carrybacks of
losses and deductions will be computed as if Group 1 had not filed consolidated
income tax returns with COMNET. In the event that, upon audit of any
consolidated income tax returns or upon the filing of any amended return or
claims for refund, there are adjustments that would have affected Group 1's
separate income tax liability, Group 1 will make to or receive from COMNET
additional payments at the time and in the amount, including interest thereon,
as would have been paid to or received from the Internal Revenue Service had
Group 1 filed a separate return.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Based solely on a review of Forms 3, 4 and 5 and amendments thereto
furnished to Group 1, all directors, officers and beneficial owners of more than
ten percent of any class of stock have filed on a timely basis all Forms 3,
Forms 4 and Forms 5 required to be filed by such directors, officers and
beneficial owners in the fiscal year ended March 31, 1998.
PERFORMANCE MEASUREMENT COMPARISON(1)
Comparison of Cumulative Total Return of Company,
Peer Group and Broad Market
[Performance Graph]
Fiscal Year Ending
-----------------------------------------------------------
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
Group 1 Software 100 58.93 69.64 57.14 48.21 53.57
Peer Group 100 101.20 177.23 186.08 204.16 428.98
Broad Market 100 115.57 122.61 164.91 184.50 278.82
The broad market index chosen was the NASDAQ Market Index. The industry
peer group consisted of BGS Systems, Inc., Hathaway Corp., Hyperion Software,
Inc. and Timberline Software, CP. Stockholders are cautioned against drawing any
conclusions from the data contained therein, as past results are not necessarily
indicative of future performance. This data in no way reflects Group 1's
forecast of future financial performance. The performance information set out
directly above is presented in accordance with requirements of the Securities
and Exchange Commission.
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
BETWEEN
GROUP 1 SOFTWARE, INC.
AND
COMNET CORPORATION
DATED AS OF
JUNE 23, 1998
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of June 23, 1998 (this "Agreement"),
between COMNET Corporation, a Delaware corporation ("COMNET") and Group 1
Software, Inc., a Delaware corporation and a majority-owned subsidiary of COMNET
("Group 1").
W I T N E S S E T H:
WHEREAS, the business interests of COMNET are substantially limited to its
ownership of approximately 81.2% of the issued and outstanding shares of stock
of Group 1; and
WHEREAS, the Boards of Directors of COMNET and Group 1 have determined that
a merger of COMNET and Group 1 (the "Merger") would be in the long-term best
interests of the stockholders of both COMNET and Group 1; and
WHEREAS, COMNET and Group 1 intend to effect the Merger as a tax-free
reorganization under the Internal Revenue Code of 1986, as amended (the "Code"),
pursuant to this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements herein contained, and intending to be legally bound hereby, Group
1 and COMNET hereby agree as follows:
ARTICLE I
Section 1.01 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with Delaware Law, at the Effective
Time (as defined in Section 1.02) Group 1 shall be merged with and into COMNET.
As a result of the Merger, the separate corporate existence of Group 1 shall
cease and COMNET shall continue as the surviving corporation of the Merger (the
"Surviving Corporation").
Section 1.02 Effective Time. Within three business days following the last
to occur of (i) receipt of the stockholder approvals contemplated at Section
6.01(b), (ii) receipt of the required regulatory approvals contemplated at
Section 6.01(c) and expiration of any applicable waiting periods required
thereby and (iii) satisfaction of any other condition to closing set forth in
Article VI, or on such other date as the parties hereto may agree, the parties
hereto shall cause the Merger to be consummated by filing a Certificate of
Merger (the "Certificate of Merger") with the Secretary of State of the State of
Delaware, in such form as required by, and executed in accordance with, the
relevant provisions of Delaware Law (the date and time of the filing of the
Certificate of Merger is hereinafter referred to as the "Effective Time").
Section 1.03 Effect of the Merger. At the Effective Time, the effect of the
Merger shall be as provided in the applicable provisions of Delaware Law.
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time, except as otherwise provided herein, all the property, rights,
privileges, powers and franchises of Group 1 shall vest in the Surviving
Corporation, and all debts, liabilities and duties of Group 1 shall become the
debts, liabilities and duties of the Surviving Corporation.
Section 1.04 Post-Merger Operations. Upon the Merger, the parties intend
that the principal executive office of the Surviving Corporation will remain
designated as 4200 Parliament Place, Suite 600, Lanham, MD. It is further
anticipated that the Surviving Corporation will, for the foreseeable future,
maintain significant operations in the same manner as maintained by Group 1
immediately prior to the Effective Date.
Section 1.05 Certificate of Incorporation and Bylaws. At the Effective
Time, the Certificate of Incorporation and the Bylaws of COMNET in effect
immediately prior to the Effective Time, as amended by the Certificate of Merger
to change the name of the Surviving Corporation to "Group 1 Software, Inc.,"
shall be the Certificate of Incorporation and Bylaws of the Surviving
Corporation following the Merger.
Section 1.06 Directors and Officers of the Surviving Corporation. The
directors of the Surviving Corporation at and immediately after the Effective
Time shall be the following: Robert S. Bowen, Thomas S. Buchsbaum, Richard H.
Eisenberg, Ronald F. Friedman, James V. Manning, James P. Marden, Charles A.
Mele, Charles J. Sindelar and Bruce G. Spohler. Each of these directors of the
Surviving Corporation shall hold office in accordance with the Articles of
Incorporation and Bylaws of the Surviving Corporation. The officers of the
Surviving Corporation at and immediately after the Effective Time shall be the
following:
Chief Executive Robert S. Bowen
Chief Operating Officer Ronald F. Friedman
Chief Financial Officer Mark D. Funston
Executive Vice President Alan P. Slater
Vice President Steven R. Bebee
Vice President John Walsh
Vice President Victor O. Forman
Secretary and General Counsel Edward Weiss
In each case, the foregoing shall serve in their respective positions until
their respective successors are duly elected or appointed and qualified.
Section 1.07 Representation on COMNET Board. COMNET shall take all
necessary actions so that from and directly after the Effective Time, the Board
of Directors of the Surviving Corporation shall consist of a total of nine (9)
Directors as listed in Section 1.06 above, and so that the following positions
or appointments shall be assumed by the following persons: (i) James V. Manning,
Chairman of the Board of the Surviving Corporation, (ii) the Compensation
Committee shall consist of James V. Manning, James P. Marden, Charles A. Mele,
and Thomas S. Buchsbaum, and (iii) the Audit Committee shall consist of James P.
Marden, Charles J. Sindelar and Charles A. Mele. Pursuant to Article Seventh of
the Articles of Incorporation of COMNET, the Board of the Surviving Corporation
is and shall be divided into three classes. Members of each class serve a
three-year term. The terms are staggered so that at each annual meeting of
stockholders only one class of directors is up for reelection.
Section 1.08 Conversion of Securities. At the Effective Time, by virtue of
the Merger and without any action on the part of COMNET or Group 1 or the
holders of the following securities:
(a) Each share of Group 1 common stock, par value $0.01 per share
("Share"), issued and outstanding immediately prior to the Effective Time (other
than any Shares to be canceled pursuant to Section 1.08(b)) shall be converted,
in accordance with Section 1.08, into the right to receive 1.15 (the "Exchange
Ratio") shares of COMNET common stock, par value $0.50 per share ("COMNET Common
Stock"). As of the Effective Time, all Shares shall cease to be outstanding and
shall automatically be canceled and retired and shall cease to exist, and each
certificate previously representing any such Shares shall thereafter represent
the right to receive a certificate representing shares of COMNET Common Stock
into which such Shares are convertible. Certificates previously representing
Shares shall be exchanged for certificates representing whole shares of COMNET
Common Stock issued in consideration therefor upon the surrender of such
certificates in accordance with the provisions of Section 1.09, without
interest. No fractional shares of COMNET Common Stock shall be issued, and, in
lieu thereof, a cash payment shall be made pursuant to Section 1.09 hereof.
(b) Each Share held in the treasury of Group 1 and each Share owned by
Group 1 or any direct or indirect wholly-owned subsidiary of Group 1 immediately
prior to the Effective Time shall be canceled and extinguished without any
conversion thereof and no payment shall be made with respect thereto.
(c) Each share of COMNET Common Stock outstanding immediately prior to the
Effective Time shall remain outstanding and shall represent a share of Common
Stock of the Surviving Corporation.
Section 1.09 Exchange of Certificates.
(a) Exchange Agent. As of the Effective Time, COMNET shall deposit, or
shall cause to be deposited, with American Stock Transfer and Trust Co., as
exchange agent (the "Exchange Agent"), solely for the benefit of the holders of
Shares, for exchange in accordance with this Article I through the Exchange
Agent, certificates representing the shares of COMNET Common Stock (and cash for
payment in lieu of fractional shares (if any), together with any dividends or
distributions with respect thereto, being hereinafter referred to as the
"Exchange Fund") issuable pursuant to Section 1.08 in exchange for outstanding
Shares.
(b) Exchange Procedures. As soon as reasonably practicable after the
Effective Time, the Exchange Agent shall mail or personally deliver to each
holder of record (or his or her attorney-in-fact) of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding Shares (the "Certificates"), whose Shares were converted into the
right to receive shares of COMNET Common Stock pursuant to Section 1.08 and cash
in lieu of fractional shares (if any), (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in such form and have such other provisions as Group 1 and
COMNET may reasonably specify) and (ii) instructions for use in effecting the
surrender of the Certificates in exchange for certificates representing shares
of COMNET Common Stock. Upon surrender of a Certificate for cancellation to the
Exchange Agent, together with such letter of transmittal, duly executed, the
holder of such Certificate shall be entitled to receive in exchange therefor a
certificate representing that number of whole shares of COMNET Common Stock,
which such holder has the right to receive in respect of the Certificate
surrendered pursuant to the provisions of this Article I (after taking into
account all Shares then held by such holder) and cash in lieu of any fractional
Shares, and the Certificate so surrendered shall forthwith be canceled. In the
event of a transfer of ownership of Shares which is not registered in the
transfer records of COMNET, a certificate representing the proper number of
shares of COMNET Common Stock may be issued to a transferee if the Certificate
representing such Shares is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 1.09, each Certificate shall be deemed at any time
after the Effective Time to represent only the right to receive upon such
surrender a certificate representing such number of shares of COMNET Common
Stock and cash in lieu of any fractional shares of COMNET Common Stock as
contemplated by Section 1.09(e).
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions declared or made after the Effective Time with respect to COMNET
Common Stock with a record date after the Effective Time shall be paid to the
holder of any unsurrendered Certificate with respect to the shares of Group 1
Common Stock represented thereby, and no cash payment in lieu of fractional
shares shall be paid to any such holder pursuant to Section 1.09(e), until the
holder of such Certificate shall surrender such Certificate. Subject to the
effect of applicable laws, following surrender of any such Certificate, there
shall be paid to the holder of the certificates representing whole shares of
COMNET Common Stock issued in exchange therefor, without interest, (i) promptly,
the amount of any cash payable with respect to a fractional share of COMNET
Common Stock to which such holder is entitled pursuant to Section 1.09(e) and
the amount of dividends or other distributions with a record date after the
Effective Time theretofore paid with respect to such whole shares of COMNET
Common Stock, and (ii) at the appropriate payment date, the amount of dividends
or other distributions, with a record date after the Effective Time but prior to
surrender and a payment date occurring after surrender, payable with respect to
such whole shares of COMNET Common Stock.
(d) No Further Rights in the Shares. All shares of COMNET Common Stock
issued upon conversion of the Shares in accordance with the terms hereof
(including any cash paid pursuant to Section 1.09(e)) shall be deemed to have
been issued in full satisfaction of all rights pertaining to such Shares. In
accordance with Delaware Law, there shall be no appraisal rights available to
holders of COMNET Common Stock or Group 1 Common Stock in connection with the
Merger.
(e) No Fractional Shares. Notwithstanding anything to the contrary
contained herein, no certificates or scrip representing fractional shares of
COMNET Common Stock shall be issued upon the surrender for exchange of
Certificates, and such fractional share interest will not entitle the owner
thereof to vote or to any rights of a shareholder of COMNET. Each holder of a
fractional share interest shall be paid an amount in cash equal to the product
obtained by multiplying (i) such fractional share interest to which such holder
(after taking into account all fractional share interests then held by such
holder) would otherwise be entitled to receive pursuant to Section 1.08 hereof
by (ii) the closing sale price of a share of the COMNET Common Stock on the
Nasdaq National Market on the trading day immediately preceding the date of the
Effective Time as reported by the Wall Street Journal.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund which
remains undistributed to the stockholders of Group 1 twelve months after the
Effective Time shall be delivered to the Surviving Corporation, upon demand, and
any stockholders of Group 1 who has not theretofore complied with this Article I
shall thereafter look only to the Surviving Corporation for payment of their
claim for COMNET Common Stock, any cash in lieu of fractional shares of COMNET
Common Stock and any dividends or distributions with respect to COMNET Common
Stock.
