- As filed with the Securities and Exchange Commission on June 29, 1998
- Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------
COMNET CORPORATION
(Exact name of Registrant as specified in its charter)
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Delaware 7372 52-0852578
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
4200 Parliament Place, Suite 600, Lanham, MD 20706-1481, 301-918-0400
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Robert S. Bowen
COMNET CORPORATION
4200 Parliament Place, Suite 600
Lanham, MD 20706-1481
(301) 918-0400
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
With a copy to:
Louis J. Bevilacqua, Esq.
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, NY 10038
Approximate date of commencement of proposed sale to the public: As soon as
practicable following the effectiveness of this Registration Statement.
If any securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier registration statement for the same
offering. |_|
CALCULATION OF REGISTRATION FEE
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Title of each class of Amount to be Proposed maximum Proposed maximum Amount of
securities to be registered registered(1) offering price per aggregate offering registration fee
share(2) price(2)
Common Stock, par value
$.50 per share 930,475 $12.844 $11,951,021 $3,525.55
</TABLE>
(1) Determined on the basis of (i) the exchange ratio for the Merger as
described herein (1.15 shares of common stock, par value $.50 per share
("COMNET Common Stock"), of COMNET Corporation ("COMNET") for each share of
common stock, par value of $.01 per share ("Group 1 Common Stock") of Group
1 Software, Inc. ("Group 1") outstanding immediately prior to the effective
date of the Merger (other than shares of Group 1 Common Stock held by
COMNET, which will be canceled), and (ii) the number of shares of Group 1
Common Stock (4,293,697) outstanding on June 25, 1998 (excluding for
purposes of this computation, shares of Group 1 Common Stock held by COMNET
(3,484,588).
(2) Pursuant to Rule 457(f)(1) of the Securities Act of 1933, as amended, the
registration fee was computed on the basis of the market value of the
shares of COMNET Common Stock to be issued in the Merger ($12.844 per share
of COMNET Common Stock, which is the average of the high and low sales
prices of COMNET Common Stock as reported on Nasdaq on June 25, 1998),
multiplied by the number of shares of COMNET Common Stock (930,475) that
are expected to be issued in the Merger.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION
STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE>
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rules 14a-11(c) or 14a-12
COMNET CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
Common Stock, $.01 par value, of
GROUP 1 SOFTWARE, INC.
- --------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies: 4,293,697
- --------------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: (Set forth the amount on which the
filing fees is calculated and state how it was determined.)
1.15 (the "Exchange Ratio" in the "Merger") of $13.1875, the per share
of Common Stock on June 25, 1998.
- --------------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction: $65,116,598
5) Total fee paid: $3,525.55
[X] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filling by registration statement number, or
the Form or Schedule and the date of its filing.
- --------------------------------------------------------------------------------
1) Amount Previously Paid: $3,525.55
- --------------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.: Registration Statement
on Form S-4 of COMNET Corporation, as filed on June 29, 1998.
- --------------------------------------------------------------------------------
3) Filing Party: COMNET Corporation
- --------------------------------------------------------------------------------
4) Date Filed: June 29, 1998
- --------------------------------------------------------------------------------
<PAGE>
COMNET CORPORATION
CROSS REFERENCE SHEET
Furnished Pursuant to Rule 404(a) and Item 501(b) of Regulation S-K
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Registration Statement Item Location or Caption in
Number and Caption Proxy Statement Prospectus
- ------------------ --------------------------
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A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Facing Page of the Registration Statement; Cross
Outside Front Cover Page of Prospectus....... Reference Sheet; and Outside Front Cover Page of Proxy
Statement Prospectus
2. Inside Front and Outside Back Cover Pages Inside Front Cover Page of Proxy Statement Prospectus;
of Prospectus................................ and Outside Back Cover Page of Proxy Statement
Prospectus
3. Risk Factors, Ratio of Earnings to Fixed Charges Summary; Risk Factors; and Description of the Companies
and Other Information........................
Summary; The Proposed Merger; Description of COMNET
4. Terms of the Transaction..................... Common Stock; and Comparison of Stockholder Rights
Pro Forma Combined Condensed Financial Statements
5. Pro Forma Financial Information..............
6. Material Contacts With the Company Summary; and The Proposed Merger
Being Acquired...............................
7. Additional Information Required for Reoffering
by Persons and Parties Deemed *
To Be Underwriters...........................
*
8. Interests of Named Experts and Counsel.......
9. Disclosure of Commission Position on
Indemnification for Securities Act *
Liabilities..................................
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Summary; Description of the Companies; Pro Forma
Companies.................................... Combined Condensed Financial Statements
11. Incorporation of Certain Information by Reference Incorporation by Reference
12. Information With Respect to S-2 or S-3 *
Registrants..................................
13. Incorporation of Certain Information by Reference *
14. Information With Respect to Foreign Registrants
Other Than S-2 or S-3 *
Registrants..................................
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information With Respect to S-3 Summary; Information Concerning Group 1; and Pro Forma
Companies.................................... Combined Condensed Financial Statements
16. Information With Respect to S-2 or S-3 Companies *
17. Information With Respect to Foreign Companies
Other Than S-2 or S-3 *
Companies....................................
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Outside Front Cover Page of Proxy Statement Prospectus;
Authorizations Are To Be Solicited........... Summary; The Special Meeting; The Proposed Merger;
Description of the Companies; and Solicitation of
Proxies
19. Information if Proxies, Consents or
Authorizations Are Not To Be Solicited *
in an Exchange Offer.........................
</TABLE>
- -----------------------------------------------
* Item is omitted because not applicable.
<PAGE>
COMNET CORPORATION
4200 Parliament Place, Suite 600
Lanham, MD 20706-1481
Dear COMNET Stockholders,
You are cordially invited to attend the Annual Meeting of Stockholders of
COMNET Corporation, which will be held on September 25, 1998, at 10:30 a.m., at
One Liberty Plaza, 46th Floor, New York, New York 10292.
At the Annual Meeting, you will be asked to vote on a proposal to approve
and adopt an Agreement and Plan of Merger providing for the merger of Group 1
Software, Inc. with and into COMNET (the "Merger"). In the Merger, each
outstanding share of Group 1 common stock will be converted into the right to
receive 1.15 shares of COMNET common stock. After the Merger is completed,
COMNET stockholders will own approximately 77.9% of the shares of the merged
company and former Group 1 stockholders (excluding COMNET) will own
approximately 22.1% of the shares of the merged company.
COMNET's Board of Directors has determined, based on the report and
recommendations of a special commitment appointed by the Board of Directors,
that the Merger is in the best interests of COMNET and its stockholders. We
believe the Merger will serve the best interests of stockholders of COMNET by
increasing the number of shares held by the public, and by reducing costs and
other inefficiencies as well as the market confusion related to COMNET's holding
company status. Accordingly, the Board of Directors has unanimously approved the
Agreement and Plan of Merger and related transactions and recommends that you
vote in favor of COMNET's Merger with Group 1.
In addition to the matters related to the Merger, at the Annual Meeting, we
propose to (i) amend COMNET's certificate of incorporation to increase the
number of shares of common stock COMNET is authorized to issue from 10 million
to 14 million, (ii) elect 3 directors to the board of directors of the merged
company, and (iii) approve an amendment to COMNET's 1995 Non-Employee Director's
Stock Option Plan to increase the number of authorized shares of COMNET common
stock that may be granted under that plan to 300,000 shares.
