<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 23, 1998.
REGISTRATION NO. 333-60155
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------
AMENDMENT NO. 2 TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
CEX HOLDINGS, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
COLORADO 5961 84-1347853
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
CORPORATE EXPRESS, INC.
(Exact Name of Registrant as Specified in Its Charter)
<TABLE>
<S> <C> <C>
COLORADO 5961 84-0978360
(State or Other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification Number)
</TABLE>
(TABLE OF ADDITIONAL REGISTRANTS APPEARS ON FOLLOWING PAGE)
ONE ENVIRONMENTAL WAY
BROOMFIELD, COLORADO 80021-3416
(303) 664-2000
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrant's Principal Executive Offices)
ROBERT L. KING
CHIEF EXECUTIVE OFFICER
CORPORATE EXPRESS, INC.
ONE ENVIRONMENTAL WAY
BROOMFIELD, COLORADO 80021-3416
(303) 664-2000
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service)
---------------------
Copies to:
JUSTIN P. KLEIN, ESQ.
GERALD J. GUARCINI, ESQ.
BALLARD SPAHR ANDREWS & INGERSOLL, LLP
1735 MARKET STREET, 51ST FLOOR
PHILADELPHIA, PENNSYLVANIA 19103-7599
(215) 665-8500
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effectiveness of this Registration Statement.
---------------------
If the securities being registered on this form are being offered in
connection with the formation of a holding company and are in 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 effective registration statement
for the same offering. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------
9 5/8% Series B Senior
Subordinated Notes due 2008.... $350,000,000 100% $350,000,000 $103,250(3)
Guarantees(2).................... $350,000,000 (2) (2) None
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee.
(2) Pursuant to Rule 457(n), no separate filing fee is required to be paid.
(3) Previously paid.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
<TABLE>
<CAPTION>
PRIMARY
STANDARD
INDUSTRIAL I.R.S. EMPLOYER
JURISDICTION OF CLASSIFIED IDENTIFICATION
EXACT NAME OF ADDITIONAL REGISTRANTS INCORPORATION CODE NUMBER NUMBER
------------------------------------ --------------- ----------- ---------------
<S> <C> <C> <C>
ASAP Software Express, Inc........................... Illinois 5961 36-3328437
Corporate Express Callcenter Services, Inc........... Delaware 5961 22-8292338
Sofco, Inc........................................... New York 5961 14-1550996
SQP, Inc............................................. New York 5961 14-1680132
Sofco of Ohio, Inc................................... New York 5961 34-1690942
S&O Property, Inc.................................... New York 5961 14-1499350
Epco Packaging Services.............................. Delaware 5961 04-2989953
Hermann Marketing, Inc............................... Missouri 5961 43-1540873
Distribution Resources Co............................ Colorado 5961 84-1015452
Corporate Express Real Estate, Inc................... Delaware 5961 84-1326952
Corporate Express Office Products, Inc............... Delaware 5961 84-1248716
Corporate Express of Texas, Inc...................... Delaware 5961 74-1926921
Federal Sales Services, Inc.......................... Virginia 5961 54-1000288
Virginia Impressions Products Co., Inc............... Virginia 5961 54-0619020
Micromagnetic Systems, Inc........................... Virginia 5961 54-1092699
Corporate Express Delivery Systems, Inc.............. Delaware 5961 76-0424426
American Delivery System, Inc........................ Michigan 5961 38-2523356
Corporate Express Distribution Services, Inc......... Michigan 5961 38-1889687
New Delaware Delivery, Inc........................... Delaware 5961 51-0366092
Red Arrow Corporation................................ Missouri 5961 43-0678384
RAC, Inc............................................. Missouri 5961 43-1389320
Red Arrow Spotting Services, Inc..................... Missouri 5961 43-1622097
Red Arrow Trucking Co................................ Missouri 5961 43-1335313
Red Arrow Warehousing, Co............................ Missouri 5961 43-1344561
Rush Trucking, Inc................................... Illinois 5961 43-1409469
Corporate Express Delivery Systems-Intermountain,
Inc................................................ Delaware 5961 86-0809519
Corporate Express Delivery Leasing-Intermountain,
Inc................................................ Delaware 5961 86-0808518
Corporate Express Delivery Systems-Mid-Atlantic,
Inc................................................ Delaware 5961 52-1951978
Corporate Express Delivery Leasing-Mid-Atlantic,
Inc................................................ Delaware 5961 52-1951974
Corporate Express Delivery Systems-Mid-West, Inc..... Delaware 5961 36-4054055
Corporate Express Delivery Leasing-Mid-West, Inc..... Delaware 5961 36-4054057
Corporate Express Delivery Systems-New England,
Inc................................................ Delaware 5961 06-1441914
Corporate Express Delivery Leasing-New England,
Inc................................................ Delaware 5961 06-1441911
Corporate Express Delivery Systems-Northeast, Inc.... Delaware 5961 11-3295386