(g) No Liability. Neither COMNET nor Group 1 shall be liable to any holder
of Shares for any such Shares (or dividends or distributions with respect
thereto) or cash delivered to a public official pursuant to any abandoned
property, escheat or similar law.
(h) Withholding Rights. COMNET shall be entitled to deduct and withhold
from the consideration otherwise payable pursuant to this Agreement to any
holder of Shares such amounts as COMNET is required to deduct and withhold with
respect to the making of such payment under the Code, or any provision of state,
local or foreign tax law. To the extent that amounts are so withheld by COMNET,
such withheld amounts shall be treated for all purposes of this Agreement as
having been paid to the holder of the Shares in respect of which such deduction
and withholding were made by COMNET.
Section 1.10 Treatment of Stock Options.
(a) At the Effective Time, each option granted by Group 1 to purchase
Shares which is outstanding and unexercised immediately prior thereto shall be
assumed by COMNET. Such options shall cease to represent a right to acquire
Shares and shall be converted automatically into an option to purchase shares of
COMNET Common Stock in an amount and at an exercise price determined as provided
below:
(i) the number of shares of COMNET Common Stock to be subject to the new
option shall be equal to the product of the number of shares of Group 1 Common
Stock subject to the original option and the Exchange Ratio; provided that any
fractional shares of COMNET Common Stock resulting from such multiplication
shall be rounded down to the nearest whole share; and
(ii) the exercise price per share of COMNET Common Stock under the new
option shall be equal to the exercise price per share of Group 1 Common Stock
under the original option divided by the Exchange Ratio, provided that such
exercise price shall be rounded up to the nearest whole cent.
(b) the adjustment provided herein with respect to any options which are
"incentive stock options" (as defined in Section 422 of the Code) shall be and
is intended to be effected in a manner which is consistent with Section 424(a)
of the Code. The duration and other terms of the new option shall be the same as
the original option except that all references to Group 1 shall be deemed to be
references to COMNET.
(c) At the Effective Time, by virtue of the Merger and without the need of
any further corporate action, COMNET shall assume the 1987 Non-Employee
Directors' Stock Option Plan and the 1995 Non-Employee Director's Stock Option
Plan, and the 1995 Incentive Stock Option, Non-Qualified Stock Option and Stock
Appreciation Rights Plan (collectively, the "Plans"), with the result that all
obligations of Group 1 under these Plans, including with respect to Group 1
stock options outstanding at the Effective Time under each plan, shall be
obligations of the Surviving Corporation following the Effective Time.
(d) As soon as practical after the Effective Time, the Surviving
Corporation shall prepare and file with the SEC a registration statement on Form
S-8 (or another appropriate form) registering the shares of COMNET Common Stock
issuable from time to time under the Plans equal to the number of shares subject
to the adjusted options. Such registration statement shall be kept effective
(and the current status of the prospectus or prospectuses required thereby shall
be maintained) at least for so long as any adjusted options may remain
outstanding.
(e) As soon as practicable after the Effective Time, COMNET shall deliver
to the holders of options to purchase Group 1 Common Stock appropriate notices
setting forth such holders' rights pursuant to the Plans and the agreements
pursuant to which such options were issued, and the agreements evidencing the
grant of such options shall be assumed by the Surviving Corporation and shall
continue in effect on the same terms and conditions (subject to the adjustments
required by this Section 1.10 after giving effect to the Merger).
Section 1.11 Stock Transfer Books. At the Effective Time, the stock
transfer books of Group 1 shall be closed and there shall be no further
registration of transfers of Shares thereafter on the records of Group 1. From
and after the Effective Time, the holders of certificates evidencing ownership
of Shares outstanding immediately prior to the Effective Time shall cease to
have any rights with respect to such Shares except as otherwise provided herein
or by law. On or after the Effective Time, any Certificates presented to the
Exchange Agent or COMNET for any reason shall be converted into shares of COMNET
Common Stock in accordance with this Article I.
Section 1.12 Anti-Dilution Adjustment. If, subsequent to the date hereof
and prior to the Effective Time, COMNET shall pay a stock dividend or make a
distribution on COMNET Common Stock or other capital stock of COMNET in shares
of COMNET Common Stock or other capital stock of COMNET or any security
convertible into COMNET Common Stock or other capital stock of COMNET or shall
combine, subdivide, reclassify or recapitalize its stock, then in each such
case, from and after the record date for determining the stockholders entitled
to receive such dividend or distribution or the securities from such combination
or subdivision, an appropriate adjustment shall be made to the Exchange Ratio,
for purposes of determining the number of shares of COMNET Common Stock into
which Group 1's Common Stock shall be converted. For purposes hereof, the
payment of a dividend in COMNET Common Stock, or the distribution on COMNET
Common Stock in securities convertible into COMNET Common Stock, shall be deemed
to have effected an increase in the number of outstanding shares of COMNET
Common Stock equal to the number of shares of COMNET Common Stock into which
such securities shall be initially convertible without the payment by the holder
thereof of any consideration other than the surrender for cancellation of such
convertible securities. Group 1 agrees not to issue any shares of Group 1 Common
Stock or right or option to acquire shares of Group 1 Common Stock without the
prior consent of COMNET, which consent will not be unreasonably denied.
ARTICLE II
Representations and Warranties of Group 1
Except as set forth in the disclosure schedule delivered by Group 1 to
COMNET prior to the execution of this Agreement, which shall identify by
specific Section references exceptions to the representation and warranties of
Group 1 contained in this Article II, Group 1 hereby represents and warrants to
COMNET:
Section 2.01 Organization and Qualification of Group 1; Subsidiaries.
(a) Group 1 is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. The following constitute all
of the subsidiaries of Group 1: Gruco, Inc., a Delaware corporation, Group 1
Software Europe, Ltd., a United Kingdom corporation, Group 1 Latin America,
Inc., a Puerto Rican corporation, Group 1 Software FSC, Inc., a Bahamas
corporation (collectively, the "Group 1 Subsidiaries"). Each Group 1 Subsidiary
is wholly owned, directly or indirectly, by Group 1. All of the outstanding
shares of capital stock of the Group 1 Subsidiaries are validly issued, fully
paid and nonassessable and are free and clear of any lien, claim, charge,
options, encumbrances agreement, mortgage, pledge, security interest or
restriction (each, a "Lien") with respect thereto. Each Group 1 Subsidiary is a
corporation duly incorporated or organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or organization
indicated above in this Section 2.01.
(b) Group 1 and each Group 1 Subsidiary has the requisite corporate power
and authority and is in possession of all franchises, grants, authorizations,
licenses, permits, easements, consents, certificates, approvals and orders
("Group 1 Permits") necessary to own, lease and operate its properties and to
carry on its business as is now being conducted, except where the failure to be
so organized, existing and in good standing or to have such power, authority and
Group 1 Permits would not, either individually or in the aggregate, have a
Material Adverse Effect (as defined below). Group 1 has received no notice of
proceedings relating to the revocation or modification of any Group 1 Permit
except for any such revocation or modification which would not, either
individually or in the aggregate, have a Material Adverse Effect. Group 1 and
each Group 1 Subsidiary is duly qualified or licensed as a foreign corporation
to do business, and is in good standing, in each jurisdiction where the
character of its properties owned, leased or operated by it or the nature of its
activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing that would
not, either individually or in the aggregate, have a Material Adverse Effect.
(c) The term "Material Adverse Effect" as used in this Agreement shall mean
with respect to each party any change or effect that is or is reasonably likely
to be materially adverse to a party's and, with respect to Group 1, the Group 1
Subsidiaries' and with respect to COMNET, the COMNET Subsidiaries', (taken as a
whole) business, operations, properties (including intangible properties),
condition (financial or otherwise), assets or liabilities (including contingent
liabilities), in the aggregate, or the ability of such party to consummate the
transactions contemplated by this Agreement, except that a Material Adverse
Effect shall not be deemed to have occurred as a result of any change or effect
resulting from a change in law, rule, regulation or generally accepted
accounting principle in each case applied to the party providing the
representation, warranty, covenant or agreement, along with its Subsidiaries,
taken as a whole.
Section 2.02 Articles of Incorporation and Bylaws. Group 1 has heretofore
furnished or made available to COMNET a complete and correct copy of the
Articles of Incorporation and the Bylaws, as amended or restated, of Group 1 and
the Group 1 Subsidiaries and such Articles of Incorporation and Bylaws of Group
1 and the Group 1 Subsidiaries are in full force and effect and neither Group 1
nor any Group 1 Subsidiary is in violation of any of the provisions of its
respective Articles of Incorporation or Bylaws.
Section 2.03 Capitalization.
(a) Capitalization of Group 1. The authorized capital stock of Group 1
consists of (i) 10,000,000 Shares, of which, as of March 31, 1998, 4,293,697
Shares were issued and outstanding, all of which are validly issued, fully paid
and non-assessable and all of which have been issued in compliance with
applicable securities laws, and (ii) 1,000,000 shares of preferred stock of
which no shares have ever been issued. Since March 31, 1998, no Shares have been
issued. As of March 31, 1998, Group 1 had outstanding 171,075 options under the
Plans (as defined in Section 1.10), 93,215 of which were exercisable. No options
have been granted since March 31, 1998 to the date of this Agreement under any
of the Plans. As of the date of this Agreement, no Shares are held as treasury
stock by Group 1. Other than pursuant to the Plans, there are no options,
warrants or other rights, rights of first refusal, agreements, arrangements, or
commitments of any character relating to the issued or unissued capital stock of
Group 1 or obligating Group 1 to issue or sell any shares of capital stock of,
or other equity interests in Group 1. There are no obligations, contingent or
otherwise, of Group 1 to repurchase, redeem or otherwise acquire any Shares or
to provide funds to or make any investment (in the form of a loan, capital
contribution or otherwise) in any other entity (including any Group 1
Subsidiary).
(b) Capital Stock of the Group 1 Subsidiaries. There are no options,
warrants or other rights, rights of first refusal, agreements, arrangements or
commitments of any character relating to the issued or unissued capital stock of
the Group 1 Subsidiaries or obligating any Group 1 Subsidiary to issue or sell
any shares of capital stock of, or other equity interests in, any Group 1
Subsidiary. There are no obligations, contingent or otherwise, of any Group 1
Subsidiary to repurchase, redeem or otherwise acquire any shares of the capital
stock of any Group 1 Subsidiary or to provide funds to or make any investment
(in the form of a loan, capital contribution or otherwise) in any other entity.
Section 2.04 Authority. Group 1 has the requisite corporate power and
authority to execute and deliver this Agreement, to perform its obligations
hereunder and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by Group 1 and the consummation by Group 1 of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of Group 1 and no other corporate
proceedings on the part of Group 1 are necessary to authorize this Agreement or
to consummate the transactions contemplated hereby (other than, with respect to
the Merger, the approval of the plan of Merger by the holders of a majority of
the then outstanding Shares in accordance with Delaware Law and Group 1's
Articles of Incorporation and Bylaws, and the filing and recordation of
appropriate merger documents required by Delaware Law). This Agreement has been
duly and validly executed and delivered by Group 1 and, assuming the due
authorization, execution and delivery by COMNET, constitutes the legal, valid
and binding obligation of Group 1 enforceable in accordance with its terms,
except as enforcement may be limited by bankruptcy, insolvency and similar laws
affecting creditors' rights and remedies generally and by general principles of
equity.
Section 2.05 No Conflict; Required Filings and Consents.
(a) The execution and delivery of this Agreement by Group 1 does not, and
the performance of this Agreement by Group 1 shall not, (i) conflict with or
violate the Articles of Incorporation or Bylaws of Group 1 or any Group 1
Subsidiary, (ii) conflict with or violate any domestic (federal, state or local)
or foreign law, statute, ordinance, rule, regulation, order, judgment decision,
writ, injunction or decree (collectively, "Laws") applicable to Group 1 or any
Group 1 Subsidiary, or by which its respective properties are bound or affected,
or (iii) result in any breach of or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, or result
in the creation of a Lien on any of the properties or assets of Group 1 or any
Group 1 Subsidiary pursuant to any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Group 1 or any Group 1 Subsidiary is a party or by which Group 1 or any
Group 1 Subsidiary or its respective properties are bound or affected, except
(in the case of clauses (ii) and (iii) of this Section 2.05(a)) for any such
conflicts, violations, breaches, defaults or other occurrences that would not,
either individually or in the aggregate, have a Material Adverse Effect on Group
1 and the Group 1 Subsidiaries, taken as a whole.
(b) The execution and delivery of this Agreement by Group 1 does not, and
the performance of this Agreement by Group 1 shall not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
governmental or regulatory authority, domestic or foreign, ("Approvals") except
(i) for the applicable requirements, if any, of (A) the Securities Act of 1933,
as amended (the "Securities Act"), (B) the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), (C) state securities or blue sky laws ("Blue Sky
Laws"), (D) the filing and recordation of appropriate merger or other documents
as required by Delaware Law, (E) the Nasdaq Stock Market and (F) such additional
Approvals the failure of which to obtain would not prevent or delay consummation
of the Merger, or otherwise prevent Group 1 from performing its obligations
under this Agreement, and would not, either individually or in the aggregate,
have a Material Adverse Effect on Group 1 and the Group 1 Subsidiaries, taken as
a whole.