Your participation in the Annual Meeting, in person or by proxy, is
especially important because the items to be voted on are very significant to
COMNET and its stockholders. Whether or not you plan to attend the Annual
Meeting, we urge you to complete, date, sign and return the enclosed proxy card
promptly in the enclosed postage-paid envelope to ensure that your shares will
be represented at the Annual Meeting.
Thank you, and I look forward to seeing you at the Annual Meeting.
August__, 1998
/s/Robert S. Bowen
-------------------
Robert S. Bowen
Chief Executive Officer
<PAGE>
COMNET CORPORATION
4200 Parliament Place, Suite 600
Lanham, Maryland 20706-1860
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To be Held September 25, 1998
To the Stockholders of COMNET Corporation:
PLEASE TAKE NOTICE that the annual meeting of stockholders of COMNET
Corporation, a Delaware corporation ("COMNET" or the "Company"), will be held on
September 25, 1998, at 10:30 a.m., at One Liberty Plaza, 46th Floor, New York,
New York 10292 (the "Annual Meeting"), to consider and vote upon the following
matters described in the accompanying Proxy Statement Prospectus:
(1) To consider and vote upon a proposal to approve and adopt the Agreement
and Plan of Merger, dated June 23, 1998 (the "Merger Agreement"), by and between
COMNET and Group 1 Software, Inc., a Delaware corporation and majority-owned
subsidiary of COMNET ("Group 1"), providing for the merger of Group 1 with and
into COMNET (the "Merger");
(2) To amend COMNET's Certificate of Incorporation to increase the number
of shares of Common Stock COMNET is authorized to issue from 10 million to 14
million;
(3) To elect three (3) directors to hold office until the third annual
meeting of stockholders of the Company following their election and until the
election and qualification of their successors;
(4) To amend the COMNET 1995 Non-Employee Director's Stock Option Plan to
increase the number of authorized shares of COMNET Common Stock that may be
granted under that plan to 300,000; and
(5) To transact such other business as may properly come before the Annual
Meeting or any adjournment or postponement thereof.
Only COMNET stockholders of record at the close of business on July 27,
1998 are entitled to receive notice of, and to vote at, the Annual Meeting or
any adjournment or postponement thereof.
We hope that you will be able to attend the Annual Meeting in person.
IN ORDER TO ASSURE A QUORUM AND TO AVOID THE EXPENSE AND DELAY OF SENDING
FOLLOW-UP LETTERS, PLEASE FILL IN, SIGN, DATE AND RETURN YOUR PROXY IN THE
ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED WITHIN THE UNITED STATES.
IF YOU ARE PRESENT AT THE ANNUAL MEETING, YOU MAY, IF YOU WISH, WITHDRAW YOUR
PROXY AND VOTE YOUR SHARES PERSONALLY.
Lanham, Maryland By Order of the Board of Directors
August ___, 1998 Edward Weiss, Secretary
<PAGE>
COMNET CORPORATION
THIS PROXY IS BEING SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 25, 1998
The undersigned hereby appoints Edward Weiss and Mark D. Funston, and each
of them, with full power of substitution, proxies to vote all shares of Common
Stock of COMNET CORPORATION, a Delaware corporation (the "Company"), owned by
the undersigned at the Annual Meeting of Stockholders to be held at One Liberty
Plaza, 46th Floor, New York, New York 10292, on September 25, 1998, at 10:30
a.m., local time, and at any and all adjournments or postponements thereof, as
follows:
1. Approval and adoption of the Agreement and Plan of Merger, dated June
23, 1998 (the "Merger Agreement"), by and between the Company and Group 1
Software, Inc., a Delaware corporation and a majority-owned subsidiary of the
Company ("Group 1"), providing for the merger of Group 1 with and into the
Company (the "Merger").
The Company's Board of Directors recommends a vote FOR the approval and
adoption of the Merger Agreement providing for the Merger.
FOR AGAINST ABSTAIN
2. Approval and adoption of an amendment to COMNET's Certificate of
Incorporation to increase the number of shares of Common Stock COMNET is
authorized to issue from 10 million to 14 million.
FOR AGAINST ABSTAIN
3. Election of the nominees listed below to the Company's Board of
Directors to hold office until the third annual meeting of stockholders of the
Company following their election and until the election and qualification of
their successors.
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FOR WITHOUT AUTHORITY to vote for Nominees:
all nominees listed at right all nominees listed at right Charles G. Sindelar
(except as marked to the James P. Marden
contrary below) Charles A. Mele
</TABLE>
To withhold authority to vote for an individual nominee,
print the name of such nominee on the line provided
------------------------------------------------------------
4. Amendment to the COMNET 1995 Non-Employee Director's Stock Option Plan
to increase the number of authorized shares of COMNET Common Stock that may be
issued under that plan to 300,000.
FOR AGAINST ABSTAIN
5. OTHER MATTERS: Discretionary authority is hereby granted with respect to
such other matters as may properly come before the meeting or any adjournment or
postponement thereof. Any and all proxies heretofore given are hereby revoked.
FOR AGAINST ABSTAIN
The shares represented by this Proxy will be voted in the manner directed
and, if no instructions to the contrary are indicated, will be voted FOR the
approval and adoption of the Merger Agreement and the other proposals set forth
in the Company's Notice of Annual Meeting of Stockholders.
Dated: ____________________________, 1998
_____________________________
_____________________________
Signature
IMPORTANT; Please sign your name exactly as it
appears hereon. When signing as attorney, agent,
executor, administrator, trustee, guardian or
corporate officer, please give your full title
as such. Each joint owner should sign the proxy.
IN ORDER TO ASSURE A QUORUM AND TO AVOID THE
EXPENSE AND DELAY OF SENDING FOLLOW-UP LETTERS,
PLEASE FILL IN, SIGN, DATE AND RETURN YOUR PROXY
IN THE ENCLOSED ENVELOPE WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES. The
above-signed hereby acknowledges receipt of the
Notice of Annual Meeting of Stockholders and the
Proxy Statement Prospectus furnished herewith.
<PAGE>
GROUP 1 SOFTWARE, INC.
4200 Parliament Place, Suite 600
Lanham, MD 20706-1481
Dear Group 1 Stockholders,
You are cordially invited to attend a Special Meeting of Stockholders of
Group 1 Software, Inc., which will be held on September 25, 1998, at 10:00 a.m.,
at One Liberty Plaza, 46th Floor, New York, New York 10292.
At the Special Meeting, you will be asked to vote on a proposal to approve
and adopt an Agreement and Plan of Merger providing for the merger of Group 1
with and into COMNET Corporation (the "Merger"). In the Merger, each outstanding
share of Group 1 common stock will be converted into the right to receive 1.15
shares of COMNET common stock. After the Merger is completed, COMNET
stockholders will own approximately 77.9% of the shares of the merged company
and former Group 1 stockholders (excluding COMNET) will own approximately 22.1%
of the shares of the merged company.
Group 1's Board of Directors has determined, based on the report and
recommendations of a special committee appointed by the Board of Directors, that
the Merger is in the best interests of Group 1 and its stockholders. We believe
the Merger will serve the best interests of stockholders of Group 1 by
increasing the number of shares held by the public, and by reducing costs and
other inefficiencies as well as the market confusion related to Group 1's
relationship to COMNET as its parent company. Accordingly, the Board of
Directors has unanimously approved the Agreement and Plan of Merger providing
for the Merger and recommends that you vote in favor of the Group 1's Merger
with COMNET.
Your participation in the Special Meeting, in person or by proxy, is
especially important because the items to be voted on are very significant to
Group 1 and its stockholders. Whether or not you plan to attend the Special
Meeting, we urge you to complete, date, sign and return the enclosed proxy card
promptly in the enclosed postage-paid envelope to ensure that your shares will
be represented at the Special Meeting.