Corporate Express Delivery Leasing-Northeast, Inc.... Delaware 5961 11-3295385
Corporate Express Delivery Systems-Southeast, Inc.... Delaware 5961 56-1949066
Corporate Express Delivery Leasing-Southeast, Inc.... Delaware 5961 56-1949063
Air Courier Dispatch of New Jersey, Inc.............. Minnesota 5961 22-3096947
Sunbelt Courier, Inc................................. Arkansas 5961 71-0684115
Tricor America, Inc.................................. California 5961 94-2593523
Midnite Express International Courier, Inc........... California 5961 95-3796228
Corporate Express Delivery Systems-Southwest, Inc.... Delaware 5961 76-0486734
Corporate Express Delivery Leasing-Southwest, Inc.... Delaware 5961 76-0486733
Corporate Express Delivery Systems-West Coast,
Inc................................................ Delaware 5961 95-4560129
Corporate Express Delivery Leasing-West Coast,
Inc................................................ Delaware 5961 95-4556544
Corporate Express Delivery Systems-Expedited, Inc.... Delaware 5961 74-2854132
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PRIMARY
STANDARD
INDUSTRIAL I.R.S. EMPLOYER
JURISDICTION OF CLASSIFIED IDENTIFICATION
EXACT NAME OF ADDITIONAL REGISTRANTS INCORPORATION CODE NUMBER NUMBER
------------------------------------ --------------- ----------- ---------------
<S> <C> <C> <C>
Corporate Express Delivery Leasing-Expedited, Inc.... Delaware 5961 76-0555266
Corporate Express Delivery Administration, Inc....... Nevada 5961 76-0465269
Corporate Express Delivery Management Business
Trust.............................................. Delaware* 5961 51-0363269
Corporate Express Delivery Systems-Air Division,
Inc. .............................................. Delaware 5961 76-0566357
Data Documents Incorporated.......................... Delaware 5961 47-0714942
Data Documents, Inc. ................................ Nebraska 5961 47-0445942
Moore Labels, Inc. .................................. Kansas 5961 48-0852304
</TABLE>
- ---------------
* Business Trust
<PAGE> 4
CORPORATE EXPRESS, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
ITEM NUMBER LOCATION IN PROSPECTUS
----------- ----------------------
<C> <S> <C>
A INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and Outside Front
Cover Page of Prospectus............................... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus............................................. Inside Front Cover Page;
Outside Back Cover Page
3. Risk Factors, Ratio of Earnings to Fixed Charges and
Other Information...................................... Summary; Risk Factors;
Selected Consolidated
Financial Data; Pro Forma
Consolidated Financial Data
4. Terms of the Transaction................................. Summary; The Exchange Offer;
Certain Federal Income Tax
Consequences; Description of
the Notes; Plan of
Distribution
5. Pro Forma Financial Information.......................... Summary; Capitalization; Pro
Forma Consolidated Financial
Data
6. Material Contacts with the Company 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 Registrants.............. *
11. Incorporation of Certain Information by Reference........ Incorporation of Certain
Documents by Reference
12. Information with Respect to S-2 or S-3 Registrants....... *
13. Incorporation of Certain Information by Reference........ Incorporation of Certain
Documents by Reference
14. Information with Respect to Registrants Other than S-3 or
S-2 Registrants........................................ *
C INFORMATION ABOUT THE COMPANY BEING ACQUIRED
15. Information with Respect to S-3 Companies................ *
16. Information with Respect to S-2 or S-3 Companies......... *
17. Information with Respect to Companies Other Than S-3 or
S-2 Companies.......................................... *
D VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Authorizations Are to
be Solicited........................................... *
19. Information if Proxies, Consents or Authorizations Are
Not to be Solicited or in an Exchange Offer............ The Exchange Offer;
Management; Incorporation of
Certain Documents by
Reference
</TABLE>
- ---------------
* Inapplicable
<PAGE> 5
Information contained herein is subject to completion or amendment. These
securities may not be sold nor may offers to buy be accepted prior to the time a
final Offering Memorandum is delivered. This Preliminary Offering Memorandum
shall not constitute an offer to sell or the solicitation of an offer to buy nor
shall there be a sale of these securities in any jurisdiction in which such
offer, solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such jurisdiction.
SUBJECT TO COMPLETION; DATED OCTOBER 23, 1998
PROSPECTUS
, 1998
$350,000,000
CEX HOLDINGS, INC.
OFFER TO EXCHANGE ITS
9 5/8% SERIES B SENIOR SUBORDINATED NOTES DUE 2008
FOR ANY AND ALL OF ITS OUTSTANDING
9 5/8% SERIES A SENIOR SUBORDINATED NOTES DUE 2008
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON , 1998, UNLESS EXTENDED
---------------------
The New Notes offered hereby are the obligations of CEX Holdings, Inc.
("CEX"), a direct wholly-owned subsidiary of Corporate Express, Inc. ("CEI").