Section 2.06 Compliance. Neither Group 1 nor any Group 1 Subsidiary is in
conflict with, or in default or violation of, (i) any Law applicable to Group 1
or the Group 1 Subsidiaries or by which any of their respective properties are
bound or affected, or (ii) any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which Group 1 or any Group 1 Subsidiary is a party or by which Group 1 or any
Group 1 Subsidiary or any of their respective properties are bound or affected,
except for any such conflicts, defaults or violations which would not, either
individually or in the aggregate, have a Material Adverse Effect on Group 1 and
the Group 1 Subsidiaries, taken as a whole.
Section 2.07 Securities Reports; Financial Statements.
(a) Group 1 and the Group 1 Subsidiaries have filed all material forms,
reports, registration statements and documents, together with any amendments
required to be made with respect thereto that were required to be filed up
through the date of this Agreement with (i) the Securities and Exchange
Commission (the "SEC") and (ii) any other federal, state or foreign governmental
or regulatory agency or authority (collectively, "Regulatory Agencies") and
(iii) all other reports and statements (the filings made with the entities
listed in subclause (ii) being referred to as "Other Reports") required to be
filed by Group 1 and any Group 1 Subsidiary since January 1, 1995, and paid all
fees and assessments due and payable in connection therewith, except, in the
case of the Other Reports, where failure to file such form, report,
registration, statement or document or pay such fees and assessments would not,
either individually or in the aggregate, have a Material Adverse Effect on Group
1 and the Group 1 Subsidiaries, taken as a whole (all such reports and
statements, are collectively referred to as the "Group 1 Reports"). The Group 1
Reports, including all Group 1 Reports filed after the date of this Agreement,
(i) were, or will be, prepared in accordance with the requirements of applicable
Law and (ii) did not at the time they were filed, or will not at the time they
are filed, contain any untrue statement of material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of circumstances under which they were made,
not misleading.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in any filings with the SEC since January
1, 1995 (the "Group 1 SEC Reports"), including any Group 1 SEC Reports filed
since the date of this Agreement and prior to or on the Effective Time, have
been, or will be, prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods involved (except
as may be indicated in the notes thereto) and each fairly presents, or will
fairly present, in all material respects, the consolidated financial position of
Group 1 and the Group 1 Subsidiaries as of the respective dates thereof and the
consolidated results of its operations and changes in financial position for the
periods indicated, except that any unaudited interim financial statements were
or are subject to normal and recurring year-end adjustments which were not or
are not expected to be material in amount.
(c) Except as and to the extent set forth on the consolidated balance sheet
of Group 1 and the Group 1 Subsidiaries as of March 31, 1998, including all
notes thereto (the "Group 1 Balance Sheet"), neither Group 1 nor any Group 1
Subsidiary has any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise), except for (i) liabilities or obligations
incurred in the ordinary course of business since March 31, 1998 and (ii)
liabilities or obligations that would not, either individually or in the
aggregate, have a Material Adverse Effect.
Section 2.08 Absence of Certain Changes or Events. Except as disclosed in
the Group 1 SEC Reports filed prior to the date of this Agreement, since
December 31, 1997, (i) Group 1 and the Group 1 Subsidiaries have conducted their
businesses only in the ordinary course and in a manner consistent with past
practice and (ii) there has been no event which has had, or is reasonably likely
to result in, either individually or in the aggregate, a Material Adverse
Effect.
Section 2.09 Absence of Litigation and Agreements. Except as disclosed in
the Group 1 SEC Reports filed prior to the date of this Agreement or set forth
in Section 2.09 of the Group 1 Disclosure Schedule, (i) neither Group 1 nor any
Group 1 Subsidiary is subject to any continuing order of, or written agreement
or memorandum of understanding with, or continuing investigation by, any federal
or state savings and loan or bank regulatory authority or other governmental
entity or regulatory authority, or any judgment, order, writ, injunction, decree
or award of any governmental entity or regulatory authority or arbitrator,
including, without limitation, cease-and-desist or other orders which, either
individually or in the aggregate, would have or reasonably be expected to have a
Material Adverse Effect; (ii) there is no claim of any kind, action, suit,
litigation, proceeding, arbitration, investigation, or controversy affecting
Group 1 or the Group 1 Subsidiaries pending or, to the knowledge of Group 1,
threatened which can reasonably be expected to have, either individually or in
the aggregate, a Material Adverse Effect.
Section 2.10 Material Contracts. Except as set forth in Section 2.10 of the
Group 1 Disclosure Schedule, as of the date of this Agreement, neither Group 1
nor any Group 1 Subsidiary is a party to or bound by (a) any contract or
commitment for capital expenditures in excess of $200,000 for any one project,
(b) contracts or commitments for the purchase of materials or supplies or for
the performance of services over a period of more than 60 days from the date of
this Agreement and calling for aggregate future payments of $500,000 or more
during the term of such contract or commitment, (c) any contract which is a
"material contract" (as such term is defined in Item 601(b)(10) of Regulation
S-K of the SEC) that has not been filed or incorporated by reference in the
Group 1 SEC Reports, (d) any contract which would prohibit or materially delay
the consummation of the Merger or any other transaction contemplated by this
Agreement. Each contract, arrangement, commitment or understanding of the type
described in this Section 2.10, whether or not set forth in Section 2.10 of the
Group 1 Disclosure Schedule, is referred to herein as a "Group 1 Contract".
Neither Group 1 nor any Group 1 Subsidiary knows of, or has received notice of,
any violation of any Group 1 Contract by any of the other parties thereto,
except for violations which, individually or in the aggregate, would not result
in a Material Adverse Effect.
Section 2.11 Environmental Matters. To the knowledge of Group 1, neither
Group 1, any Group 1 Subsidiary, nor any properties owned or operated by Group 1
or any Group 1 Subsidiary has been or is in violation of or liable under any
Environmental Law, except for such violations or liabilities that, individually
or in the aggregate, will have a Material Adverse Effect. There are no actions,
suits or proceedings, or demands, claims, notices or investigations (including
without limitation notices, demand letters or requests of information from any
environmental agency) instituted or pending, or to the knowledge of Group,
threatened, relating to the liability of Group 1 or any Group 1 Subsidiary with
respect to any properties owned or operated by Group 1 or any Group 1 Subsidiary
under any Environmental Law, except for liabilities or violations that would not
have, individually or in the aggregate, a Material Adverse Effect.
"Environmental Law" means any applicable federal, state, local or foreign
law, statute, ordinance, rule, regulation, code, license, permit, authorization,
approval, consent order, judgment, decree, injunction or agreement with any
regulatory authority relating to (i) the protection, preservation or restoration
of the environment (including, without limitation, air, water vapor, surface
water, groundwater, drinking water supply, surface soil, subsurface soil, plant
and animal life or any other natural resource), and/or (ii) the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of any substance presently listed,
defined, designated or classified as hazardous, toxic, radioactive or dangerous,
or otherwise regulated, whether by type or by quantity, including any material
containing any such substance as a component.
Section 2.12 Brokers. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Group 1 or any Group 1 Subsidiary.
Section 2.13 Tax Matters. Neither Group 1 nor, to the knowledge of Group 1,
any of its affiliates has through the date of this Agreement taken or agreed to
take any action that would prevent COMNET from accounting for the business
combination to be effected by the Merger as a tax free reorganization under
Section 368(a) of the Code.
Section 2.14 Vote Required. The affirmative vote of a majority of the
holders of the outstanding Shares entitled to vote on the Merger is the only
Group 1 shareholder vote required with respect to the Merger.
Section 2.15 Fairness Opinion. Group 1 has received an opinion from
Valuation Research, Inc. to the effect that, in its opinion, the consideration
to be paid to stockholders of Group 1 under this Agreement is fair to such
stockholders from a financial point of view ("Fairness Opinion"), and Valuation
has consented to the inclusion of the Fairness Opinion in the Form S-4 (as
defined below).
Section 2.16 Benefit Plans. Group 1 is not a sponsor of or participant in
any benefit plan as described in Section 3.10 other than the COMNET Benefit
Plans.
ARTICLE III
Representations and Warranties of COMNET
Except as set forth in the disclosure schedule delivered by COMNET to Group
1 prior to the execution of this Agreement which shall identify exceptions by
specific Section references COMNET hereby represents and warrants to Group 1
that:
Section 3.01 Organization and Qualification of COMNET; Subsidiaries.
(a) COMNET, is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware.
(b) The following is a true and complete list of each of COMNET's
subsidiaries, excluding however Group 1 and the Group 1 Subsidiaries: Seanent,
Inc. a Delaware corporation; Ford Laboratories Inc., a Delaware corporation;
Promco, Inc., a Delaware corporation; ADMS, Inc., a Delaware corporation (the
"COMNET Subsidiaries"). Each COMNET Subsidiary is wholly owned, directly or
indirectly, by COMNET. All outstanding shares of capital stock of the COMNET
Subsidiaries are validly issued, fully paid and nonassessable and are free and
clear of any Lien, with respect thereto. Each COMNET Subsidiary is a corporation
duly incorporated or organized validly existing and in good standing under the
laws of its jurisdiction of incorporation or organization.
(c) COMNET and each COMNET Subsidiary has the requisite corporate power and
authority and is in possession of all franchises, grants, authorizations,
licenses, permits, easements, consents, certificates, approvals and orders (the
"COMNET Permits") necessary to own, lease and operate its properties and to
carry on its business as it is now being conducted, except where the failure to
be so organized, existing and in good standing or to have such power, authority
and COMNET Permits would not, either individually or in the aggregate, have a
Material Adverse Effect. COMNET has not received any notice of proceedings
relating to the revocation or modification of any such COMNET Permits except for
any such revocation or modification which would not, either individually or in
the aggregate, have a Material Adverse Effect. COMNET and each COMNET Subsidiary
is duly qualified or licensed as a foreign corporation to do business, and is in
good standing, in each jurisdiction where the character of its properties owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except for such failures to be so duly
qualified or licensed and in good standing that would not, either individually
or in the aggregate, have a Material Adverse Effect.
Section 3.02 Articles of Incorporation and Bylaws. COMNET has heretofore
furnished or made available to Group 1 a complete and correct copy of the
respective Articles of Incorporation and the Bylaws, as amended or restated, of
COMNET and the COMNET Subsidiaries.
Section 3.03 Capitalization.
(a) Capitalization of COMNET. The authorized capital stock of COMNET
consists of (i) 10,000,000 shares of COMNET Common Stock of which as of March
31, 1998, 3,271,723 shares were issued and outstanding, all of such shares are,
and the shares of COMNET Common Stock to be issued in the Merger, when so issued
will be, validly issued, fully paid and non-assessable, and all of which have
been or will be issued in compliance with applicable federal and state
securities laws, and (ii) 200,000 shares of 6% convertible preferred stock, par
value $.25 per share ("Preferred Stock"), of which 147,500 shares are issued and
outstanding. Since March 31, 1998, no shares of COMNET Common Stock have been
issued, except for 7,317 shares of COMNET Common Stock issued upon exercise of
options outstanding as of March 31, 1998 under the Stock Option Plans identified
in Schedule 3.03 hereto (the "COMNET Stock Plans"). As of March 31, 1998, COMNET
had reserved 1, 617,792 shares of COMNET Common Stock for issuance under the
COMNET Stock Plans, pursuant to which options covering 1,159,816 shares of
COMNET Common Stock were outstanding. Since March 31, 1998, options with respect
to 30,000 shares of COMNET Common Stock have been granted under the COMNET Stock
Plans. As of the date of this Agreement, 316,267 shares of COMNET Common Stock
are held as treasury stock by COMNET. Other than pursuant to the COMNET Stock
Plans and the Preferred Stock, there are no options, warrants or other rights,
rights of first refusal, agreements, arrangements, or commitments of any
character relating to the issued or unissued capital stock of COMNET or
obligating COMNET to issue or sell any shares of capital stock of, or other
equity interests in COMNET. There are no obligations, contingent or otherwise,
of COMNET to repurchase, redeem or otherwise acquire any shares of COMNET Common
Stock or to provide funds to or make any investment (in the form of a loan,
capital contribution or otherwise) in any other entity (including any COMNET
Subsidiary).
(b) Capital Stock of the COMNET Subsidiaries. There are no options,
warrants or other rights, rights of first refusal, agreements, arrangements or
commitments of any character relating to the issued or unissued capital stock of
the COMNET Subsidiaries or obligating any COMNET Subsidiary to issue or sell any
shares of capital stock of, or other equity interests in any COMNET Subsidiary.
There are no obligations, contingent or otherwise, of any COMNET Subsidiary to
repurchase, redeem or otherwise acquire any shares of the capital stock of any
COMNET Subsidiary or to provide funds to or make any investment (in the form of
a loan, capital contribution or otherwise) in any other entity.