Thank you, and I look forward to seeing you at the Special Meeting.
August __, 1998 /s/ Robert S. Bowen
-----------------------
Robert S. Bowen
Chief Executive Officer
<PAGE>
GROUP 1 SOFTWARE, INC.
4200 Parliament Place, Suite 600
Lanham, Maryland 20706-1844
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To be Held September 25, 1998
To the Stockholders of Group 1 Software, Inc.:
PLEASE TAKE NOTICE that a special meeting of stockholders of Group 1
Software, Inc., a Delaware corporation ("Group 1" or the "Company") will be held
on September 25, 1998, at 10:00 a.m., at One Liberty Plaza, 46th Floor, New
York, New York 10292 (the "Special Meeting"), for the following purposes:
(1) To consider and vote upon a proposal to approve and adopt the Agreement
and Plan of Merger, dated June 23, 1998 (the "Merger Agreement"), by and between
COMNET Corporation, a Delaware corporation ("COMNET"), and the Company,
providing for the Merger of the Company with and into COMNET; and
(2) To transact such other business as may properly come before the Special
Meeting and any adjournment or postponement thereof.
Only Group 1 stockholders of record at the close of business on July 27,
1998 are entitled to receive notice of, and to vote at, the Special Meeting or
any adjournment or postponement thereof.
We hope that you will be able to attend the Special Meeting in person.
HOLDERS OF GROUP 1 STOCK SHOULD
NOT SEND STOCK CERTIFICATES WITH THEIR PROXY CARDS.
------------------------------------------------------------
IN ORDER TO ASSURE A QUORUM AND TO AVOID THE EXPENSE AND DELAY OF SENDING
FOLLOW-UP LETTERS, PLEASE FILL-IN, SIGN, DATE AND RETURN YOUR PROXY IN THE
ENCLOSED ENVELOPE WHICH REQUIRES NO POSTAGE IF MAILED WITHIN THE UNITED STATES.
IF YOU ARE PRESENT AT THE MEETING, YOU MAY, IF YOU WISH, WITHDRAW YOUR PROXY AND
VOTE YOUR SHARES PERSONALLY.
-----------------------------------------------------------
Lanham, Maryland By Order of the Board of Directors
August ___, 1998 Edward Weiss, Secretary
<PAGE>
GROUP 1 SOFTWARE, INC.
THIS PROXY IS BEING SOLICITED BY THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON SEPTEMBER 25, 1998
The undersigned hereby appoints Edward Weiss and Mark D. Funston, and each
of them, with full power of substitution, proxies to vote all shares of Common
Stock of GROUP 1 SOFTWARE, INC., a Delaware corporation (the "Company"), owned
by the undersigned at the Special Meeting of Stockholders to be held at One
Liberty Plaza, 46th Floor, New York, New York 10292, on September 25, 1998, at
10:00 a.m., local time, and at any and all adjournments or postponements thereof
(the "Special Meeting"), as follows:
1. Approval and adoption of the Agreement and Plan of Merger, dated June
23, 1998 (the "Merger Agreement"), by and between the COMNET Corporation, a
Delaware corporation ("COMNET"), and the Company, providing for the merger of
the Company with and into COMNET.
The Company's Board of Directors recommends a vote FOR the approval and
adoption of the Merger Agreement.
FOR AGAINST ABSTAIN
2. OTHER MATTERS: Discretionary authority is hereby granted with respect to
such other matters as may properly come before the Special Meeting. Any and all
proxies heretofore given are hereby revoked.
FOR AGAINST ABSTAIN
The shares represented by this Proxy will be voted in the manner directed
and, if no instructions to the contrary are indicated, will be voted FOR the
approval and adoption of the Merger Agreement and the approval of the other
proposals set forth in the Notice of Special Meeting of Stockholders of the
Company.
Dated: ________________________________, 1998
_____________________________________________
_____________________________________________
Signature
IMPORTANT: Please sign your name exactly as it
appears hereon. When signing as attorney, agent,
executor, administrator, trustee, guardian or
corporate officer, please give your full title
as such. Each joint owner should sign the proxy.
IN ORDER TO ASSURE A QUORUM AND TO AVOID THE
EXPENSE AND DELAY OF SENDING FOLLOW-UP LETTERS,
PLEASE FILL IN, SIGN, DATE AND RETURN YOUR PROXY
IN THE ENCLOSED ENVELOPE WHICH REQUIRES NO
POSTAGE IF MAILED IN THE UNITED STATES. The
above-signed hereby acknowledges receipt of the
Notice of Special Meeting of Stockholders and
the Proxy Statement Prospectus furnished
herewith.
<PAGE>
Subject to Completion - Dated August ___. 1998
GROUP 1 SOFTWARE, INC.
PROXY STATEMENT
COMNET CORPORATION
PROXY STATEMENT AND PROSPECTUS
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, 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.
This Proxy Statement Prospectus is dated August __, 1998, and is first
being mailed, together with a form of proxy, to stockholders of COMNET and Group
1 on or about August __, 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.
<PAGE>
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 from 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;
(b) The description of the COMNET Common Stock contained in COMNET's
Registration Statement on Form 8-A, filed with the Commission on June
__, 1998;
(c) The description of the Rights issuable under the COMNET Stockholder
Protection Rights Agreement contained in COMNET's Registration
Statement on Form 8-A, filed with the Commission on June __, 1998; and
(d) 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 COMET 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 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. 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 an 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 pages ___.
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 persons 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.
Q: When do you expect the Merger to be completed?
A: The Merger will be completed shortly after 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 _____ 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
QUESTIONS AND ANSWERS ABOUT THE MERGER..........................................
COMNET CORPORATION..............................................................
CROSS REFERENCE SHEET...........................................................
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...............................................
Recommenadations 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....................................................
General................................................................
Discontinued Operations -- Com-Med Systems.............................
MARKETS AND MARKET PRICES.......................................................
PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS...............................
BENEFICIAL OWNERSHIP............................................................
COMNET.................................................................
GROUP 1................................................................
COMNET - After Giving Effect to the Merger............................
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.......................................................
STOCKHOLDERS SHOULD NOT SEND THEIR STOCK CERTIFICATES WITH THEIR PROXY CARDS....
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 OPINION...................................................................
EXPERTS.........................................................................
PROPOSAL 1 - PROPOSAL TO APPROVE THE MERGER AGREEMENT PROVIDING
FOR THE MERGER BETWEEN COMNET AND GROUP 1..........................
PROPOSAL 2 - AMENDMENT TO COMNET CERTIFICATE TO INCREASE NUMBER OF
AUTHORIZED SHARES OF COMNET COMMON STOCK 10,000,000 TO
14,000,000 SHARES..................................................
PROPOSAL 3 - ELECTION OF DIRECTORS..............................................
PROPOSAL 4 - APPROVAL OF AMENDMENT TO THE 1995 NON-EMPLOYEE DIRECTORS'
STOCK OPTION PLAN..................................................
Exhibit A - Agreement and Plan of Merger
Exhibit B - Opinion of Coopers & Lybrand L.L.P.
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 ___). 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 _____)
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;
- 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 "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; and
- approve an amendment to COMNET's 1995 Non-Employee Director's 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").
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.
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,
manufacturers, 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 ___)
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 __________ shares of COMNET Common
Stock, 147,500 shares of COMNET Preferred Stock and _____________ 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 ___)
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.
- 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.