CEI conducts its business through CEX and its numerous wholly-owned domestic and
foreign subsidiaries. CEX hereby offers, upon the terms and subject to the
conditions set forth in this Prospectus (as the same may be amended or
supplemented from time to time, the "Prospectus") and in the accompanying Letter
of Transmittal (which together constitute the "Exchange Offer"), to exchange up
to $350,000,000 aggregate principal amount of its 9 5/8% Series B Senior
Subordinated Notes due 2008 (the "New Notes") for a like principal amount of its
outstanding 9 5/8% Series A Senior Subordinated Notes due 2008 (the "Old Notes",
and together with the New Notes, the "Notes"), of which $350,000,000 aggregate
principal amount are outstanding. Unless the context requires otherwise,
references to "Corporate Express" include CEI, CEX and all their respective
domestic and foreign subsidiaries. All capitalized terms used herein are defined
in the Glossary beginning on page 103.
The New Notes are being offered in order to satisfy certain obligations of
CEX and the Guarantors under the Registration Rights Agreement, dated as of May
29, 1998 (the "Registration Rights Agreement"), among CEX, the Guarantors and
the Initial Purchasers. The terms of the New Notes are identical in all material
respects to the respective terms of the Old Notes, except that (i) the New Notes
have been registered under the Securities Act of 1933, as amended (the
"Securities Act"), and therefore will not be subject to certain restrictions on
transfer applicable to the Old Notes and (ii) holders of the New Notes will
generally not be entitled to certain rights, including the payment of Liquidated
Damages, pursuant to the Registration Rights Agreement. In the event that the
Exchange Offer is consummated, any Old Notes which remain outstanding after
consummation of the Exchange Offer and the New Notes issued in the Exchange
Offer will vote together as a single class for purposes of determining whether
holders of the requisite percentage in outstanding principal amount thereof have
taken certain actions or exercised certain rights under the Indenture.
The New Notes will bear interest at the rate of 9 5/8% per annum, payable
semi-annually on June 1 and December 1 of each year, commencing on December 1,
1998. The New Notes will mature on June 1, 2008. Except as described below, the
New Notes will not be redeemable by CEX prior to June 1, 2003. On or after that
date, the New Notes may, subject to certain requirements, be redeemed at the
option of CEX, in whole or in part, at the redemption prices set forth herein,
together with accrued and unpaid interest to the date of redemption. In
addition, at any time on or prior to June 1, 2001, CEX may redeem up to 35% of
the original principal amount of Notes and any Additional Notes issued under the
Indenture with the net cash proceeds of one or more Public Equity Offerings at a
redemption price equal to 109.625% of the principal amount thereof, plus accrued
and unpaid interest and Liquidated Damages, if any, to the date of redemption,
provided that not less than 65% of the aggregate principal amount of the Notes
and any Additional Notes issued under the Indenture is outstanding immediately
after giving effect to such redemption. Upon the occurrence of a Change of
Control, CEX will be required to make an offer to repurchase the Notes at a
purchase price equal to 101% of the principal amount thereof, together with
accrued and unpaid interest and Liquidated Damages, if any, to the date of
repurchase. See "Description of the Notes."
The New Notes will be guaranteed by CEI and the Subsidiary Guarantors on a
senior subordinated basis. The New Notes and the guarantees thereof will be
unsecured general obligations of CEX and the Guarantors subordinated in right of
payment to all Senior Debt of CEX and such Guarantors. As of August 1, 1998, CEX
and the Subsidiary Guarantors would have had outstanding an aggregate principal
amount of approximately $446.1 million of Senior Debt which would rank senior in
right of payment to the New Notes and the guarantees, respectively, and the
nonguarantor subsidiaries would have had approximately $81.5 million of
indebtedness which would be effectively senior to the New Notes and the
guarantees, respectively. Thus, in total, as of August 1, 1998 the New Notes
would have been subordinated in right of payment to approximately $527.6 million
of indebtedness. As of August 1, 1998, CEI had no Senior Debt but had
outstanding $325.0 million of Convertible Notes, which would rank pari passu
with CEI's guarantee of the New Notes but which would be structurally
subordinated to the New Notes.
(continued on next page)
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS IN DECIDING WHETHER TO TENDER OLD NOTES IN
THE EXCHANGE OFFER.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The date of this Prospectus is , 1998.
<PAGE> 6
This Prospectus and the Letter of Transmittal are first being mailed to all
holders of Old Notes on , 1998.