Section 3.04 Authority. COMNET has the requisite corporate power and
authority to execute and deliver this Agreement and to perform their obligations
hereunder and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement by COMNET and the consummation by COMNET of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action on the part of COMNET and no other corporate
proceedings on the part of COMNET are necessary to authorize this Agreement or
to consummate the transactions contemplated hereby (other than, with respect to
the Merger, the requisite approval by the stockholders of COMNET with respect to
the Merger). This Agreement has been duly and validly executed and delivered by
COMNET, and, assuming the due authorization, execution and delivery by Group 1,
constitutes the legal, valid and binding obligation of COMNET enforceable in
accordance with its terms, except as enforcement may be limited by bankruptcy,
insolvency and similar laws affecting creditors' rights and remedies generally
and by general principles of equity.
Section 3.05 No Conflict; Required Filings and Consents.
(a) Except as set forth in Section 3.05 of the COMNET Disclosure Schedule,
the execution and delivery of this Agreement by COMNET does not, and the
performance of this Agreement by COMNET shall not, (i) conflict with or violate
the Articles of Incorporation or Bylaws of COMNET or any COMNET Subsidiary, (ii)
conflict with or violate any Laws applicable to COMNET or any COMNET Subsidiary,
or by which its respective properties are bound or affected, or (iii) result in
any breach of or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a Lien on any of the properties or assets of COMNET or any COMNET
Subsidiary pursuant to any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which
COMNET or any COMNET Subsidiary is a party or by which COMNET or any COMNET
Subsidiary or its respective properties are bound or affected, except (in the
case of clauses (ii) and (iii) of this Section 3.05(a)) for any such conflicts,
violations, breaches, defaults or other occurrences that would not, either
individually or in the aggregate, have a Material Adverse Effect.
(b) The execution and delivery of this Agreement by COMNET does not, and
the performance of this Agreement by COMNET will not, require any Approval,
except (i) for applicable requirements, if any, of (A) the Securities Act, (B)
the Exchange Act, (C) Blue Sky Laws, (D) the filing and recordation of
appropriate merger or other documents as required by Delaware, (E) the Nasdaq
Stock Market, and (ii) such additional Approvals the failure of which to obtain
would not prevent or delay consummation of the Merger, or otherwise prevent
COMNET from performing their obligations under this Agreement, and would not,
either individually or in the aggregate, have a Material Adverse Effect.
Section 3.06 Compliance. Neither COMNET nor any COMNET Subsidiary is in
conflict with, or in default or violation of, (i) any Law applicable to COMNET
or the COMNET Subsidiaries or by which any of their respective properties are
bound or affected, or (ii) any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which COMNET or any COMNET Subsidiary is a party or by which COMNET or any
COMNET Subsidiary or any of their respective properties are bound or affected,
except for any such conflicts, defaults or violations which would not, either
individually or in the aggregate, have a Material Adverse Effect.
Section 3.07 Securities Reports; Financial Statements.
(a) COMNET and the COMNET Subsidiaries have filed all material forms,
reports, registrations, statements and documents, together with any amendments
required to be made with respect thereto that were required to be filed since
January 1, 1995 with the Regulatory Agencies and all Other Reports required to
be filed by COMNET and any COMNET Subsidiary since January 1, 1995, and paid all
fees and assessments due and payable in connection therewith, except, in the
case of the Other Reports, where failure to file such form, report,
registration, statement or document or pay such fees and assessments would not,
either individually or in the aggregate, have a Material Adverse Effect (all
such reports and statements are collectively referred to as the "COMNET
Reports"). The COMNET Reports, including all COMNET Reports filed after the date
of this Agreement, (i) were, or will be, prepared in accordance with the
requirements of applicable Law and (ii) did not at the time they were filed, or
will not at the time they are filed, contain any untrue statement of material
fact or omit to state a material fact required to be stated therein or necessary
in order to make the statements therein, in the light of the circumstances under
which they were made, not misleading.
(b) Each of the consolidated financial statements (including, in each case,
any related notes thereto) contained in any filings with the SEC since January
1, 1995 (the " COMNET SEC Reports"), including any COMNET SEC Reports filed
since the date COMNET of this Agreement and prior to or on the Effective Time,
have been, or will be, prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods involved (except
as may be indicated in the notes thereto) and each fairly presents, or will
fairly present, in all material respects, the consolidated financial position of
COMNET as of the respective dates thereof and the consolidated results of its
operations and changes in financial position for the periods indicated, except
that any unaudited interim financial statements were or are subject to normal
and recurring year-end adjustments which were not or are not expected to be
material in amount.
(c) Except as and to the extent set forth on the consolidated balance sheet
of COMNET and the COMNET Subsidiaries as of December 31, 1997, including all
notes thereto (the " COMNET Balance Sheet"), neither COMNET nor any COMNET
Subsidiary has any liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise), except for (i) liabilities or obligations
incurred in the ordinary course of business since December 31, 1997 and (ii)
liabilities or obligations that would not, either individually or in the
aggregate, have a Material Adverse Effect.
Section 3.08 Absence of Certain Changes or Events. (a) Except as disclosed
in the COMNET SEC Reports filed prior to the date of this Agreement, since
December 31, 1997, (i) COMNET and the COMNET Subsidiaries have conducted their
businesses only in the ordinary course and in a manner consistent with past
practice and (ii) there has been no event which has had, or is reasonably likely
to result in, either individually or in the aggregate, a Material Adverse
Effect.
Section 3.09 Absence of Litigation and Agreements. Except as disclosed in
the COMNET SEC Reports filed prior to the date of this Agreement or set forth in
Section 3.09 of the COMNET Disclosure Schedule, (i) neither COMNET nor any
COMNET Subsidiary is subject to any continuing order of, or written agreement or
memorandum of understanding with, or continuing investigation by, any federal or
state authority or other governmental entity or regulatory authority, or any
judgment, order, writ, injunction, decree or award of any governmental entity or
regulatory authority or arbitrator, including, without limitation,
cease-and-desist or other orders which, either individually or in the aggregate,
would have or reasonably be expected to have a Material Adverse Effect; (ii)
there is no claim of any kind, action, suit, litigation, proceeding,
arbitration, investigation, or controversy affecting COMNET or the COMNET
Subsidiaries, to the knowledge of COMNET, threatened, except (A) as of the date
of this Agreement, for matters which individually seek damages not in excess of
$500,000 and (B) as of the Closing, for matters which cannot reasonably be
expected to have, either individually or in the aggregate, a Material Adverse
Effect.
Section 3.10 Employee Benefit Plans.
(a) Except as disclosed in Schedule 3.10, hereto, since December 31, 1997,
there has not been any adoption or amendment in any material respect by COMNET
or any COMNET Subsidiary of any employment, consulting, termination or severance
agreement or any material bonus, pension, profit sharing, deferred compensation,
incentive compensation, stock ownership, stock purchase, stock option, phantom
stock, retirement, vacation, severance, disability, death benefit,
hospitalization, medical or other plan, arrangement or understanding providing
benefits to any current or former employee, officer or director of COMNET or any
COMNET Subsidiary (collectively, such agreements, plans, arrangements and
understandings being the "COMNET Benefit Plans"), or any material change in any
actuarial or other assumption used to calculate funding obligations with respect
to any COMNET retirement plans, or any change in the manner in which
contributions to any COMNET retirement plans are made or the basis on which such
contributions are determined.
(b) Section 3.10 of the COMNET Disclosure Schedule sets forth a list of all
COMNET Benefit Plans. COMNET has delivered or made available to Group 1 true and
complete copies of all COMNET Benefit Plans together with all current related
documents, including the most recent summary plan descriptions, IRS
determination letters and actuarial reports, if applicable.
(c) (i) No event has occurred and, to the knowledge of COMNET, there exists
no condition or set of circumstances, in connection with which COMNET or any of
the COMNET Subsidiaries could be subject to any liability that individually or
in the aggregate would have a Material Adverse Effect, under ERISA, the Code or
any other applicable law.
(ii) Each COMNET Benefit Plan has been administered in accordance with its
terms, except for any failures so to administer any COMNET Benefit Plan that
individually or in the aggregate would not have a Material Adverse Effect. The
overwhelming majority of participants in each of the COMNET Benefit Plans are
employees of Group 1 or Group 1 Subsidiaries. All COMNET Benefit Plans are in
compliance with the applicable provisions of ERISA, the Code and all other
applicable laws, except for any failures to be in such compliance that
individually or in the aggregate would not have a Material Adverse Effect. Each
COMNET Benefit Plan that is intended to be qualified under Section 401(a) or
401(k) of the Code has received a favorable determination letter from the IRS
that it is so qualified and each trust established in connection with any COMNET
Benefit Plan that is intended to be exempt from Federal income taxation under
Section 501(a) of the Code has received a determination letter from the IRS that
such trust is so exempt. To the knowledge of COMNET, no fact or event has
occurred since that date of any determination letter from the IRS which is
reasonably likely to affect adversely the qualified status of any such COMNET
Benefit Plan or the exempt status of any such trust.
(iii) Neither COMNET nor any of the COMNET Subsidiaries has any liability
under Title IV of ERISA. No COMNET Benefit Plan has incurred an "accumulated
funding deficiency" (within the meaning of Section 302 of ERISA or Section 412
of the Code) whether or not waived since the date of the most recent actuarial
report for such plan. No COMNET Benefit Plan is a "multiemployer plan" within
the meaning of Section 3(37) of ERISA or a "defined benefit" plan (as defined in
Section 3(35) of ERISA).
Section 3.11 Material Contracts. Except as set forth in Section 3.11 of the
COMNET Disclosure Schedule, as of the date of this Agreement, neither COMNET nor
any COMNET Subsidiary is a party to or bound by (a) any contract or commitment
for capital expenditures in excess of $200,000 for any one project, (b)
contracts or commitments for the purchase of materials or supplies or for the
performance of services over a period of more than 60 days from the date of this
Agreement and calling for aggregate future payments of $500,000 or more during
the term of such contract or commitment, (c) any contract which is a "material
contract" (as such term is defined in Item 601(b)(10) of Regulation S-K of the
SEC) that has not been filed or incorporated by reference in the COMNET SEC
Reports, (d) any contract which contains non-compete or exclusivity provisions
or restrictions with respect to any business or geographic area or (e) which
would prohibit or materially delay the consummation of the Merger or any other
transaction contemplated by this Agreement. Each contract, arrangement,
commitment or understanding of the type described in this Section 3.11, whether
or not set forth in Section 3.11 of COMNET Disclosure Schedule, is referred to
herein as a " COMNET Contract". Neither COMNET nor any of COMNET Subsidiary
knows of, or has received notice of, any violation of any COMNET Contract by any
of the other parties thereto, except for violations which, individually or in
the aggregate, would not result in a Material Adverse Effect.
Section 3.12 Environmental Matters. To the knowledge of COMNET neither
COMNET, any COMNET Subsidiary, nor any properties owned or operated by COMNET or
any COMNET Subsidiary has been or is in violation of or liable under any
Environmental Law, except for such violations or liabilities that, individually
or in the aggregate, will have a material Adverse Effect. There are no actions,
suits or proceedings, or demands, claims, notices or investigations (including
without limitation notices, demand letters or requests of information from any
environmental agency) instituted or pending, or to the knowledge of COMNET,
threatened, relating to the liability of COMNET or any COMNET Subsidiary with
respect to any properties owned or operated by COMNET or any COMNET Subsidiary
under any Environmental Law, except for liabilities or violations that would not
have, individually or in the aggregate, a Material Adverse Effect.
Section 3.13 Taxes.
(a) Except for such matters as would not have, individually or in the
aggregate, a Material Adverse Effect, (i) COMNET and the COMNET Subsidiaries
(which for the purposes of this Section 3.13 shall include Group 1) have timely
filed or will timely file all returns and reports required to be filed by them
with any taxing authority with respect to Taxes for any period ending on or
before the Effective Time, taking into account any extension of time to file
granted to or obtained on behalf of COMNET and the COMNET Subsidiaries, (ii) all
Taxes that are due prior to the Effective Time have been paid or will be paid
(other than Taxes which (1) are not yet delinquent or (2) are being contested in
good faith and have not been finally determined), (iii) as of the date hereof,
no deficiency for any Tax has been asserted or assessed by a taxing authority
against COMNET or any of the COMNET Subsidiaries which deficiency has not been
paid other than any deficiency being contested in good faith and (iv) COMNET and
the COMNET Subsidiaries have provided adequate reserves (in accordance with
generally accepted accounting principles) in their financial statements for any
Taxes that have not been paid, whether or not shown as being due on any returns.
(b) To the knowledge of COMNET, there are no material disputes pending, or
claims asserted in writing for, Taxes or assessments upon COMNET, or any of the
COMNET Subsidiaries, nor has COMNET or any of the COMNET Subsidiaries been
requested in writing to give any currently effective waivers extending the
statutory period of limitation applicable to any federal or state income tax
return for any period which disputes, claims, assessments or waivers would have,
individually or in the aggregate, a Material Adverse Effect.