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 _____)
At the close of business on the Record Date, the directors and executive
officers of COMNET owned and were entitled to vote 0.4% of the outstanding
shares of Group 1 Common Stock, 3.3% of the outstanding shares of COMNET Common
Stock and 4.1% of the outstanding of shares COMNET Preferred Stock.
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.
The Merger (page ___)
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 (page ___)
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
See "THE PROPOSED MERGER -- Background."
Recommendation of the COMNET Board and COMNET's Reasons for the Merger
On June 23, 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
On June 23, 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 ___)
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.
On June __, 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 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 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's 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 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 (page
___)
The Merger Agreement provides that if the Merger is completed, the board of
directors of the Surviving Corporation will consist of 9 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 ___)
COMNET will file an application to list the shares of COMNET Common Stock to be
issued in the Merger on Nasdaq.
Conditions to the Merger (page ___)
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 ___)
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 ___)
Group 1's tax advisors, Coopers & Lybrand 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 principal 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
$9.375 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 $13.125 and
$13.125, 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 ___)
Stockholders of COMNET and Group 1 are not entitled to appraisal rights under
Delaware law in connection with the Merger.
Accounting Treatment (Page ___)
The Merger Agreement provides that COMNET and Group 1 receive an opinion from
Coopers & Lybrand 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 are actively pursuing dismissal of all of the claims
made by the Plaintiff in the lawsuit.
<PAGE>
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 ended March 31, 1998 are derived from the respective
historical consolidated financial statements of COMNET and Group 1, as audited
by Coopers & Lybrand 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>
Selected Consolidated Financial Data
(In Thousands, except per share data)
<TABLE>
<CAPTION>
Year Ending March 31,
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
COMNET--HISTORICAL
Statement of Earnings Data:(1)
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 $1,150 $(1,600) $2,832 $2,658 $1,776
operations
Net loss from discontinued operations $-- $-- $-- $(282) $(1,571)
Net earnings (loss) $1,150 $(1,600) $2,832 $2,376 $204
Basic and diluted earnings (loss) per
share:
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 $0.29 $(0.54) $0.79 $0.78 $0.47
operations per share of common stock
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
Stockholder's 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 (1) $0.33 $(0.38) $0.86 $0.76 $0.58
Diluted weighted average number of shares
and common equivalent shares 4,294 4,294 4,323 4,307 4,313
Basic Weighted average number of shares
outstanding 4,298 4,294 4,293 4,293 4,293
Diluted earnings (loss) per share $0.33 $(0.038) $0.86 $0.76 $0.57
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 (loss) available to common
stockholders 0.23
Diluted earnings (loss) 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
</TABLE>
See Note 5 to the unaudited pro forma condensed combined financial data.
<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 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 is 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% 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 (See _____) and conversion of
the COMNET Preferred Stock to COMNET Common Stock (See ____). Holders of COMNET
Common Stock, who owned 100% of COMNET Common Stock as of the Record Date, will
own approximately 79% 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 ___,
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 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 RECOMENDS THAT STOCKHOLDERS VOTE "FOR" THE
ELECTION OF THE NOMINEES FOR DIRECTOR AND THE OTHER PROPOSAL SET FORTH IN THE
NOTICE OF ANNUAL MEETING OF 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, and (ii) 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 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 _____ 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 ___% of the outstanding shares of COMNET Common
Stock and ___% 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 ___ 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 for 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 received the Group 1 Meeting will be voted at the
Group 1 Meeting. Proxies that do not contain voting instructions will be voted
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 Meeting.
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 and its subsidiaries 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. (the "Soliciting Agent") of New
Jersey 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
Coopers & Lybrand LLP (the independent accounts for both companies) to
preliminary 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 Officers 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.
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 23, 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 FWB, 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.
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.
Recommenadations 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 COMNET and 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, Valuation Research discussed its opinion and advised
the Board 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 __, 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 Coopers & Lybrand 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 Coopers & Lybrand 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. Stockholders should be aware that an
opinion of Coopers & Lybrand LLP is not binding on the IRS or the courts and (3)
the Merger will be viewed as a Section 332 liquidation with respect to COMNET.
Stockholders should also be aware that the opinion of Coopers & Lybrand 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 Coopers & Lybrand 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. All 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
Coopers & Lybrand 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. However, Mr. Bowen will
not receive duplicate payment as a result of the assumption of his agreement
with Group 1 and the continuation of his agreement with COMNET. See "Proposal 3
- -- Election of 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.
<TABLE>
<CAPTION>
COMNET CORPORATION GROUP 1
------------------ -------
<S> <C> <C> <C> <C>
CALENDAR QUARTER HIGH LOW HIGH LOW
- ---------------- ---- --- ---- ---
1995: First...................................11.00 9.00 10.00 9.25
Second..................................10.50 8.50 12.50 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 8.625 6.00
Second (through June 19) 14.625 7.375 15.500 7.50
</TABLE>
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 $11.938 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.
COMNET Corporation and Group 1 Software, Inc.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
MARCH 31, 1998
<TABLE>
<CAPTION>
Pro Forma Pro Forma
COMNET 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 (8) 4,300,590 6,520,974
(6) (286,706)
---------------------- ---------------- ---------------------------
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 (2) 275,000 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 (4) (5,682,486) 0
subsidiary
---------------------- ---------------- ---------------------------
Total liabilities 43,471,680 (5,407,486) 38,064,194
---------------------- ---------------- ---------------------------
---------------------- ---------------- ---------------------------
Stockholders equity 27,157,843 (1) 9,444,321 36,579,202
---------------------- ---------------- ---------------------------
(6) (286,706)
(5) (263,755)
====================== ================ ===========================
Total liabilities and stockholders equity $ 70,629,512 $ 4,013,884 $ 74,088,126
====================== ================ ===========================
---------------------- ---------------- ---------------------------
Book value per share $8.29 $8.69
====================== ================ ===========================
</TABLE>
The accompanying notes are an integral part of this unaudited pro forma
condensed combined financial data.
<PAGE>
COMNET Corporation and Group 1 Software, Inc.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL DATA
Year ended March 31, 1998
<TABLE>
<CAPTION>
Pro Forma Pro Forma
COMNET 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 (6) 286,706 8,179,280
Provision for doubtful accounts 3,505,000 3,505,000
--------------------- ------------------ ----------------------
Total costs and expenses 58,204,541 286,706 58,470,588
--------------------- ------------------ ----------------------
Operating income 2,799,356 (286,706) 2,533,309
Non-operating expenses, net (464,651) (464,651)
--------------------- ------------------ ----------------------
Income from operations before provision for income 2,334,705 (286,706) 2,068,658
taxes
Provision for income taxes 921,360 921,360
Minority interest in net earnings of consolidated 263,755 (5) (263,755) 0
subsidiary
--------------------- ------------------ ----------------------
Net earnings 1,126,639 (22,951) 1,147,298
COMNET Preferred Stock dividend requirements (177,000) (177,000)
--------------------- ------------------ ----------------------
Net earnings available to common stockholder $949,639 (22,951) $970,298
===================== ================== ======================
Basic earnings per share of common stock $0.30 ($0.07) $0.23
===================== ================== ======================
Diluted earnings per share of common stock $0.29 ($0.06) $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
===================== ================== ======================
</TABLE>
The accompanying notes are an integral part of this unaudited pro forma
condensed combined financial data.
<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
----------
(1) 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.
(2) 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.
(3) Group 1 Software, Inc. is consolidated in the COMNET Financial as presented
and therefore is not shown separately in the combining statements.
(4) To eliminate the cumulative minority interest in net earnings of the
consolidated subsidiary resulting of the Merger.