CEX is making the Exchange Offer of the New Notes in reliance on the
position of the staff of the Division of Corporation Finance of the Securities
and Exchange Commission (the "Commission") as set forth in certain interpretive
letters addressed to third parties in other transactions. However, CEX has not
sought its own interpretive letter and there can be no assurance that the staff
of the Division of Corporation Finance of the Commission would make a similar
determination with respect to the Exchange Offer as it has in such interpretive
letters to third parties. Based on these interpretations by the staff of the
Division of Corporation Finance of the Commission, and subject to the two
immediately following sentences, Corporate Express believes that New Notes
issued pursuant to this Exchange Offer in exchange for Old Notes may be offered
for resale, resold and otherwise transferred by a holder thereof (other than a
holder who is a broker-dealer) without further compliance with the registration
and prospectus delivery requirements of the Securities Act, provided that such
New Notes are acquired in the ordinary course of such holder's business and that
such holder is not participating, and has no arrangement or understanding with
any person to participate, in a distribution (within the meaning of the
Securities Act) of such New Notes. However, any holder of Old Notes who is an
"affiliate" of CEX or who intends to participate in the Exchange Offer for the
purpose of distributing New Notes, or any broker-dealer who did not acquire its
Old Notes as a result of market-making or other trading activities, (a) will not
be able to rely on the interpretations of the staff of the Division of
Corporation Finance of the Commission set forth in the above-mentioned
interpretive letters, (b) will not be permitted or entitled to tender such Old
Notes in the Exchange Offer and (c) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
sale or other transfer of such Old Notes unless such sale is made pursuant to an
exemption from such requirements. In addition, as described below, if any
broker-dealer holds Old Notes acquired for its own account as a result of
market-making or other trading activities and exchanges such Old Notes for New
Notes, then such broker-dealer must deliver a prospectus meeting the
requirements of the Securities Act in connection with any resales of such New
Notes.
Each holder of Old Notes who wishes to exchange Old Notes for New Notes in
the Exchange Offer will be required to represent that (i) it is not an
"affiliate" of CEX, (ii) any New Notes to be received by it are being acquired
in the ordinary course of its business, (iii) it has no arrangement or
understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Notes, and (iv) if such holder is not
a broker-dealer, such holder is not engaged in, and does not intend to engage
in, a distribution (within the meaning of the Securities Act) of such New Notes.
In addition, CEX may require such holder, as a condition to such holder's
eligibility to participate in the Exchange Offer, to furnish to CEX (or an agent
thereof) in writing information as to the number of "beneficial owners" (within
the meaning of Rule 13d-3 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) on behalf of whom such holder holds the Old Notes to be
exchanged in the Exchange Offer and evidence that such "beneficial owners" have
made to such holder, and authorized such holder to make to CEX on their behalf
via the Letter of Transmittal, the representations referred to in the preceding
sentence. Each broker-dealer that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge that it acquired the Old Notes
for its own account as the result of market-making activities or other trading
activities and must agree that it will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not be deemed to admit that it is
an "underwriter" within the meaning of the Securities Act. Based on the position
taken by the staff of the Division of Corporation Finance of the Commission in
the interpretive letters referred to above, CEX believes that broker-dealers who
acquired Old Notes for their own accounts, as a result of market-making
activities or other trading activities ("Participating Broker-Dealers"), may
fulfill their prospectus delivery requirements with respect to the New Notes
received upon exchange of such Old Notes (but not Old Notes that were acquired
other than pursuant to market-making or other trading activities) with a
prospectus meeting the requirements of the Securities Act, which may be the
prospectus prepared for an exchange offer so long as it contains a description
of the plan of distribution with respect to the resale of such New Notes.
Accordingly, this Prospectus, as it may be amended or supplemented from time to
time, may be used by a Participating Broker-Dealer during the period referred to
below in connection with resales of New Notes received in exchange for Old Notes
where such Old Notes were acquired by such Participating Broker-Dealer for its
own account as a result of market-making or other trading activities. Subject to
certain provisions set forth in the Registration Rights Agreement, CEX has
<PAGE> 7
agreed that this Prospectus, as it may be amended or supplemented from time to
time, may be used by a Participating Broker-Dealer in connection with resales of
such New Notes for a period ending one year after the Expiration Date (subject
to extension under certain limited circumstances described below) or, if
earlier, when all such New Notes have been disposed of by such Participating
Broker-Dealer. See "Plan of Distribution." However, a Participating
Broker-Dealer who intends to use this Prospectus in connection with the resale
of New Notes received in exchange for Old Notes pursuant to the Exchange Offer
must notify CEX, or cause CEX to be notified, on or prior to the Expiration
Date, that it is a Participating Broker-Dealer. Such notice may be given in the
space provided for that purpose in the Letter of Transmittal or may be delivered
to the Exchange Agent at one of the addresses set forth herein under "The
Exchange Offer -- Exchange Agent." Any Participating Broker-Dealer who is an
"affiliate" of CEX may not rely on such interpretive letters and must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. See "The Exchange Offer -- Resales of
New Notes."
In that regard, each Participating Broker-Dealer who surrenders Old Notes
pursuant to the Exchange Offer will be deemed to have agreed, by execution of
the Letter of Transmittal, that, upon receipt of notice from CEX of the
occurrence of any event or the discovery of any fact which makes any statement
contained or incorporated by reference in this Prospectus untrue in any material
respect or which causes this Prospectus to omit to state a material fact
necessary in order to make the statements contained or incorporated by reference
herein, in light of the circumstances under which they were made, not misleading
or of the occurrence of certain other events specified in the Registration
Rights Agreement, such Participating Broker-Dealer will suspend the sale of New
Notes pursuant to this Prospectus until CEX has amended or supplemented this
Prospectus to correct such misstatement or omission and has furnished copies of
the amended or supplemented Prospectus to such Participating Broker-Dealer or
CEX has given notice that the sale of the New Notes may be resumed, as the case
may be. If CEX gives such notice to suspend the sale of the New Notes, it shall
extend the one-year period referred to above during which Participating
Broker-Dealers are entitled to use this Prospectus in connection with the resale
of New Notes by the number of days during the period from and including the date
of the giving of such notice to and including the date when Participating
Broker-Dealers shall have received copies of the amended or supplemented
Prospectus necessary to permit resales of the New Notes or to and including the
date on which Corporate Express has given notice that the sale of New Notes may
be resumed, as the case may be.