(c) There are no Tax liens upon any property or assets of COMNET or any of
the COMNET Subsidiaries except liens for current Taxes not yet due and except
for liens which have not had and are not reasonably likely to have, individually
or in the aggregate, a Material Adverse Effect.
(d) Neither COMNET nor any of the COMNET Subsidiaries has been required to
include in income any adjustment pursuant to Section 481 of the Code by reason
of a voluntary change in accounting method initiated by COMNET or any of the
COMNET Subsidiaries, and the IRS has not initiated or proposed any such
adjustment or change in accounting method, in either case which adjustment or
change would have, individually or in the aggregate, a Material Adverse Effect.
(e) Except as set forth in the financial statements described in Section
3.07, neither COMNET nor any of the COMNET Subsidiaries has entered into a
transaction which is being accounted for under the installment method of Section
453 of the Code, which would have, individually or in the aggregate, a Material
Adverse Effect.
Section 3.14 Brokers. No broker, finder or investment banker is entitled to
any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of COMNET or any COMNET Subsidiary.
Section 3.15 Tax Matters. Neither COMNET nor, to the knowledge of COMNET,
any of its affiliates has through the date of this Agreement taken or agreed to
take any action that would prevent the Merger from qualifying as a tax free
reorganization under Section 368(a) of the Code. COMNET has no reason to believe
that the Merger will not qualify as a reorganization under Section 368(a) of the
Code.
Section 3.16 Vote Required. Approval of the Merger by COMNET's stockholders
in not required under Delaware Law or under the Articles of Incorporation or the
By-Laws of COMNET. The Board of directors of COMNET, however, has chosen to seek
the approval of a majority of the outstanding shares of the COMNET Common and
Preferred Stock as a requirement for COMNET to proceed with the Merger.
ARTICLE IV
Covenants of COMNET and Group 1
Section 4.01 Affirmative Covenants. Each of COMNET and Group 1 hereby
covenants and agrees with the other that prior to the Effective Time, unless the
prior written consent of the other shall have been obtained and except as
otherwise contemplated herein, each will, and will cause their Subsidiaries to,
conduct their respective businesses in the ordinary course of business in a
manner consistent with past practice, use their respective reasonable best
efforts to preserve intact their respective business organizations, keep
available the services of their respective current officers, employees and
consultants and to preserve their respective current business relationships.
Section 4.02 Negative Covenants. Except as set forth in Section 4.02 of the
COMNET Disclosure Schedule or the Group 1 Disclosure Schedule, as applicable,
and except as specifically contemplated by this Agreement, from March 31, 1998
until the Effective Time, each of COMNET and Group 1 has not done, and shall not
do, and shall not permit their respective Subsidiaries to do, any of the
following without the prior written consent of the other:
(a) adjust, split, combine or reclassify any capital stock, declare or pay
any dividend on, or make any other distribution in respect of, its outstanding
shares of capital stock, except for semi-annual dividends on the Preferred
Stock;
(b) (i) redeem, purchase or otherwise acquire any shares of its capital
stock or any securities or obligations convertible into or exchangeable for any
shares of its capital stock, or any options, warrants, conversion or other
rights to acquire any shares of its capital stock or any such securities or
obligations, (ii) effect any reorganization or recapitalization, (iii) purchase
or otherwise acquire any assets or stock of any corporation or other business
for consideration which in the aggregate exceeds $10 million, or (iv) liquidate,
sell, dispose of or encumber any assets for consideration, which in the
aggregate exceeds $25 million;
(c) issue, deliver, award, grant or sell, or authorize or propose the
issuance, delivery, award, grant or sale of, any shares of any class of its
capital stock (including shares held in treasury) or any rights, warrants or
options to acquire, any such shares;
(d) propose or adopt any amendments to its articles of incorporation or
By-Laws;
(e) change any of its methods of accounting in effect at December 31, 1997,
or change any of its methods of reporting income or deductions for federal
income tax purposes from those employed in the preparation of the federal income
tax returns for the taxable year ending December 31, 1997, except as may be
required by law or generally accepted accounting principles;
(f) other than in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money (other than (x) short-term
indebtedness incurred to refinance short-term indebtedness or (y) indebtedness
among its corporate affiliates), or assume, guarantee, endorse or otherwise as
an accommodation become responsible for the obligations of any other individual,
corporation or other entity;
(g) except for transactions in the ordinary course of business consistent
with past practice, enter into or terminate any material contract or agreement,
or make any change in any of its material leases or material contracts, other
than renewals of such contracts and leases without material adverse changes of
terms;
(h) increase in any manner the compensation or fringe benefits of any of
its employees or pay any pension or retirement allowances not required by any
existing plan or agreement to any such employees or become a party to, amend or
commit itself to any pension, retirement, profit sharing or welfare benefit plan
or agreement or employment agreement with or for the benefit of any employee
other than, in each case, in the ordinary course of business consistent with
past practice, or accelerate the vesting of any stock options or other
stock-based compensation;
(i) settle any claim, action or proceeding involving money damages, except
in the ordinary course of business consistent with past practices;
(j) take any action that would prevent or impede the Merger from qualifying
as a tax free reorganization within the meaning of Section 368 of the Code;
(k) take any action that is intended or may reasonably be expected to
result in any of its representations and warranties set forth in this Agreement
being or becoming untrue in any material respect at any time prior to the
Effective Time, or in any of the conditions to the Merger set forth in Article
VI not being satisfied or in a violation of any provision of this Agreement,
except, in each case, as may be required by applicable law;
(l) take any action or fail to take any action which individually or in the
aggregate can be reasonably expected to have a Material Adverse Effect; or
(m) agree in writing or otherwise to do any of the foregoing.
ARTICLE V
Additional Agreements
Section 5.01 Registration Statement. (a) As promptly as practicable after
the execution of this Agreement, (i) COMNET and Group 1 shall prepare and file
with the SEC preliminary proxy materials which shall constitute the joint proxy
statement of COMNET and Group 1 (such joint proxy statement as amended or
supplemented is referred to herein as the "Joint Proxy Statement") and (ii)
COMNET shall prepare and file a registration statement on Form S-4 (together
with any amendments thereto, the "Registration Statement"), in which the Joint
Proxy Statement shall be included as a prospectus, with the SEC with respect to
the registration of the COMNET Common Stock to be issued in the Merger. COMNET
and Group 1 shall each use its reasonable best efforts to cause the Registration
Statement to become effective as soon as reasonably practicable. COMNET shall
also take any action required to be taken under any applicable Blue Sky Laws in
connection with the issuance of the shares of COMNET Common Stock to be issued
as set forth in this Agreement.
(b) The Joint Proxy Statement shall include the recommendation of the Board
of Directors of Group 1 in favor of approval and adoption of this Agreement and
approval of the Merger. The Joint Proxy Statement shall include the
recommendations of the Board of Directors of COMNET in favor of approval and
adoption of this Agreement and approval of the Merger.
(c) No amendment or supplement to the Joint Proxy Statement or the
Registration Statement will be made by COMNET or Group 1 without the approval of
the other party (which will not be unreasonably withheld). COMNET and Group 1
each will advise the other, promptly after it receives notice thereof, of the
time when the Registration Statement has become effective or any supplement or
amendment has been filed, the issuance of any stop order, the suspension of the
qualification of the COMNET Common Stock issuable in connection with the Merger
for offering or sale in any jurisdiction, or any request by the SEC for
amendment of the Joint Proxy Statement, or the Registration Statement or
comments thereon and responses thereto or requests by the SEC for additional
information.
(d) COMNET shall promptly prepare and submit to the Nasdaq a listing
application covering the shares of COMNET Common Stock issuable in the Merger,
and shall use its reasonable best efforts to obtain, prior to the Effective
Time, approval for the listing of such COMNET Common Stock, subject to official
notice of issuance and Group 1 shall cooperate with COMNET with respect to such
listing.
Section 5.02 Meetings of Stockholders.
(a) Group 1 and its directors shall (i) cause a meeting of Group 1's
stockholders to consider the Merger (the "Group 1 Meeting") to be duly called
and held as soon as practicable to consider and vote upon the plan of Merger and
any related matters in accordance with the applicable provisions of applicable
law, (ii) submit this Agreement and the plan of Merger to Group 1's stockholders
together with, subject to the fiduciary duties of Group 1's Board of Directors
under applicable law as advised by counsel, a recommendation for approval by the
Board of Directors of Group 1, (iii) solicit the approval thereof by Group 1's
stockholders by mailing or delivering to each shareholder a Joint Proxy
Statement, and (iv) subject to the fiduciary duties of the Group 1's Board of
Directors under applicable law as advised by counsel, use their reasonable
efforts to obtain the approval of the plan of Merger by the requisite percentage
of Group 1's stockholders.
(b) COMNET and its directors shall (i) cause a meeting of COMNET's
stockholders to be held to consider and vote on approval of the Merger and the
authorization of additional shares of COMNET Common Stock and the issuance of
shares of COMNET and Common Stock in connection with the Merger (the "COMNET
Meeting" and together with the Group 1 Meeting, the "Stockholders' Meetings") to
be duly called and held as soon as practicable to consider and vote upon
approval of the Merger and the issuance of additional shares of COMNET Common
Stock in connection with the Merger and any related matters in accordance with
the applicable provisions of applicable law, (ii) submit such proposal to
COMNET's stockholders together with, subject to the fiduciary duties of COMNET's
Board of Directors under applicable law as advised by counsel, a recommendation
for approval by the Board of Directors of COMNET, (iii) solicit the approval
thereof by COMNET's stockholders by mailing or delivering to each shareholder a
Joint Proxy Statement, and (iv) subject to the fiduciary duties of COMNET's
Board of Directors under applicable law as advised by counsel, use their
reasonable efforts to obtain the approval of the Merger by the requisite
percentage of COMNET's stockholders.
Section 5.03 Appropriate Action; Consents; Filings. COMNET and Group 1
shall use all reasonable efforts to (i) take, or cause to be taken, all
appropriate action, and do, or cause to be done, all things necessary, proper or
advisable under applicable law to consummate and make effective the transactions
contemplated by this Agreement; (ii) obtain all consents, licenses, permits,
waivers, approvals, authorizations or orders required under Law (including,
without limitation, all foreign and domestic (federal, state and local)
governmental and regulatory rulings and approvals and parties to contracts) in
connection with the authorization, execution and delivery of this Agreement and
the consummation by them of the transactions contemplated hereby and thereby,
including, without limitation, the Merger; and (iii) make all necessary filings,
and thereafter make any other required submissions, with respect to this
Agreement and the Merger required under (A) the Securities Act and the Exchange
Act and the rules and regulations thereunder, and any other applicable federal
or state securities laws and (B) any other applicable law (including, without
limitation, any applicable state insurance laws).
Section 5.04 Indemnification of Group 1 Directors. From and after the
Effective Time, COMNET shall indemnify, defend and hold harmless each person who
is now, or has been at any time prior to the date hereof or who becomes prior to
the Effective Time, an officer or director of Group 1 (the "Indemnified
Parties") against all losses, claims, damages, costs, expenses, liabilities or
judgments, or amounts that are paid in settlement with the approval of COMNET
(which approval shall not be unreasonably withheld), of or in connection with
any claim, action, suit, proceeding or investigation based in whole or in part
on or arising in whole or in part out of the fact that such person is or was a
director or officer of Group 1 or any subsidiary thereof, whether pertaining to
any matter existing or occurring at or prior to the Effective Time and whether
asserted or claimed prior to, or at or after, the Effective Time ("Indemnified
Liabilities"), in each case to the full extent Group 1 would have been permitted
under Delaware law and its Certificate of Incorporation and Bylaws to indemnify
such person and COMNET shall pay expenses in advance of the final disposition of
any such action or proceeding to each Indemnified Party to the full extent
permitted by law upon receipt of any undertaking required by Section 145(e) of
the DGGL. Without limiting the foregoing, in the event any such claim, action,
suit, proceeding or investigation is brought against any Indemnified party
(whether arising before or after the Effective Time), (i) any counsel retained
by the Indemnified Parties for any period after the Effective Time shall be
reasonably satisfactory to COMNET, (ii) after the Effective Time, COMNET shall
pay all reasonable fees and expenses of such counsel for the Indemnified Parties
promptly as statements therefor are received, and (iii) after the Effective
Time, COMNET will use all reasonable efforts to assist in the vigorous defense
of any such matter, provided that COMNET shall not be liable for any settlement
of any claim effected without its written consent, which consent shall not
unreasonably be withheld. Any Indemnified Party wishing to claim indemnification
under this Section 5.04, upon learning of any such claim, action, suit,
proceeding or investigation, shall notify COMNET (but the failure so to notify
COMNET shall not relieve it from any liability which it may have under this
Section 5.04 except to the extent such failure materially prejudices COMNET),
and shall deliver to COMNET the undertaking, if any, required by Section 145(e)
of the DGGL. The Indemnified Parties as a group may retain only one law firm to
represent them with respect to each such matter unless there is, under
applicable standards of professional conduct, a conflict on any significant
issue between the positions of any two or more Indemnified Parties. The
provisions of this Section 5.04 are intended to be for the sole benefit of, and
shall be enforceable only by, each Indemnified Party, and each Indemnified
Party's heirs and representatives. No other persons or parties shall have any
rights hereunder. In addition to the foregoing, COMNET agrees (i) to assume all
obligations and responsibilities of Group 1 under and pursuant to the
Indemnification Agreement entered into between Group 1 and its directors and
officers, the form of which agreement is attached hereto and incorporated herein
by reference and (ii) to maintain in full force and effect for a period ending
three years following the Effective Date its directors and officers' liability
insurance policy (Contract Number 961009) covering the Indemnified Parties.