(5) To eliminate the minority interest in net loss of consolidated subsidiary.
(6) 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.
(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.
(8) Represents the identifiable intangible assets arising from the purchase
business combination.
<PAGE>
BENEFICIAL OWNERSHIP
COMNET
The following table sets forth the number of shares of COMNET Common Stock
and COMNET Preferred Stock beneficially owned, as of June 12, 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.
<TABLE>
<CAPTION>
Number of Shares of Common Number of Shares of 6%
Stock Cumulative Convertible Preferred
and Stock
Name and Address of Beneficial Owner Percentage of Class and Percentage of Class
------------------------------------ ------------------- -----------------------
<S> <C> <C>
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(3) 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 officers as a 555,624
group (12 persons) 16.4%
</TABLE>
* 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 174,800 shares of COMNET Common Stock purchasable upon exercise
options that are presently exercisable or exercisable within 60 days of the date
of this table.
(3) Includes 18,750 shares of COMNET Common Stock purchasable upon exercise
options that are presently exercisable or exercisable within 60 days of the date
of this table.
GROUP 1
The following table sets forth the number of shares of Group 1 Common Stock
beneficially owned, as of June 12, 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.
<TABLE>
<CAPTION>
Number of Shares of Common
Name and Address of Beneficial Owner Stock Percentage of Class
------------------------------------ ----- -------------------
<S> <C> <C>
COMNET Corporation 3,484,588 81.2%
4200 Parliament Place, Suite 600
Lanham MD 20706-1844
All directors and executive officers as a group 108,887 2.5%
(9 persons) (1)
</TABLE>
- ----------
(1) Includes shares of Group 1 Common Stock purchasable upon exercise of
options that are presently exercisable or exercisable within 60 days of the
date of this table.
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 June 12, 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 "Proposal 3 -- Election of directors" for
more detailed beneficial ownership information. Unless otherwise noted, all
shares are owned directly with sole voting and dispositive powers.
<TABLE>
<CAPTION>
Number of Shares of
Name and Address of Beneficial Owner Common Stock Percent of Class
- ------------------------------------ ------------ ----------------
<S> <C> <C>
Medco Containment Services, Inc.
100 Summit Avenue 543,345 12.9%
Montvale, NJ 07645 (1)
Robert S. Bowen
4200 Parliament Place, Suite 600 277,563(1) 6.3%
Lanham, MD 20706
John Spohler
One Liberty Plaza 259,875(2) 6.2%
New York, NY 10292
All directors and officers as a group (14 persons) 689,171 14.5%
</TABLE>
<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 has adopted a Stockholder Protection Rights
Agreement, which confers significant rights on holders of COMNET Common Stock.
See "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
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
simultaneously.
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 provisions.
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 also 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 not less than the minimum number of votes
necessary to authorize or taken 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.
<PAGE>
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 June 23, 1998, there were 3,279,040 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 January 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 Capital 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 adopted 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 "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 in 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.
Shares of COMNET Common Stock received by those stockholders of Group 1 who
are deemed to be "affiliates" of Group 1 at the time of the Group 1 Meeting may
be resold without registration under the Securities Act only as permitted by
Rule 145 under the Securities Act or as otherwise permitted 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 OPINION
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 Coopers &
Lybrand 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 in this Proxy Statement
Prospectus.
<PAGE>
PROPOSAL 1 - PROPOSAL TO APPROVE AND ADOPT 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.
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 sock 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) a 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 COMENT 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 3,279,040 shares of COMNET Common Stock outstanding on
June 23, 1998, the COMNET Board has reserved approximately 1,617,792 shares for
issuance upon exercise of options outstanding or available for grant under the
various CONMET 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, dated as of _______, 1998, between COMNET and [Rights Agent],
adopted by the COMNET Board. Accordingly, the additional shares of COMENT 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 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
PROPOSAL 3 - ELECTION OF 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 and James P. Marden,
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 June 12, 1998, concerning each director and
nominee for director and each Named Executive Officer (as defined below).
NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
Number of Shares of COMNET
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name of Director of Director Principal Occupation, Business Common Stock and Percentage
the Company (Age) Since Experience and Directorships of Class (1)
----------------- ----- ---------------------------- ------------
</TABLE>
Class III Directors (whose terms will expire at the third annual meeting of
stockholders following the COMNET Meeting, and the election and qualification of
their Pre- Post-Merger(2) successors) Merger
<TABLE>
<CAPTION>
Pre Post
Merger Merger (2)
------ ----------
<S> <C> <C> <C> <C>
Charles J. Sindelar 1992 Vice President and General Manager, Digital Video 20,000 20,000
(61) 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, 1997. President of 20,000 20,000
(45) 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
(42) 1992 Executive Vice President - General Counsel and a 20,000 37,250
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>
MEMBERS OF THE BOARD CONTINUING IN OFFICE Class I Directors (whose terms will
expire at the next annual
meeting of stockholders following the COMNET Meeting, and
the election and qualification of their successors)
<TABLE>
<CAPTION>
Pre Post
Merger Merger (2)
------ ----------
<S> <C> <C> <C> <C>
James V. Manning 1992 Chief Executive Officer of Synetic since 20,000 20,000
(51) 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 Brokerage Corporation 10,000 10,000
(59) 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, CIBC Oppenheimer 23,675 23,675
(38) for more than five years.
* *
</TABLE>
Class II Directors (whose terms will expire at the second Pre- Post-Merger(2)
annual meeting of stockholders following the COMNET Meeting, Merger and the
election and qualification of their successors)
<TABLE>
<CAPTION>
Pre Post
Merger Merger (2)
------ ----------
<S> <C> <C> <C> <C>
Robert S. Bowen 1983 President and Chief Executive Officer of COMNET 259,450 277,563
(60) for more than five years and a director, Chairman 7.7% 6.3%
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 Officer of Group 1 136,999 141,929
(54) for more than five years. He is also a director 4.2% 3.3%
of Group 1.
Thomas S. Buchsbaum 1998 Since March, 1997, Vice President, Education, Dell 0 40,250
(48) Computer Corporation. Prior to that and for more * *
than five years, Executive (and previously Senior)
Vice President, Federal Systems for Zenith Data
Systems, Inc. Also serves as a director of Dick
Blick Company.
</TABLE>
- ---------------------------
*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 upon options that are
presently exercisable or exercisable within 60 days of the date of this
table as follows: Mr. Sindelar - 20,000 shares; Mr. Marden - 20,000 shares;
Mr. Mele - 37,250 shares; Mr. Buchsbaum - 40,250; 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.
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.
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).
Board of Directors Committees and Meeting
The Bylaws 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 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.
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, 1997, 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 the Common Stock. In
January 12, 1993, COMNET stockholders approved certain fee arrangements with
Messrs. Manning, Bower and Friedman, each of whom is a director of COMNET. See
"CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS -- Fee Agreements".
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
See discussion in "Proposal 3 - ELECTION OF DIRECTORS" above and the
section captioned "BENEFICIAL OWNERSHIP" in the front part of the Proxy
Statement Prospectus relating to the Merger.
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
<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(3) -- $67,593
CEO; Director 1997 323,587 --- 18,750(2) 58,736
1996 309,193 564,519(3) 12,500 75,122(4)
Ronald F. Friedman, 1998 184,105 66,085 -- 79,318
President - Group 1 1997 184,105 -- 27,000(2) 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(5) 16,500 16,500 782
1996 -- -- -- --
Alan P. Slater 1998 169,018 96,594 -- 7,511
1997 150,580 -- 14,250(2) 7,367
1996 140,769 51,067 7,500 3,634
Stephen R. Bebee 1998 134,646 41,859 --- 10,909
1997 87,650 114,333 11,000(2) 9,489
1996 77,404 106,336 5,000 3,229
</TABLE>
-------------------------------
(1) Includes COMNET contributions to Defined Contribution Savings Plan (401(k))
auto allowance, and group term life insurance benefits.