Prior to the Exchange Offer, there has been only a limited secondary market
and no public market for the Old Notes. The New Notes will be a new issue of
securities for which there currently is no market. Although the Initial
Purchasers have informed CEX that they currently intend to make a market in the
New Notes, they are not obligated to do so, and any such market making may be
discontinued at any time without notice. Accordingly, there can be no assurance
as to the development or liquidity of any market for the New Notes. CEX
currently does not intend to apply for listing of the New Notes on any
securities exchange or for quotation through the National Association of
Securities Dealers Automated Quotation System.
Any Old Notes not tendered and accepted in the Exchange Offer will remain
outstanding and will be entitled to all the same rights and will be subject to
the same limitations applicable thereto under the Indenture (except for those
rights which terminate upon consummation of the Exchange Offer). Following
consummation of the Exchange Offer, the holders of Old Notes will continue to be
subject to all of the existing restrictions upon transfer thereof and CEX will
not have any further obligation to such holders (other than under certain
limited circumstances) to provide for registration under the Securities Act of
the Old Notes held by them. To the extent that Old Notes are tendered and
accepted in the Exchange Offer, a holder's ability to sell untendered Old Notes
could be adversely affected. See "Risk Factors -- Consequences of a Failure to
Exchange Old Notes."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OLD NOTES ARE URGED TO READ THIS PROSPECTUS AND THE
RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR
OLD NOTES PURSUANT TO THE EXCHANGE OFFER.
Old Notes may be tendered for exchange on or prior to 5:00 p.m., New York
City time, on , 1998 (such time on such date being
hereinafter called the "Expiration Date"), unless the Exchange Offer is extended
by CEX (in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended). Tenders of Old Notes may be
withdrawn at any time on or
<PAGE> 8
prior to the Expiration Date. The Exchange Offer is not conditioned upon any
minimum principal amount of Old Notes being tendered for exchange. However, the
Exchange Offer is subject to certain events and conditions which may be waived
by CEX and to the terms and provisions of the Registration Rights Agreement. Old
Notes may be tendered in whole or in part in denominations of $1,000 and
integral multiples thereof. CEX has agreed to pay all expenses of the Exchange
Offer. See "The Exchange Offer -- Fees and Expenses." Holders of the Old Notes
whose Old Notes are accepted for exchange will not receive interest on such Old
Notes and will be deemed to have waived the right to receive any interest on
such Old Notes accrued from and after , 1998. See "The
Exchange Offer -- Interest on New Notes."
CEX will not receive any cash proceeds from the issuance of the New Notes
offered hereby. No dealer-manager is being used in connection with this Exchange
Offer. See "Use of Proceeds" and "Plan of Distribution."
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
THE SECRETARY, CORPORATE EXPRESS, INC., 1 ENVIRONMENTAL WAY, BROOMFIELD,
COLORADO 80021, TELEPHONE NUMBER (303) 664-2000. IN ORDER TO ENSURE TIMELY
DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY ,
1998.
<PAGE> 9
SUMMARY
The following is a summary of certain information contained elsewhere in
this Prospectus. This summary is qualified in its entirety by, and should be
read in conjunction with, the detailed information and financial statements,
including the notes thereto, appearing elsewhere in or incorporated by reference
in this Prospectus. Unless the context requires otherwise, references to
"Corporate Express" include CEI, CEX and all of their respective domestic and
foreign subsidiaries. References to "fiscal 1992," "fiscal 1993," "fiscal 1994,"
"fiscal 1995" and "fiscal 1996" shall refer to Corporate Express' fiscal years
ended February 28, 1993, February 28, 1994, February 25, 1995, March 2, 1996 and
March 1, 1997, respectively. References to "fiscal 1997" shall refer to the
eleven month period ended January 31, 1998. Corporate Express recently changed
its fiscal year end to end on the Saturday closest to January 31 of each year.
Corporate Express' headquarters are located at 1 Environmental Way, Broomfield,
Colorado 80021, and its telephone number is (303) 664-2000.
THE COMPANY
Corporate Express is a global provider of non-production goods and services
to large corporations that value innovative procurement solutions. Corporate
Express believes it has developed a unique "Corporate Supplier" model which
focuses on providing its customers with a broad array of non-production goods
and services while reducing the customer's overall procurement costs and
providing a high level of customer service. The products and services provided
by Corporate Express include office supplies, computer and imaging supplies,
computer desktop software, office furniture, advertising specialties, custom
business forms, forms management services, printing, cleaning and service
supplies, same-day local delivery services and distribution logistics
management. Corporate Express is increasing its focus on environmental friendly
solutions.