Section 5.05 Executive Agreements. COMNET agrees to honor, without
modifications the contracts, plans and arrangements listed in Section 5.05 of
Group 1 Disclosure Schedule. This Section 5.05(b) is intended to be for the
benefit of, and shall be enforceable by, the individuals their heirs, and
personal representatives, and shall be binding on COMNET and Group 1 and its
successors and assigns.
Section 5.06 Expenses.
(a) All Expenses (as defined below) incurred by COMNET and Group 1 shall be
borne by the party, which has incurred the same, except that the parties shall
share equally in the cost of printing and filing the Registration Statement and
the Joint Proxy Statement with the SEC and all other regulatory filing fees
incurred in connection with this Agreement.
(b) "Expenses" as used in this Agreement shall include all reasonable
out-of-pocket expenses (including, without limitation, all fees and expenses of
counsel, accountants, investment bankers, experts and consultants to the party
and its affiliates) incurred by a party or on its behalf in connection with or
related to the authorization, preparation and execution of this Agreement, the
solicitation of shareholder approvals and all other matters related to the
closing of the transactions contemplated hereby.
ARTICLE VI
Conditions of Merger
Section 6.01 Conditions to Obligation of Each Party to Effect the Merger.
The respective obligations of each party to effect the Merger shall be subject
to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) Effectiveness of the Registration Statement. The Registration Statement
shall have been declared effective by the SEC under the Securities Act. No stop
order suspending the effectiveness of the Registration Statement shall have been
issued by the SEC and no proceedings for that purpose shall, on or prior to the
Effective Time, have been initiated or, to the knowledge of COMNET and Group 1,
threatened by the SEC. COMNET shall have received all other federal or state
securities permits and other authorizations necessary to issue COMNET Common
Stock in exchange for Group 1 Common Stock and to consummate the Merger.
(b) Stockholder Approvals. This Agreement and the Merger shall have been
approved and adopted by the requisite vote of the stockholders of COMNET and
Group 1.
(c) Nasdaq Listing. The shares of COMNET Common Stock that are to be issued
to the stockholders of Group 1 upon consummation of the Merger shall have been
authorized for listing on the National Market of the Nasdaq Stock Market,
subject to notice of issuance.
(d) No Order. No federal or state governmental or regulatory authority or
other agency or commission, or federal or state court of competent jurisdiction,
shall have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, executive order, decree, injunction or other order (whether
temporary, preliminary or permanent) which is in effect restricting, preventing
or prohibiting consummation of the transactions contemplated by this Agreement.
(e) No Challenge. There shall not be pending any action, proceeding or
investigation before any court or administrative agency or by any government
agency or any other person (i) challenging or seeking material damages in
connection with the Merger or (ii) seeking to restrain, prohibit or limit the
exercise of full rights of ownership or operation by COMNET, Group 1, all or any
portion of the their respective businesses or assets or any respective
Subsidiary, which in either case has or would have a Material Adverse Effect on
COMNET or Group 1 (and their Subsidiaries, taken as a whole) as the case may be.
(f) COMNET Tax Opinion. COMNET and Group 1 shall have received an opinion
of PricewaterhouseCoopers LLP, independent auditors for COMNET and Group 1 to
the effect that the Merger will be treated for federal income tax purposes as a
tax free reorganization within the meaning of Section 368(a) of the Code, and
that COMNET, Merger Sub and Group 1 will each be a party to that reorganization
within the meaning of Section 368(b) of the Code, dated the date of the
Effective Time, shall have been delivered and shall not have been withdrawn or
modified.
Section 6.02 Additional Conditions to Obligations of COMNET. The
obligations of COMNET to effect the Merger are also subject to the following
conditions:
(a) Representation and Warranties. Each of the representations and
warranties of Group 1 set forth in this Agreement shall be true and correct in
all material respects as of the Closing Date (as defined in Section 8.01)
(except to the extent such representations and warranties speak only as of an
earlier date, in which case such representations and warranties shall be true
and correct in all material respects as of such date) as though made as of the
Closing Date. COMNET shall have received a certificate of the Chief Executive
Officer of Group 1 dated the Closing Date to that effect.
(b) Agreements and Covenants. Group 1 shall have performed or complied in
all material respects with all obligations required to be performed by it under
this Agreement on or prior to the Effective Time. COMNET shall have received a
certificate of the Chief Executive Officer of Group 1 dated the Closing Date to
that effect.
(c) Consents Obtained. All consents, waivers, approvals, authorizations or
orders required to be obtained, and all filings required to be made by Group 1
for the authorization, execution and delivery of this Agreement and the
consummation by it of the transactions contemplated hereby shall have been
obtained and made by Group 1, except when the failure to obtain or make the
same, individually or in the aggregate, would not have a Material Adverse Effect
on Group 1 and Group 1 Subsidiaries, taken as a whole, or the COMNET and the
COMNET Subsidiaries, taken as a whole.
Section 6.03 Additional Conditions to Obligations of Group 1. The
obligation of Group 1 to effect the Merger is also subject to the following
conditions:
(a) Representations and Warranties. Each of the representations and
warranties of COMNET set forth in this Agreement shall be true and correct in
all material respects as of the Closing Date (except to the extent such
representation and warranties speak as of an earlier date, in which case such
representation and warranties shall be true and correct in all material respects
as of such earlier date) as though made at the Closing Date. Group 1 shall have
received a certificate of the President of COMNET dated the Effective Time to
that effect.
(b) Agreements and Covenants. COMNET shall have performed or complied in
all material respects with all obligations required to be performed by it under
this Agreement on or prior to the Effective Time. Group 1 shall have received a
certificate of the President of COMNET dated the Closing Date to that effect.
(c) Consents Obtained. All consents, waivers, approvals, authorizations or
orders required to be obtained, and all filings required to be made by COMNET
for the authorization, execution and delivery of this Agreement and the
consummation by it of the transactions contemplated hereby shall have been
obtained and made by COMNET, except when the failure to obtain or make the same,
individually or in the aggregate, would not have a Material Adverse Effect on
Group 1 and Group 1 Subsidiaries, taken as a whole, or the COMNET and the COMNET
Subsidiaries, taken as a whole.
ARTICLE VII
Termination, Amendment and Waiver
Section 7.01 Termination. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after approval of the matters
presented in connection with the Merger by the stockholders of Group 1 and
COMNET:
(a) by mutual written consent duly authorized by the Boards of Directors of
each of COMNET and Group 1;
(b) by COMNET, if there has been a breach of any material representation,
warranty, covenant or agreement on the part of Group 1 set forth in this
Agreement, or if any representation or warranty of Group 1 shall have become
untrue, in either case such that the conditions set forth in Section 6.02(a) or
Section 6.02(b) would not be satisfied and such breach is not cured within 30
days after written notice thereof to Group 1 by COMNET;
(c) by Group 1, if there has been a breach of any material representation,
warranty, covenant or agreement on the part of COMNET set forth in this
Agreement, or if any representation or warranty of COMNET shall have become
untrue, in either case such that the conditions set forth in Section 6.03(a) or
Section 6.03(b) would not be satisfied and such breach is not cured within 30
days after written notice thereof to COMNET by Group 1;
(d) by either COMNET or Group 1, if at a duly called and held stockholders'
meeting therefor, this Agreement and the transactions contemplated hereby shall
fail to receive the requisite vote for approval and adoption by their respective
stockholders;
(e) by either COMNET or Group 1, if at a duly called and held stockholders'
meeting therefor, the authorization of additional shares of COMNET Common Stock
and the issuance of shares of COMNET Common Stock in connection with the Merger
pursuant to this Agreement shall fail to receive the requisite vote for approval
by COMNET's stockholders;
Section 7.02 Effect of Termination. Except as provided in Section 8.02, in
the event of termination of this Agreement pursuant to Section 7.01, this
Agreement shall forthwith become void, there shall be no liability under this
Agreement on the part of COMNET, Group 1 or any of their respective officers or
directors and all rights and obligations of each party hereto shall cease;
provided that notwithstanding anything to the contrary in this Agreement,
neither COMNET nor Group 1 shall be released from any liabilities or damages
arising out of its willful breach of any provision of this Agreement.
Section 7.03 Amendment. This Agreement may be amended by the parties hereto
by action taken by or on behalf of their respective Boards of Directors at any
time prior to the Effective Time; provided, however, that, after approval of by
the Group 1 stockholders no amendment may be made which would reduce the amount
or change the type of consideration into which each Share shall be converted
pursuant to this Agreement upon consummation of the Merger. This Agreement may
not be amended except by an instrument in writing signed by the parties hereto.
Section 7.04 Waiver. At any time prior to the Effective Time, any party
hereto may (a) extend the time for the performance of any of the obligations or
other acts of the other party hereto, (b) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any such extension or waiver shall be valid if set
forth in an instrument in writing signed by the party or parties to be bound
thereby.
ARTICLE VIII
General Provisions
Section 8.01 Closing. Subject to the terms and conditions of this
Agreement, the closing (the "Closing") of the Merger will take place at 10:00
a.m. on a date and place specified by the parties, which shall be no later than
three business days after the satisfaction or waiver (subject to applicable law)
of the latest to occur of the conditions set forth in Article VI unless extended
by mutual agreement of the parties (the "Closing Date").
Section 8.02 Non-Survival of Representations, Warranties and Agreements.
The representations, warranties and agreements in this Agreement shall terminate
at the Effective Time or upon the termination of this Agreement pursuant to
Article VII, except that the agreements set forth in Article I shall survive the
Effective Time indefinitely and those set forth in Section 5.04, 7.02 and
Article VIII hereof shall survive termination indefinitely.
Section 8.03 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been duly given
or made as of the date delivered or mailed if delivered personally or mailed by
registered or certified or overnight mail (postage prepaid, return receipt
requested) to the parties at the following addresses (or such other address for
a party as shall be specified by like changes of address) and shall be effective
upon receipt:
If to COMNET, to it at:
COMNET Corporation
4200 Parliament Place, Suite 600
Lanham, Maryland 20706
Attention: Linda K. Chapman, Assistant Secretary
With a copy to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, New York 10038
Attention: Louis J. Bevilacqua, Esq.
If to Group 1, to it at:
Group 1 Software, Inc.
4200 Parliament Place, Suite 600
Lanham, Maryland 20706
Attention: Ronald F. Friedman, President
With a copy to:
Arent, Fox, Kintner, Plotkin & Kahn LLP
1050 Connecticut Avenue, 6th Floor
Washington, D.C. 20036
Attention: Arnold Westerman, Esq.
Section 8.04 Certain Definitions. For purposes of this Agreement, the term:
(a) "beneficial owner" with respect to any Shares, means a person who shall
be deemed to be the beneficial owner of such Shares (i) which such person or any
of its affiliates or associates beneficially owns, directly or indirectly, (ii)
which person or any of its affiliates or associates (as such term is defined in
Rule 12b-2 of the Exchange Act) has, directly or indirectly, (A) the right to
acquire (whether such right is exercisable immediately or subject only to the
passage of time), pursuant to any agreement, arrangement or understanding or
upon the exercise of consideration rights, exchange rights, warrants or options,
or otherwise, or (B) the right to vote pursuant to any agreement, arrangement or
understanding, (iii) which are beneficially owned, directly or indirectly, by
any other persons with whom such person or any of its affiliates or associates
has any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any Shares, or (iv) pursuant to Section 13(d) of
the Exchange Act and any rules or regulations promulgated thereunder;
(b) "business day" means any day other than a day on which banks in
Delaware are required or authorized to be closed;
(c) "control" (including the terms "controlled by" and "under common
control with") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management or
policies of a person, whether through the ownership of stock or as trustee or
executor, by contract or credit arrangement or otherwise;
(d) "person" means an individual, corporation, partnership, association,
trust, unincorporated organization, other entity or group (as defined in Section
13(d) of the Exchange Act).
Section 8.05 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 8.06 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the extent possible.
Section 8.07 Entire Agreement. This Agreement, together with the Disclosure
Schedules and Exhibits hereto, constitutes the entire agreement of the parties
and supersedes all prior agreements and undertakings, both written and oral,
between the parties, or any of them, with respect to the subject matter hereof
and, except as otherwise expressly provided herein, is not intended to confer
upon any other person any rights or remedies hereunder.
Section 8.08 Assignment. This Agreement shall not be assigned by operation
of law or otherwise.
Section 8.09 Parties in Interest. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto, and nothing in this Agreement,
express or implied, is intended to or shall confer upon any other person any
right, benefit or remedy of any nature whatsoever under of by reason of this
Agreement.