(2) 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.
(3) Mr. Bowen elected to defer $81,083 and $197,582 of bonus compensation in
1998 and 1997, respectively in accordance with COMNET deferred compensation
plan.
(4) Includes calculated debt forgiveness of loan from COMNET to Mr. Bowen. See
" -- Bowen Loan Agreement".
(5) Mr. Funston's compensation covers only part of the fiscal year ended March
31, 1997.
EMPLOYMENT AGREEMENTS
Robert S. Bowen
COMNET Agreement. The Company has 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 expires on July 1, 1998, and
provides for a current total base salary of $340,100 per annum. Mr. Bowen's base
salary is 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 provides 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 provides 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 will be offset by
40% of all fees theretofore received by Mr. Bowen under the Bowen Fee Agreement
(described below).
If Mr. Bowen terminates his employment with the Company during the term of
the COMNET Employment Agreement because of any disability, he will be entitled
to receive his base salary and bonus, prorated through the date of termination,
and any options previously granted to him will, to the extent exercisable on the
date of termination of Mr. Bowen's employment, continue to be exercisable for 12
months following such termination date. If Mr. Bowen's employment with the
Company is terminated during the term of the COMNET Employment Agreement because
of his death, his estate will be entitled to receive his base salary and bonus,
prorated through the date of termination, and any options previously granted to
Mr. Bowen will, to the extent exercisable on the date of termination, continue
to be exercisable for six months following Mr. Bowen's death.
If Mr. Bowen terminates his employment with the Company for any reason
other than death or disability or is discharged by the Company for cause, Mr.
Bowen will be entitled to receive his base salary, prorated through his date of
termination, and his bonus earned and all of his options will be treated as
provided in the instruments or agreements governing such options. If the Company
terminates Mr. Bowen's employment without cause, Mr. Bowen will be entitled to
receive his salary, as adjusted, fringe benefits and bonuses throughout the
remaining term of the COMNET Employment Agreement, as if it had not been
terminated, and all of his options, including those that have not yet vested,
will continue to vest or be exercisable as if Mr. Bowen's employment have not
been terminated but had continued for the outstanding balance of the term of the
COMNET Employment Agreement, and Mr. Bowen will be afforded the maximum length
of time permissible to exercise such options; provided, however, that if such
vesting of options after termination is prohibited, the Company shall, at such
time as the options would have vested (the "Vesting Date"), pay Mr. Bowen in
cash the difference between the average reported price for the Common Stock over
the 20 days immediately preceding the Vesting Date and the exercise price of the
stock options on the Vesting Date.
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
are 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 the Company 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 is currently set to
expire in 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
YEAR-END OPTION VALUES
FISCAL YEAR ENDED MARCH 31, 1998
--------------------------------
<TABLE>
<CAPTION>
Number of Unexercised
Options/ Value of Unexercised Options/
SARs at FY-End SARs at FY-END(1)
-------------- -----------------
Shares
Acquired Value
Name on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
--------------------- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
COMNET
------
Robert S. Bowen None None 174,800 7,500 $47,850 ---
Ronald F. Friedman None None 136,999 8,001 $41,250 ---
Mark D. Funston None None 3,300 13,200 --- ---
Alan P. Slater None None 18,200 13,300 $6,875 ---
Stephen R. Bebee None None 10,900 11,500 $2,062 ---
GROUP 1
Robert S. Bowen None None 3,750 15,000 $3,750 $15,000
Ronald F. Friedman None None 3,000 12,000 $3,000 $12,000
Mark D. Funston None None --- --- --- ---
Alan P. Slater None None 850 3,400 $850 $3,400
Stephen R. Bebee None None 200 800 $200 $800
</TABLE>
(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.
No options were granted to or exercised by any of the persons listed in table
during fiscal year 1998.
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Fee Agreements
Fee Agreement with Mr. Manning
The Company 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
the Company. 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
The Company 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
The Company 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
Company'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 will be deemed
satisfied in full and canceled if, as of its due date, July 1, 1998, Mr. Bowen
has 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; and (iv) upon Mr. Bowen's death or disability, such promissory notes
will be deemed satisfied and canceled provided the conditions in clause (iii)
above have been satisfied up to the date of such death or disability.
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 his termination of
employment with Group 1; the principal balance is now subject to interest at the
rate charged to the Company by its primary commercial lender (adjusted
quarterly); interest is payable quarterly; 70% 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 be granted options to purchase COMNET Common Stock in accordance
with the 1995 Non-Employee Director 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,
these COMNET options can be issued only to persons then serving as COMNET
directors and cannot after issuance be transferred to persons who are not COMNET
directors. In respect of Mr. Spohler's service on the COMNET Board, COMNET has
issued to CIBC Oppenheimer warrants to purchase COMNET Common Stock on
substantially the same terms as the terms of the 1995 COMNET Non-Employee Stock
Option Director Plan.
Executive Officers
The executive officers are Robert S. Bowen, Ronald F. Friedman, Stephen R.
Bebee, Alan P. Slater and Edward Weiss. The business experience during at least
the past five years for Messrs. Bowen, Friedman and Funston is set forth under
"--Nominees For Election to the Board of Directors" and "-- Directors Continuing
in Office." Messrs. Slater and Bebee have served in sales management positions
at Group 1 during the past five years. Mr. Weiss, 47, has been General Counsel
of COMNET since January 1990, and has been Secretary since November, 1990.
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
inadvertently filed a Form 3 late.
<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
PERFORMANCE MEASUREMENT COMPARISON (1)
Comparison of Cumulative Total Return of Company, Peer Group and Broad Market
[Performance graph]
<TABLE>
<CAPTION>
Fiscal Year Ending
---------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
The Peer Group Chosen Was: Customer Selected Stock List
The Broad Market Index Chosen Was: Nasdaq Market Index
*The Peer Group is made up of the following BGS Systems Inc.
securities: Hathaway Corp.
Hyperion Software Inc.
Timberline Software CP
- ----------
(1) Pursuant to Item 401(a)(9) of Regulation S-K promulgated by the SEC,
neither the "Report on Executive Compensation" nor the material 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, nor shall such report or such material be deemed to be
incorporated by reference in any past or future filing by the Company under
the Exchange Act or the securities Act of 1933, as amended.
<PAGE>
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 June 23,
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 6 non-employee directors
eligible to participate in the Plan, of which 3 such directors are standing for
election to the COMNET Board. See "Proposal 3 - Election of 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>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
As permitted by Section 102(b)(7) of the Delaware General Corporation Law
(the "DGCL"), Article Sixteenth of the COMNET Certificate eliminates the
monetary liability of directors to COMNET or its stockholders for breach of
fiduciary duty as a director, with the following exceptions, as required by the
DGCL: (i) breach of the director's duty of loyalty to the corporation or its
stockholders; (ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) payment of unlawful
dividends or making unlawful stock purchases or redemption's; or (iv)
transactions from which the director derived an improper personal benefit.