Corporate Express has grown internally and through strategic acquisitions
to a global enterprise with locations throughout the United States and in
various international markets. Corporate Express' pro forma net sales for the
twelve months ended January 31, 1998 has increased to $4.1 billion from net
sales of $1.1 billion for fiscal 1994.
Corporate Express' target customers are large corporations which Corporate
Express believes increasingly seek to reduce their cost of procuring
non-production goods and services, including the time and effort spent managing
functions that are not considered core to their operations. Corporate Express
believes that, as part of such effort, corporations seek to reduce their number
of suppliers in order to eliminate the internal costs associated with complex
and varied ordering procedures, multiple invoices, multiple deliveries, uneven
service levels and inconsistent product availability. In addition, many large
corporations operate from multiple locations and benefit from selecting
suppliers who can provide service to their national and international locations.
Corporate Express markets its products and services to existing and prospective
customers through a direct sales force and delivers its products and services
utilizing approximately 700 world wide locations including over 90 distribution
centers and a fleet of over 10,000 owned or contracted vehicles.
CORPORATE SUPPLIER STRATEGY
Corporate Express' Corporate Supplier strategy is designed to reduce its
customers' total costs, including their internal costs incurred in managing the
procurement of non-production goods and services. Corporate Express believes
that customers value Corporate Express' broad product and service offerings, low
cost structure, extensive geographic coverage and delivery capabilities.
Corporate Express also believes that its customers value the high level of
service Corporate Express provides through its account relationship managers,
same-day delivery, customized pricing, product availability, electronic
interfaces and customized reporting.
Corporate Express seeks to continually reduce its merchandise and operating
costs, enabling it to offer its customers competitive prices while increasing
its operating margins. Corporate Express is able to reduce such costs primarily
through utilizing its increasing purchasing power and advanced information
systems. By purchasing most of its products directly from manufacturers in large
volumes and limiting the number of manufacturers represented in its proprietary,
full-color catalog, Corporate Express is able to obtain increasing
1
<PAGE> 10
volume discounts and allowances from its vendors. Corporate Express believes its
information systems represent a key strategic advantage differentiating
Corporate Express from its competitors while permitting it to achieve cost
savings, provide unique capabilities to its customers, and centrally manage its
operations. Corporate Express intends to continue improving and enhancing the
capabilities of its information systems which will enable Corporate Express to
further differentiate its product and service offerings, while increasing its
operating margins.
GROWTH STRATEGY
Corporate Express has historically grown primarily through strategic
acquisitions. Corporate Express believes that it has substantially completed its
infrastructure and, accordingly, its growth strategy is now focused primarily on
internal growth combined with selective strategic acquisitions. Corporate
Express plans to increase sales to existing customers by cross-selling its
expanded product and service offerings and by developing existing customers into
multi-regional, national or international accounts. Corporate Express seeks to
attract new customers, including national and international accounts, through
its marketing efforts and the use of its direct sales force. Corporate Express
continues to expand its product depth, while also expanding its geographic
coverage outside the United States and its sales efforts in all geographic
regions.
OPERATING STRATEGY
Corporate Express intends to continue to increase its revenues and
profitability through continued implementation of its Corporate Supplier and
growth strategies, including the following key elements:
Provide a Broad Offering of Products and Services. Corporate Express
believes that large corporations are focused on minimizing their total
procurement costs, including internal costs, by reducing their total number of
suppliers to a small group of reliable and cost-efficient partners. Corporate
Express believes that its broad product and service offerings and extensive
distribution network provide Corporate Express with an important competitive
advantage in servicing these large corporations. Over the last several years,
Corporate Express has expanded its product offerings to include forms printing
and management, same-day local delivery services, distribution logistics
management, advertising specialties and computer and imaging supplies. Corporate
Express' extensive product and service offerings enable it to reduce customer
procurement costs, including costs associated with dealing with multiple
vendors, such as multiple invoices, deliveries, ordering procedures, uneven
service levels and inconsistent product availability, while also fulfilling its
customers' broad service and delivery requirements.
Focus on Large Corporations. Corporate Express believes that its transition
from a regional contract stationer to a full service Corporate Supplier is
substantially complete in the United States and that Corporate Express is
positioned to effectively and profitably service large, multi-location
customers. Moreover, Corporate Express believes that these large customers value
Corporate Express' broad product and service offerings, extensive geographic
distribution network, high customer service levels and sophisticated information
systems. Larger customers typically utilize many of Corporate Express'
capabilities, which enhances Corporate Express' purchasing power and economies
of scale. Approximately 90% of the Fortune 500 companies, including General
Motors Corporation, Hewlett-Packard Company, Oracle Corporation, AT&T
Corporation, The Walt Disney Company, IBM Corporation and Exxon Corporation,
order a portion of their required non-production goods or services from one or
more of Corporate Express' business segments.