Section 8.10 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
law.
Section 8.11 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement.
<PAGE>
IN WITNESS WHEREOF, COMNET and Group 1 have caused this Agreement to be
executed and delivered as of the date first written above by their respective
officers thereunto duly authorized.
COMNET Corporation, a Delaware corporation
By: ________________________________
Name:
Title:
Group 1 Software, Inc., a Delaware corporation
By: ________________________________
Name:
Title:
<PAGE>
EXHIBIT B
August 5, 1998
COMNET Corporation
4200 Parliament Place, Suite 600
Lanham, Maryland 20706-1844
Re: COMNET Corporation Registration Statement
on Form S-4 (File No. 333-58043)
Gentlemen:
We have acted as tax advisors to COMNET Corporation, a Delaware corporation
("COMNET"), in connection with the proposed merger (the "Merger") of Group 1
Software, Inc., a Delaware corporation ("Group 1"), pursuant to the terms of the
Agreement and Plan of Merger, dated as of June 23, 1998 (hereinafter referred to
as the "Agreement") by and between COMNET and Group 1, as described in the
Registration Statement on Form S-4 (File No. 333-58043), as filed with the
Securities and Exchange Commission on June 29, 1998 (the "Registration
Statement"). This opinion is being rendered pursuant to the requirements of Item
21(a) of Form S-4 under the Securities Act of 1933, as amended.
In connection with this opinion, we have examined and are familiar with
originals or copies, certified or otherwise identified to our satisfaction, of
(i) the Agreement, (ii) the Registration Statement, and (iii) such other
documents as we have deemed necessary or appropriate in order to enable us to
render the opinions below. In our examination, we have assumed the genuineness
of all signatures, the legal capacity of all natural persons, the authenticity
of all documents submitted to us as originals, the conformity to original
documents of all documents submitted to us as certified, conformed or
photostatic copies and the authenticity of the originals of such copies. This
opinion is subject to the receipt by us, prior to the Effective Date of certain
written representations and covenants of COMNET and Group 1.
Based upon and subject to the foregoing, the discussion contained in the
prospectus included as part of the Registration Statement (the "Prospectus")
under the caption "The Proposed Merger--Certain Tax Consequences of the Merger,"
except as otherwise indicated, expresses our opinion as to the certain Federal
income tax consequences applicable to holders of Group 1 Common Stock. You
should be aware, however, that the discussion under the caption "The Proposed
Merger--Certain Tax Consequences of the Merger" in the Prospectus represents our
conclusion as to the application of existing law to the instant transactions.
There can be no assurance that contrary positions may not be taken by the
Internal Revenue Service.
This opinion is furnished to you solely for use in connection with the
Registration Statement. We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement. We also consent to the references to
PricewaterhouseCoopers L.L.P. under the heading "The Proposed Merger--Tax
Consequences of the Merger" in the Registration Statement and the Prospectus.
Very truly yours,
-----------------------------
PricewaterhouseCoopers LLP
<PAGE>
EXHIBIT C
June 8, 1998
The Special Committee of the Board of Directors
Group 1 Software, Inc.
4200 Parliament Place
Lanham, Maryland 20706
Gentlemen:
You have requested our opinion as to the fairness, from a financial point
of view, to the stockholders of Group 1 Software, Inc., a Delaware corporation
("Group 1") of the consideration to be paid by Comnet Corporation, a Delaware
corporation ("Comnet") pursuant to the terms and subject to the conditions set
forth in the Agreement and Plan of Merger between Group 1 and Comnet (the
"Merger Agreement"). As more fully described in the Merger Agreement, Comnet
proposes to acquire all of the outstanding capital stock of Group 1 not already
owned by Comnet, by means of a merger, subsequent to which Comnet will change
its name to Group 1 Software, Inc. Each outstanding share of the Common Stock,
par value $0.01 per share, of Group 1 (the "Group 1 Common Stock") will be
converted into the right to receive 1.15 (the "Exchange Ratio") shares of the
Common Stock, par value $0.50 per share, of Comnet (the "Comnet Common Stock").
Subsequent to the merger and the name change, the Comnet Common Stock will be
known as the "New Group 1 Common Stock."
Comnet owns 81.16% of the Group 1 Common Stock, which is Comnet's sole
operation. It holds no other operating businesses, and its other assets or
investments are insignificant. Further, we have been advised that there are no
separate liabilities at Comnet or Group 1 other than those specifically
discussed below. For this reason, we believe that independent valuation of the
individual businesses of Comnet and Group 1 is not required. In arriving at our
opinion, we first determined a ratio which would maintain the percentage
ownership relationship which exists in the market prior to the merger. This
ratio was then adjusted for the substantive differences in financial position
between Comnet and Group 1, namely that Comnet has 147,500 shares of 6%
Cumulative Preferred Stock, par value $0.25 per share (the "Preferred Stock")
outstanding, and has numerous option grants outstanding (the "Comnet Options"),
while Group 1 has a debt obligation to Comnet.
Since neither the Preferred Stock nor the Comnet Options are traded in the
marketplace, we appraised their fair market values. The exchange ratio was then
adjusted upward for the fair market values of the Preferred Stock and the Comnet
Options and adjusted downward for the stated debt owed by Group 1 to Comnet.
In addition to the aforementioned, we reviewed the Merger Agreement and
held discussions with certain senior officers, directors and other
representatives and advisors of Comnet and certain and other representatives and
advisors of Group 1 concerning the businesses of Comnet and Group 1. We examined
certain publicly available business and financial information relating to Comnet
and Group 1 as well as certain other information and data for Comnet and Group 1
which were provided to or otherwise discussed with us by the management of
Comnet and Group 1. We reviewed the terms of the merger as set forth in the
Merger Agreement in relation to, among other things: current and historical
market prices and trading volumes of Comnet Common Stock and Group 1 Common
Stock; the historical earnings and other operating data of Comnet and Group 1;
the capitalization and financial condition of Comnet and Group 1. We considered
to the extent publicly available, the financial terms of certain other exchange
transactions recently effected which we considered relevant in evaluating the
Merger. In addition to the foregoing, we conducted such other analyses and
examinations and considered such other financial, economic and market criteria
as we deemed appropriate in arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed by
or discussed with us. With respect to information and data provided to or
otherwise reviewed by or discussed with us, we have been advised by the
management of Comnet and Group 1 that such information and data were reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the management of Comnet and Group 1 as to the strategic
implications and operational benefits (including the amount, timing and
achievability thereof) anticipated to result from the Merger. Our opinion as set
forth herein relates to the relative values of Comnet and Group 1. We are not
expressing any opinion as to what the value of Comnet Common Stock actually will
be when issued to Group 1 shareholders pursuant to the Merger or the price at
which the New Group 1 Common Stock will trade subsequent to the Merger.
We have not made or been provided with an independent evaluation or
appraisal of the assets or liabilities (contingent or otherwise) of Comnet and
Group 1 nor have we made any physical inspection of the properties or assets of
Comnet and Group 1, except as may be stated in the second paragraph of this
letter. We were not requested to consider, and our opinion does not address, the
relative merits of the Merger as compared to any alternative business strategies
that might exist for Group 1 or the effect of any other transaction in which
Group 1 might engage. With the exception of reviewing the final draft of the
Merger Agreement and verifying that the exchange ratio offered by Comnet was
within the range determined by us to be fair, we concluded our work in
connection with this matter on April 17, 1998. Our opinion is necessarily based
upon information available to us, and financial, stock market and other
conditions and circumstances existing and disclosed to us, as of this date.
We are acting as financial advisors to Group 1 in connection with the
proposed Merger and will receive a fee for our services, which is not contingent
upon consummation of the Merger.
Our advisory services and the opinion expressed herein are provided for the
information of the Special Committee of the Board of Directors of Group 1 in its
evaluation of the proposed Merger, and our opinion is not intended to be and
does not constitute a recommendation to any stockholder as to how such
stockholder should vote on any matter relating to the proposed Merger. Our
opinion may not be published or otherwise used or referred to, nor shall any
public reference to Valuation Research Corporation be made, without our prior
consent, which will not be unreasonably withheld.
Based upon and subject to the foregoing, our work as described above and
other factors we deemed relevant, we are of the opinion that, as of the date
hereof and pursuant to the Merger Agreement, the Exchange Ratio is fair, from a
financial point of view, to Group 1 and the holders of Group 1 Common Stock.
Very truly yours,
------------------------------
VALUATION RESEARCH CORPORATION
<PAGE>
EXHIBIT D
1995 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
1. Definitions. The terms below shall be defined as indicated.
1.1 Administrator means the Board or any executive officer or officers of
the Company designated by the Board.
1.2 Board means the Board of Directors of the Company, including any
directors who may be Optionees.
1.3 Change in Control means the occurrence of and of the following:
(i) Any "person," as defined in Section 3(a)(9) of the Exchange Act and as
used in Sections 13(d) and 14(d) thereof, including a "group" as defined in
Section 13(d) of the Exchange Act (but excluding the Company and any successor
to the Company which became a successor of the Company in a transaction that did
not involve a Change in Control, any Subsidiary and any employee benefit plan
sponsored or maintained by the Company or any Subsidiary and any employee
benefit plan sponsored or maintained by the Company or any Subsidiary, including
any trustee of any such plan acting as trustee), becomes directly or indirectly
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act) of, or
makes an offer to purchase, securities of the Company representing 50% or more
of the combined voting power of the Company's then outstanding securities with
respect to the election of directors.
(ii) During any period of twelve (12) consecutive months during the
existence of the Plan, the individuals who, at the beginning of such period,
constitute the Board (the "Incumbent Directors") cease for any reason other than
death to constitute at least a majority thereof; provided, however, that a
director who was not a director at the beginning of such 12-month period shall
be deemed to have satisfied such requirement and be an Incumbent Director if
such director was elected by, or on the recommendation of or with the approval
of, at least two-thirds of the directors of the Company who then qualified as
Incumbent Directors either because they were directors at the beginning of such
12-month period or by operation of this clause (ii).
(iii) The stockholders of the Company approve a merger or consolidation of
the Company or a reclassification of its voting stock without the consent or
approval of a majority of the Incumbent Directors.
(iv) The stockholders of the Company approve a sale or other disposition of
all or substantially all of the Company's assets.
(v) The stockholders of the Company approve or adopt a plan of liquidation,
dissolution or winding up.
1.4 Code means the Internal Revenue Code of 1986, as amended from time to
time, or any successor statute thereof.
1.5 Common Stock means the Company's common stock, par value $.50, subject
to the provisions of Section 9.
1.6 Company means COMNET Corporation, a Delaware corporation, and any
successor corporation which adopts the Plan.
1.7 Exchange Act means the Securities Exchange Act of 1934, as amended from
time to time, or any successor statute thereof.
1.8 Fair Market Value means, on a specified date, the last sales price of a
Share traded on the over-the-counter market, as reported on the NASDAQ National
Market System, or the last closing price for a Share on the stock exchange, if
any, on which Shares are primarily traded (or if no Shares were traded on such
date, then on the last previous date on which any Shares were so traded), or if
none of the above is applicable, the value of a Share for such date as
established by a nationally recognized appraisal firm or investment bank, using
any reasonable method of valuation.
1.9 Non-Employee Director means a director of the Company who is not an
officer or employee of the Company or any subsidiary.
1.10 Option means an option to purchase Shares granted by the Company
pursuant to the Plan.
1.11 Option Agreement means a written agreement as described in Section 7
between the Company and the Optionee evidencing an option.
1.12 Option Period means the period from the date of the granting of an
Option to the date on which that Option terminates pursuant to Section 5.2
hereof.
1.13 Option Price means the price to be paid for the Shares purchased
pursuant to an Option.
1.14 Optionee means any person who is granted an Option under the Plan.
1.15 Plan means the Company's 1995 Non-Employee Directors' Stock Option
Plan, as adopted by the Board in substantially the form set forth herein and as
the same may be amended or otherwise modified from time to time.
1.16 Shares means shares of Common Stock.
1.17 Subsidiary means a subsidiary of the Company as defined under Section
424 of the Code.
2. Purpose; Construction.
2.1 The Plan is intended to encourage ownership of Common Stock by
directors of the Company, upon whose judgment and interest the Company is
dependent for its successful operation and growth, in order to increase their
proprietary interest in the Company's success and to encourage them to serve as
directors of the Company.
2.2 The Plan is intended to comply with the terms and provisions of Rule
16b-3 promulgated under the Exchange Act. Any provision of the Plan or any
option Agreement inconsistent with the terms of such Rule in effect on such date
shall be inoperative and shall not affect the validity of the Plan, such Option
Agreement or any other provision thereof.
3. Administration and Interpretation. The terms and conditions under which
options shall be granted under the Plan are set forth in Section 5. Subject to
the provisions of Section 12, the Administrator shall have authority to
interpret the provisions of the Plan, to establish such rules and procedures as
may be necessary or advisable to administer the Plan and to make all
determinations necessary or advisable for the administration of the Plan;
provided, however, that no such interpretation or determination shall change or
affect the selection of participants eligible to receive grants under the Plan,
the number of shares covered by or the timing of any grant of Options under the
Plan or the terms and conditions thereof. The interpretation and construction by
the Administrator of any provision of the Plan or of any Option Agreement shall
be final and conclusive.