In addition, under Section 145 of the DGCL, a corporation may indemnify a
director, officer, employee or agent of the corporation against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with any threatened,
pending or completed Proceeding (other than an action by or in the right of the
corporation) if he acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe his conduct was unlawful. In the case of an action brought by or in the
right of the corporation, the corporation may indemnify a director, officer,
employee or agent of the corporation against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the defense or
settlement of any threatened, pending or completed action or suit if he acted in
good faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation, except that no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that a
court determines upon application that, in view of all the circumstances of the
case, such person is fairly and reasonably entitled to indemnity for such
expenses as the court deems proper. Article VII of the COMNET By-laws provides
for indemnification of its directors, officers, employees, and other agents to
the fullest extent permitted by the DGCL.
COMNET has obtained director and officer liability insurance, which
provides for indemnification of its directors and officers under the foregoing
provisions of the COMNET Certificate and the COMNET By-laws up to an aggregate
of $10,000,000.
Item 21. Exhibits and Financial Data Schedule
(a) Exhibits
Exhibit No. Description
----------- -----------
2. Agreement and Plan of Merger, dated June 23, 1998 between Registrant
and Group 1 Software, Inc. (incorporated by reference to Exhibit A to
the Proxy Statement Prospectus included herein). *
3.1 Articles of Incorporation and Bylaws, as amended - 1985. (1)
3.2 Bylaws - Amended as of January 22, 1993. (2)
4.1 Purchase Agreement between the Registrant and Medco Containment
Services, Inc., dated as of January 28, 1992. (2)
4.2 Agreement Regarding Satisfaction of Debt, Release of Pledge and
Issuance of Stock between Group 1 and Robert S. Bowen, dated as of
January 28. 1992. (2)
4.3 Agreement Regarding Satisfaction of Debt, Release of Pledge and
Issuance of Stock between Group 1 and Dr. Milton Kaplan, dated as of
January 28, 1992. (2)
4.4 Agreement Regarding Satisfaction of Debt, Release of Pledge and
Issuance of Stock between Group 1 and John Spohler, dated as of
January 28, 1992. (2)
4.5 Agreement Regarding Satisfaction of Debt, Release of Pledge and
Issuance of Stock between the Registrant and Leonard J. Smith, dated
as of January 28, 1992. (2)
4.6 Stock Option Agreement between the Registrant and James V. Manning,
dated as of August 16, 1992. (2)
4.7 Stock Option Agreement between the Registrant and James Marden, dated
as of August 16, 1992. (2)
4.8 Stock Option Agreement between the Registrant and Robert S. Bowen,
dated as of August 16, 1991. (2)
4.9 Stock Option Agreement between the Registrant and Ronald F. Friedman,
dated as of August 16, 1991. (2)
4.10 Stock Option Agreement between the Registrant and Charles A. Crew,
dated as of August 16, 1991. (2)
4.11 Stock Option Agreement between the Registrant and Charles J. Sindelar,
dated as of August 16, 1991. (2)
4.12 Agreement among the Registrant and Robert S. Bowen, Milton Kaplan,
Leonard J. Smith and John Spohler regarding certain registration
rights, dated as of January 28, 1992. (2)
4.13 Certificate of Designation of 6% Convertible Preferred Stock, filed
January 22, 1993. (3)
4.14 1995 Incentive Stock Option, Non-Qualified Stock Option and Stock
Appreciation Unit Plan. (4)
4.15 1995 Non-Employee Directors' Stock Option Plan. (4)
5. Opinion of Cadwalader, Wickersham and Taft as to the legality of the
securities issued in connection with the Merger.*
8. Opinion of Coopers & Lybrand LLP as to certain tax matters.*
10.1 Technology Purchase Agreement between COMNET Corporation and Andy
Bellinghieri - 1985, as amended and restated in May, 1994. (1)
10.2 Employment agreement between Ronald F. Friedman and Group 1 Software,
Inc. dated October 31, 1990. (1)
10.3 Management and Service Agreement between Group 1 Software, Inc. and
COMNET Corporation dated April 1, 1994. (5)
10.4 Tax Sharing Agreement among Group 1 Software, Inc., COM_MED Systems,
Inc., ADMS, Inc. and COMNET Corporation, dated April 1, 1991. (5)
10.5 First Amendment to Employment Agreement by and between Group 1
Software, Inc. and Ronald F. Friedman dated June 24, 1991. (6)
10.6 Amendment to the Management and Services Agreement as of August 1,
1991 by and between Group 1 Software, Inc. and COMNET Corporation. (7)
10.7 Amended and Restated Employment Agreement dated January 28, 1992 by
and between Group 1 Software, Inc. and Robert S. Bowen. (8)
10.8 Fee Agreement between the Company and James V. Manning, dated as of
January 28, 1992. (8)
10.9 Fee Agreement between the Company and Robert S. Bowen, dated as of
January 28, 1992. (8)
10.10 Fee Agreement between the Registrant and James V. Manning. (8)
10.11 Indemnification Agreement between the Registrant and James V.
Manning. (8)
10.12 Indemnification Agreement between the Registrant and James P. Marden.
(8)
10.13 Indemnification Agreement between the Registrant and Ronald F.
Friedman. (8)
10.14 Indemnification Agreement between the Registrant and Charles A. Crew.
(8)
10.15 Indemnification Agreement between the Registrant and Robert S. Bowen.
(8)
10.16 Stockholder Voting Agreement among Medco Containment Services, Inc.
and Robert S. Bowen, Charles A. Crew, Ronald F. Friedman, Milton
Kaplan, Perry E. Morrison, Leonard J. Smith and John Spohler, dated
as of January 28, 1992. (8)
10.17 Advisory Committee Agreement between the Registrant and Leonard J.
1Smith, dated as of January 28, 1992. (8)
10.18 Advisory Committee Agreement between the Registrant and Milton
Kaplan, dated as of January 28, 1992. (8)
10.19 Advisory Committee Agreement between the Registrant and Perry E.
Morrison, dated as of January 28, 1992. (8)
10.20 Agreement between the Registrant and Robert S. Bowen, dated as of
January 23, 1992. (8)
10.21 Loan Agreement and three notes in the amount of $78,334 each between
the Company as Holder and Robert S. Bowen as Maker, dated as of
January 23, 1992. (8)
10.22 Amended and Restated Employment Agreement between Robert S. Bowen and
the Registrant, dated as of January 28, 1992. (8)
10.23 Amended and Restated Employment Agreement between Robert S. Bowen and
Group 1 Software, Inc., dated as of January 28, 1992. (8)
10.24 Indemnification Agreement, dated January 22, 1993, between Registrant
and Carl I. Kanter. (8)
10.25 Loan Agreement, dated March 1, 1993, between Registrant and Ronald F.
Friedman. (8)
10.26 Indemnification Agreement, dated February 24, 1992, between
Registrant Corporation and Carl I. Kanter. (8)
10.27 Indemnification Agreement between Registrant and Charles J. Sindelar.
(8)