Provide Superior Customer Service. Corporate Express believes that its
customers value the high level of customer service which Corporate Express
provides through its experienced direct sales force, sophisticated information
systems and highly efficient global distribution network. Corporate Express'
Corporate Supplier model enables it to differentiate itself from competitors by
offering its customers important services including reliable delivery, a broad
product assortment, national account service, electronic interfaces, customized
reporting and other customized services. A key element to providing these
services is Corporate Express' advanced computer systems which, when installed
or linked to a customer's systems, provide significant cost savings for both
Corporate Express and the customer and enhanced access to information.
Enhance and Utilize Purchasing Power. Corporate Express believes that the
large volume of its purchases combined with its centralized purchasing and
merchandising operation provides Corporate Express with an important competitive
advantage. Corporate Express continually seeks to reduce its merchandise
2
<PAGE> 11
costs, enabling it to offer its customers competitive prices while increasing
its margins. By purchasing most of its products directly from manufacturers in
large volumes and limiting the number of manufacturers represented in its
catalogs, Corporate Express is increasingly able to improve its vendor terms,
including earning increased volume discounts and allowances.
Consolidate and Upgrade Facilities. Corporate Express has historically
grown internally and through numerous acquisitions of small office products and
service companies. Corporate Express seeks to increase the sales, profitability
and asset productivity of its acquisitions by combining them with Corporate
Express' existing operations, implementing Corporate Express' business model,
eliminating redundant facilities and upgrading certain existing facilities. The
process of integrating acquisitions and consolidating facilities often has
certain short-term adverse effects on operations including, in certain cases,
increased operating costs associated with consolidation or relocation of
facilities and a reduction in sales as smaller, unprofitable accounts are
discontinued. Once completed, however, facility consolidations allow Corporate
Express to reduce its operating costs, enhance its customer service and increase
its revenues and profitability as management's attention shifts from managing
the consolidations to increasing account penetration. Because Corporate Express
has completed a majority of the planned facility consolidations in its domestic
office products business and in several of its international markets, Corporate
Express believes that it is now well-positioned to expand its operating margins
over the next several years.
Utilize Proprietary Computer Software and Systems. Corporate Express
believes that its proprietary software and information systems represent key
strategic advantages which enable Corporate Express to achieve cost savings,
provide superior customer service and centrally manage its operations. Corporate
Express has made substantial investments in the development and enhancement of
its proprietary computer software applications and believes that its software
and information systems are the most sophisticated in the industry. During
fiscal 1997, Corporate Express completed the development and implementation of
its ISIS computer software for its national account customers and successfully
launched the internet version of E-Way, its electronic commerce, ordering and
fulfillment system. Corporate Express' proprietary ISIS system utilizes
three-tier client/server architecture that allows customers and suppliers to
better communicate with Corporate Express while providing lower operating costs
and streamlined operations.
RECENT DEVELOPMENTS
During April 1998, CEI purchased 35,000,000 shares of its outstanding
common stock (the "Share Repurchase") at a price of $10.75 per share pursuant to
a Dutch Auction issuer tender offer. CEI funded the Share Repurchase through
CEX's new $1.0 billion Senior Secured Credit Facility (the "New Credit
Facility"), which consists of a $750 million five-year revolving credit facility
and a $250 million seven-year term loan. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Description of
the New Credit Facility."
On April 29, 1998, CEX commenced a tender offer (the "Tender Offer") for
all of its outstanding $90 million principal amount of 9 1/8% Senior
Subordinated Notes due 2004 (the "9 1/8% Notes"). CEX also solicited consents
(the "Consent Solicitation") to certain indenture amendments. The Consent
Solicitation expired on May 13, 1998. The Tender Offer expired on May 28, 1998.
The Tender Offer payments, Consent Solicitation payments and related expenses
totalled approximately $94 million.
On May 29, 1998, Corporate Express consummated the sale of $350,000,000
principal amount of the Old Notes (the "Old Note Offering"). The proceeds of the
sale of the Old Notes were used to repay certain indebtedness under the New
Credit Facility and to fund the Tender Offer and the Consent Solicitation. The
amount of indebtedness repaid under the New Credit Facility was $245,000,000,
and as of August 31, 1998, Corporate Express had $480,597,000 outstanding (which
includes outstanding letters of credit) under the New Credit Facility and an
unused borrowing capacity of $519,403,000.
The Old Notes and the New Notes are guaranteed by CEI and the Subsidiary
Guarantors on a senior subordinated basis. The non-guarantor subsidiaries had
net sales and net income in fiscal 1994 of $1,694,000 and $1,000, respectively,
in fiscal 1995 of $238,200,000 and $3,771,000, respectively, in fiscal 1996 of
3
<PAGE> 12
$565,126,000 and $144,000, respectively, in fiscal 1997 of $671,567,000 and
$854,000, respectively, and for the six months ended August 1, 1998 of
$443,651,000 and $1,642,000, respectively.
CORPORATE STRUCTURE
CEI is a holding company which owns all of the outstanding capital stock of
CEX which, through all of its domestic and foreign subsidiaries, conducts all of
the business of Corporate Express. CEX is the only material first-tier
subsidiary of CEI.