4. Eligible Persons. Options shall be granted pursuant to the provisions
hereof to persons who are Non-Employee Directors at the time of grant.
5. Grant of Options.
5.1 Procedure. Subject to the provisions of Section 8.1 limiting the
maximum number of Shares subject to purchase under Options, (a) each
Non-Employee Director whose initial term commences after the date of adoption of
the Plan by the Board shall be granted an option as of the date such director is
first elected to the Board of Directors to purchase 5,000 Shares, and (b) on the
first day of each fiscal year of the Company, each Non-Employee Director
(including Non-Employee Directors whose initial terms commenced on or before the
date of adoption of the Plan by the Board) shall be granted an option to
purchase 5,000 Shares. Each such Option shall become exercisable as to 20% of
the Shares covered thereby on each of the first five successive anniversaries of
the date of grant; provided, however, that upon the occurrence of a Change in
Control any portion of each such Option not then exercisable shall immediately
and automatically (without notice) become fully exercisable. The Option Price
for each option shall be the Fair Market Value of a Share on the date of grant.
No Option shall be granted under the Plan except as provided in this Section
5.1.
5.2 Termination. The unexercised portion of each Option (both vested and
non-vested) shall automatically and without notice terminate and become null and
void upon the earlier of the following:
(i) The fifteenth anniversary of the date of grant; or
(ii) Subject to the provisions of this Section 5.2, thirty (30) days
following the date of termination of the Optionee's status as a director of the
Company.
Notwithstanding the foregoing, if an Optionee ceases to be a director of
the Company due to retirement on or after attaining the age of 65 (or such
earlier date as such Optionee shall be permitted to retire under the Company's
retirement policy then in effect) or due to disability (the existence of which
disability shall be determined by the Administrator in its sole discretion,
which determination shall be conclusive), any unexercised portion of the Option
that was otherwise exercisable on the date such Optionee ceases to be a director
of the Company shall be exercisable by the Optionee at any time within the 30
day period following the date of termination of such Optionee's status as a
director, and if an Optionee dies while a director of the Company or within 30
days following the date of termination of such Optionee's status as a director,
any unexercised portion of the Option that was otherwise exercisable on the date
of such Optionee's death shall be exercisable by the Optionee's personal
representatives or heirs at law if no personal representative is required by the
governing state law, at any time within the one (1) year period from the date of
such Optionee's death; provided, however, that notwithstanding anything to the
contrary contained herein, in no event shall any option be exercisable following
the fifteenth anniversary of the date of grant.
5.3 Additional Grants. Nothing contained in the Plan shall be construed to
preclude the granting of an Option or Options pursuant to Section 5.1 to an
Optionee in addition to an Option or options for the purchase of Shares already
held by that Optionee or the granting of more than one option pursuant to
Section 5.1 to an Optionee at the same time.
5.4 Subject to Exchange Rules. Any and all grants of Options shall be
subject to all applicable rules and regulations of any exchange on which the
Company's Common Stock may then be listed.
6. Effective and Expiration Dates of Plan. The Plan shall be effective on
September 12, 1995, after approval by the Company's stockholders at the 1995
annual meeting of stockholders. No Option shall be granted after September 10,
2005.
7. Option Agreements. Option Agreements shall be in such form as the
Administrator shall approve or determine; provided, however, that all Option
Agreements shall comply with and be subject to the following terms and
conditions.
7.1 Manner, Time, and Medium of Payment. An Option shall be exercised in
the manner set forth in the Option Agreement relating thereto and payment in
full of the Option Price for all Shares shall be made at the time of exercise.
Payment shall be in United States dollars in the form of cash, certified check
or bank draft, or by delivery of fully paid Shares valued at their Fair Market
Value on the date of exercise, or, if the Option Agreement so provides (subject
to compliance with any applicable rules promulgated under Section 16 of the
Exchange Act requiring elections to be made six (6) months in advance or during
a window period or as may otherwise hereafter be required), by withholding
Shares with respect to which the Optionee has exercised such Option having a
Fair Market Value on the date of exercise equal to the sum of the Option Price
for the withheld Shares and the remaining shares with respect to which the
Optionee has exercised such option, or any combination of such methods of
payment.
7.2 Number of Shares. Subject to Section 9, the Option Agreement shall
state the number of Shares to which it pertains.
7.3 Date of Exercise. An Option may be exercised, to the extent vested, in
whole or in part from time to time during the Option Period. Notwithstanding
anything in this Plan or any Option Agreement to the contrary, no Option shall
be exercisable prior to the approval of this Plan by the stockholders of the
Company.
7.4 Reorganization. In case the Company is merged or consolidated with
another corporation, or in case of a reorganization, separation or liquidation
of the Company, the Board or the board of directors of any corporation assuming
the obligations of the Company hereunder shall either (i) make appropriate
provisions for the protection of any outstanding options by the substitution on
an equitable basis of appropriate securities of the Company, or appropriate
shares or other securities of the merged, consolidated, or otherwise reorganized
corporation, or the appropriate adjustment in the Option Price, or both, or (ii)
give written notice to Optionees that their Options must be exercised, to the
extent then exercisable after giving due effect to Section 7.3, within 60 days
of the date of such notice or they will terminate, and to the extent that such
Options are not exercised within such 60-day period they shall terminate and be
of no further effect.
7.5 Assignability. No option shall be assignable or transferable except by
will, by the laws of descent and distribution or pursuant to a qualified
domestic relations order (as defined in the Code), and no option may be
exercised other than by an Optionee or, after the death of an Optionee, by that
Optionee's personal representatives, heirs, or legatees.
7.6 No Right to Continue as Director. Nothing in the Plan nor in any option
granted under the Plan shall confer (or be deemed to confer) any right on any
Optionee to continue as a director of the Company or any Subsidiary or shall
interfere in any way with the right of the Board or the stockholders of the
Company, or the board of directors or stockholders (including the Company) of
any subsidiary, to terminate such status at any time, with or without cause and
with or without notice except as otherwise provided by the certificate of
incorporation or by laws of the Company or such Subsidiary or applicable law.
7.7 Rights as a Stockholder. An Optionee shall have no rights as a
stockholder with respect to Shares covered by any Option until the date the
Company has issued or delivered such Shares to the Optionee, and then only as to
such Shares as are actually issued and delivered to the Optionee.
7.8 Other Provisions. Option Agreements shall contain such other terms and
conditions not inconsistent with the Plan as the Administrator shall deem
advisable.
7.9 Compliance with Law. Notwithstanding any provision of the Plan or any
Option Agreement to the contrary, no option may be granted or exercised at any
time when such Option or the granting or exercise thereof or payment therefor
may result in the violation of any law or governmental order or regulation.
7.10 Securities Laws. The Company intends to register the Shares issuable
pursuant to exercise of Options under the Securities Act of 1933, as amended,
and to effect similar compliance under applicable state laws, but shall be under
no obligation to do so. The Administrator may require, as a condition of the
issuance and delivery of certificates evidencing Shares issuable pursuant to
exercise of Options, that the Optionee make such covenants, agreements and
representations, including, without limitation, as to compliance with applicable
securities laws, and that such certificates bear such legends, as the
Administrator in its sole discretion deems necessary or desirable.
8. Shares Available for Option.
8.1 Maximum. Subject to Sections 7.4 and 9, no more than 300,000 Shares
shall be subject to purchase pursuant to options granted under the Plan, which
Shares may be either Shares held in treasury or authorized but unissued Shares.
At all times during the term of the Plan, the Company shall have reserved that
number of Shares less an amount equal to the number of Shares held in treasury
and the number of Shares which have been issued pursuant to the exercise of
Options. At all times after termination of the Plan the Company shall have
reserved for issuance a number of Share; equal to the aggregate number of Shares
subject to outstanding options less the number of Shares held in treasury.
8.2 Expiration or Termination. If any outstanding option under the Plan
expires for any reason or is terminated prior to the expiration date of the Plan
as set forth in Section 6, the Shares allocable to any unexercised portion of
such Option may again be subject to an option.
9. Recapitalization or Change in Par Value of Common Stock. The aggregate
number of Shares purchasable under options granted and which may be granted
pursuant to the Plan and the option Price for Shares covered by each outstanding
option shall all be proportionately adjusted, as deemed appropriate by the
Administrator, if the Shares are split up, converted, exchanged, reclassified or
in any way substituted for. The Administrator shall provide for appropriate
adjustments of the numbers of shares purchasable under the Plan and of
outstanding options in the event of stock dividends or distributions of assets
or securities of other companies owned by the Company to stockholders relating
to Common Stock for which the record date is prior to the date the Shares
purchased by exercise of an Option are issued or transferred, except that no
such adjustment shall be made for cumulative stock dividends of ten percent
(10%) or less (in the aggregate) or cash dividends. Any such adjustment may
include an adjustment of the Option Price or the number of Shares for which an
Option may be exercised, or may provide for an escrow of assets or securities so
distributed to be available upon future exercise. In the event of a change in
the Company's presently authorized Common Stock which is limited to a change of
all of its presently authorized Shares of Common Stock with par value into the
same number of shares without par value, or any change of the then authorized
Shares of Common Stock with par value into the same number of shares of Common
Stock with a different par value, the shares resulting from any such change
shall be deemed to be Shares as defined in Section 1, and no change in the
number of Shares covered by each option or in the Option Price shall take place.
10. Indemnification; Reliance; Exculpation.
10.1 Indemnification. Each person who is or shall have been a member of the
Board of the Company shall be indemnified and held harmless by the Company
against and from any and all loss, cost, liability, or expense that may be
imposed upon or reasonably incurred by such person in connection with or
resulting from any claim, action, suit, or proceeding to which such person may
be a party or in which such person may be involved by reason of any action taken
or failure to act under the Plan and against and from any and all amounts paid
by such person in settlement thereof (with the Company's written approval) or
paid by such person in satisfaction of a judgment in any such action, suit, or
proceeding to the fullest extent permitted by the Delaware General Corporation
Law, subject, however, to the condition that upon the institution of any such
claim, action, suit, or proceeding such person shall in writing give the Company
an opportunity to intervene at the Company's expense on his or her behalf. The
foregoing right of indemnification shall not be exclusive of any other right to
which such person may be entitled as a matter of law or otherwise, or any power
that the Company may have to indemnify such person or hold his or her harmless.
10.2 Reliance. Each member of the Board and each officer and employee of
the Company in performing duties under the Plan shall be entitled to rely upon
information and reports furnished in connection with the administration of this
Plan by any duly authorized officer or agent of the Company.
10.3 Exculpation. No a member of the Board and no officer or employee of
the Company shall be liable for any action or determination made in good faith
with respect to the Plan or any Option granted under the Plan.
11. Income Tax Withholding. Any Option Agreement may include provisions
that if the Company or a Subsidiary shall be required to withhold any amounts by
reason of any federal, state or local tax rules or regulations in respect of the
issuance of Shares pursuant to the exercise of an Option, the Company or the
Subsidiary shall be entitled to deduct and to withhold such amount from any cash
payments to be made to the Optionee. The Administrator may establish such rules
and procedures, including, without limitation, any rules or procedures necessary
to comply with Rule 16b-3, as it may deem necessary or advisable in connection
with the withholding taxes relating to the exercise of any option.
12. Amendment or Termination of Plan. The Plan may be terminated and may be
modified or amended by the Board at any time and from time to time; provided,
however, that (i) no modification or amendment increasing the aggregate number
of Shares which may be issued under Options, materially increasing benefits
accruing to Optionees, or materially modifying the requirements as to
eligibility to receive options hereunder shall be effective without stockholder
approval, (ii) no such termination, modification, or amendment of the Plan shall
alter or affect the terms of any then outstanding Options previously granted
hereunder without the consent of the holder thereof and (iii) the provisions of
Section 5 with respect to the number of Shares for which Options shall be
granted, the timing of such grants and the Option Price for such Options shall
not be amended more than once every six months, other than to comport with
changes in the Code, the Employee Retirement Income Security Act of 1974, as
amended, or the rules thereunder.
13. Set-Off. If at any time an Optionee is indebted to or otherwise
obligated to make any payment to the Company or any Subsidiary, the Company may
(a) withhold from the Optionee (i) following the exercise by the Optionee of an
Option, Shares issuable to the Optionee having a Fair Market Value on the date
of exercise up to the amount of indebtedness to the Company or (ii) following
the sale by an Optionee of Shares received pursuant to the exercise of an Option
amounts due to an Optionee in connection with the sale of such Shares up to the
amount of the indebtedness to the Company, or (b) take any substantially similar
action. The Company may establish such rules and procedures as it may deem
necessary or advisable in connection with the taking of any action contemplated
by this Section 13.
14. Headings. The section headings contained herein have no substantive
meaning or content and are not part of this Plan.