10.28 Lease covering Registrant's office facilities in Lanham, MD - 1993.
(9)
10.29 Agreement between Group 1 Software, Inc. and Archetype Systems, Ltd.
for acquisition of the entire share capital of Archetype Systems,
Ltd., dated as of December 30, 1994. (10)
10.30 Fourth Amendment to Employment agreement, dated as of March , 1994,
by and between Group 1 Software, Inc., and Ronald F. Friedman. (11)
10.31 Sublease, dated March 1, 1994, by and between Registrant and Group 1
Software, Inc. (11)
10.32 Agreement to Extend Management and Services Agreement, dated April 1,
1994, by and between Registrant and Group 1 Software, Inc. (11)
10.33 Sales Agreement for COM_MED Systems, Inc. (4)
10.34 Letter of Agreement between Group 1 and MEDCOM Acquisition
Corporation, dated May 8, 1995 (4)
10.35 Amended Letter of Agreement between Group 1 and MEDCOM Acquisition
Corporation, dated June 9, 1995 (4)
10.36 Bill of Sale between Group 1 and MEDCOM Acquisition Corporation,
dated March 31, 1995, for the sale of substantially all of the assets
of COM-MED Systems, Inc. and CMEDS, Inc. (4)
10.37 Line of Credit Agreement between Group 1 and MEDCOM Acquisition
Corporation, dated March 31, 1995. (4)
10.38 Fifth Amendment to Employment Agreement, dated as of April 1, 1995,
by and between Group 1 Software, Inc. and Ronald F. Friedman. (4)
10.39 COMNET Corporation, Deferred Compensation Plan. (4)
10.40 Definitive Agreement for purchase of assets of DataDesigns, Inc.,
dated August 23, 1995. (12)
10.41 Definitive Agreement for purchase of assets of Premier One
Consultants, Inc., dated November 22, 1995. (12)
10.42 Agreement between Sidco, Inc., and CMEDS, Inc., dated November 14,
1995. (12)
10.43 Third Amendment to Lease, dated April 15, 1994, by and between COMNET
Corporation and Quadrangle Development Corporation. (12)
10.44 First Amendment to Sublease, dated April 15, 1994, by and between
COMNET Corporation and Group 1 Software, Inc. (12)
10.45 First Amendment to Loan Agreement with Ronald F. Friedman, dated as
of January 15, 1996. (12)
10.46 Line of Credit Loan Agreement with Crestar Bank, dated October 10,
1996. (12)
10.47 Agreement to Extend Management and Services Agreement, dated April 1,
1997, by and between the Registrant and Group 1 Software, Inc. (12)
10.48 Computation of earnings per share. (12)
10.49 First Amendment to Employment Agreement by and between Robert S.
Bowen and COMNET Corporation, dated August 15, 1997 (13)
10.50 Second Amendment to Employment Agreement by and between Robert S.
Bowen and COMNET Corporation, dated January 12, 1998 (13)
10.51 Third Amendment to Employment Agreement by and between Robert S.
Bowen and Group 1 Softwar, Inc., dated August 15, 1997 (13)
10.52 Fourth Amendment to Employment Agreement by and between Robert S.
Bowen and Group 1 Software, Inc., dated January 12, 1998 (13)
10.53 Fifth Amendment to Employment Agreement by and between Robert S.
Bowen and Group 1 Software, Inc., dated May 11, 1998 (13)
10.54 Agreement for Purchase and Sale of Assets by and between Intertrak
Corporation and Group 1 Software, Inc., dated September 4, 1997 (13)
16. Change in Registrant's Independent Accountant on Form 8-K dated
January 26, 1990.(6)
21. Subsidiaries of Registrant. *
23.1 Consent of Independent Accountants.
23.2 Consent of Independent Accountants.
24.1 Power of Attorney (included in signature page of Registration
Statement).
- ------------
* To be filed by amendment.
1 Previously filed as an exhibit to the Registrant's Annual Report on Form
10-K for the year ended March 31, 1991.
2 Previously filed as an exhibit to the Registrant's Quarterly Report on Form
10-Q for the quarter ended December 31, 1991.
3 Previously filed as an exhibit to the Registrant's Annual Report on Form
10-K for the year ended March 31, 1993.
4 Previously filed as an exhibit to the Registrant's Annual Report on Form
10-K for the year ended March 31, 1995.
5 Previously filed as an exhibit to the Registrant's Annual Report on Form
10-K for the year ended March 31, 1994.
6 Previously filed as an exhibit to the Registrant's Quarterly report on Form
10-Q for the quarter ended March 30, 1991.
7 Previously filed as an exhibit to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1991.
8 Previously filed as an exhibit to Group 1's Quarterly Report on Form 10-Q
for the quarter ended December 31, 1991.
9 Previously filed as an exhibit to the Registrant's Quarterly Report on Form
10-Q for the quarter ended September 30, 1992.
10 Previously filed as an exhibit to the Registrant's Quarterly Report on Form
10-Q for the quarter ended December 31, 1994.
11 Previously filed as an exhibit to the Registrant's Quarterly Report on Form
10-Q for the quarter ended June 30, 1994.
12 Previously filed as an exhibit to the Registrant's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997.
<PAGE>
(b) Financial Statement Schedules
None
(c) Opinions
(i) Opinion of Coopers & Lybrand LLP (incorporated by reference to Exhibit
B to the Proxy Statement Prospectus included herein).
(ii) Opinion of Valuation Research, Inc., dated June __, 1998 (incorporated
by reference to Exhibit C to the Proxy Statement Prospectus included herein).
Item 22. Undertakings
(a) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) The undersigned registrant hereby undertakes to deliver or cause to be
delivered with the prospectus, to each person to whom the prospectus is sent or
given, the latest annual report to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
(c) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
(d) The registrant undertakes that every prospectus (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Act and is used in connection with
an offering of securities subject to Rule 415 (ss. 230.415 of this chapter),
will be filed as a part of an amendment to the registration statement and will
not be used until such amendment is effective, and that, for purposes of
determining any liability under the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(e) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is again public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(f) The undersigned registrant hereby undertakes to respond to request for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(g) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Lanham,
State of Maryland on April __, 1998.
COMNET CORPORATION
By: /s/ Robert S. Bower
Name: Robert S. Bower
Title: President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Mark D. Funston, and Edward Weiss, and each of
them, as true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities to sign the Registration Statement on Form
S-4 of COMNET Corporation to which this Power of Attorney is an Exhibit and any
or all amendments (including post-effective amendments) to the Registration
Statement and to file the same, with all exhibits thereto, and other documents
in connection therewith, with the Securities and Exchange Commission, granting
unto said attorneys-in-fact and agents and each of them, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the foregoing, as fully to all intents and purposes as
he or she might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Robert S. Bowen Chairman of the Board, President, June 29, 1998
Robert S. Bowen Chief Executive Officer and Director
/s/ Mark D. Funston Vice President, Chief Financial June 29, 1998
Mark D. Funston Officer and Director
/s/ James V. Manning Director June 29, 1998
James V. Manning Director June 29, 1998
/s/Richard A. Eisenberg
Richard A. Eisenberg Director June 29, 1998
Charles A. Mele
James P. Marden Director June 29, 1998
Director June 29, 1998
Charles J. Sindelar
Director June 29, 1998
Bruce J. Spohler
/s/Ronald F. Fried Chief Operating Officer and Director June 29, 1998
Ronald F. Friedman
</TABLE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Comnet Corporation on Form S-4 of our report dated June 12, 1998, on our audits
of the consolidated financial statements and financial statement schedule of
Comnet Corporation as of March 31, 1998, 1997 and 1996, and for the years ended
March 31, 1998 and 1997, which report is included in its Annual Report on Form
10-K. We also consent to the reference to our firm under the captions "Experts"
and "Selected Consolidated Financial Data."
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
McLean, Virginia
May 29, 1998
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Comnet Corporation on Form S-4 of our report dated June 12, 1998, on our audits
of the consolidated financial statements and financial statement schedule of
Group 1 Software, Inc. as of March 31, 1998 and 1997, and for the years ended
March 31, 1998, 1997 and 1996, which report is included in its Annual Report on
Form 10-K. We also consent to the reference to our firm under the captions
"Experts" and "Selected Consolidated Financial Data."
/s/ Coopers & Lybrand L.L.P.
Coopers & Lybrand L.L.P.
McLean, Virginia
May 29, 1998