4
<PAGE> 13
THE EXCHANGE OFFER
THE EXCHANGE OFFER......... Up to $350,000,000 aggregate principal amount of
New Notes are being offered in exchange for a like
aggregate principal amount of Old Notes. Old Notes
may be tendered for exchange in whole or in part in
denominations of $1,000 or any integral multiple
thereof. CEX is making the Exchange Offer in order
to satisfy its obligations under the Registration
Rights Agreement relating to the Old Notes. For a
description of the procedures for tendering Old
Notes, see "The Exchange Offer -- Procedures for
Tendering Old Notes."
EXPIRATION DATE............ 5:00 p.m., New York City time, on
, 1998, unless the Exchange
Offer is extended by CEX (in which case the
Expiration Date will be the latest date and time to
which the Exchange Offer is extended). See "The
Exchange Offer -- Terms of the Exchange Offer."
CONDITIONS TO THE EXCHANGE
OFFER.................... The Exchange Offer is subject to certain conditions
which may be waived by CEX in its sole discretion.
The Exchange Offer is not conditioned upon any
minimum principal amount of Old Notes being
tendered. See "The Exchange Offer -- Conditions to
the Exchange Offer."
OFFER...................... CEX reserves the right in its sole and absolute
discretion, subject to applicable law, at any time
and from time to time, (i) to delay the acceptance
of the Old Notes for exchange, (ii) to terminate
the Exchange Offer if certain specified conditions
have not been satisfied, (iii) to extend the
Expiration Date of the Exchange Offer and retain
all Old Notes tendered pursuant to the Exchange
Offer, subject, however, to the right of holders of
Old Notes to withdraw their tendered Old Notes, or
(iv) to waive any condition or otherwise amend the
terms of the Exchange Offer in any respect. See
"The Exchange Offer -- Terms of the Exchange
Offer."
WITHDRAWAL RIGHTS.......... Tenders of Old Notes may be withdrawn at any time
on or prior to the Expiration Date by delivering a
written notice of such withdrawal to the Exchange
Agent in conformity with certain procedures set
forth below under "The Exchange Offer -- Withdrawal
Rights. "
PROCEDURES FOR TENDERING
OLD NOTES.................. Brokers, dealers, commercial banks, trust companies
and other nominees who hold Old Notes through DTC
may effect tenders by book-entry transfer in
accordance with DTC's Automated Tender Offer
Program ("ATOP"). Holders of such Old Notes
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee are
urged to contact such person promptly if they wish
to tender Old Notes. In order for Old Notes to be
tendered by a means other than by book entry
transfer, a Letter of Transmittal must be completed
and signed in accordance with the instructions
contained herein. The Letter of Transmittal and any
other documents required by the Letter of
Transmittal must be delivered to the Exchange Agent
by mail, facsimile, hand delivery or overnight
carrier and either such Old Notes must be delivered
to the Exchange Agent or specified procedures for
guaranteed delivery must be complied with. See "The
Exchange Offer -- Procedures for Tendering Old
Notes."
5
<PAGE> 14
Letters of Transmittal and certificates
representing Old Notes should not be sent to
Corporate Express. Such documents should only be
sent to the Exchange Agent. See "The Exchange
Offer -- Exchange Agent."
RESALES OF NEW NOTES....... CEX is making the Exchange Offer in reliance on the
position of the staff of the Division of
Corporation Finance of the Commission as set forth
in certain interpretive letters addressed to third
parties in other transactions. CEX has not sought
its own interpretive letter and there can be no
assurance that the staff of the Division of
Corporation Finance of the Commission would make a
similar determination with respect to the Exchange
Offer as it has in such interpretive letters to
third parties. Based on these interpretations by
the staff of the Division of Corporation Finance of
the Commission, and subject to the two immediately
following sentences, CEX believes that New Notes
issued pursuant to this Exchange Offer in exchange
for Old Notes may be offered for resale, resold and
otherwise transferred by a holder thereof (other
than a holder who is a broker-dealer) without
further compliance with the registration and
prospectus delivery requirements of the Securities
Act, provided that such New Notes are acquired in
the ordinary course of such holder's business and
that such holder is not participating, and has no
arrangement or understanding with any person to
participate, in a distribution (within the meaning
of the Securities Act) of such New Notes. However,
any holder of Old Notes who is an "affiliate" of
CEX or who intends to participate in the Exchange
Offer for the purpose of distributing the New
Notes, or any broker-dealer who did not acquire its
Old Notes as a result of market-making or other
trading activities, (a) will not be able to rely on
the interpretations of the staff of the Division of
Corporation Finance of the Commission set forth in
the above-mentioned interpretive letters, (b) will
not be permitted or entitled to tender such Old
Notes in the Exchange Offer and (c) must comply
with the registration and prospectus delivery
requirements of the Securities Act in connection
with any sale or other transfer of such Old Notes
unless such sale is made pursuant to an exemption
from such requirements. In addition, as described
below, if any broker-dealer holds Old Notes
acquired for its own account as a result of
market-making or other trading activities and
exchanges such Old Notes for New Notes, then such
broker-dealer must deliver a prospectus meeting the
requirements of the Securities Act in connection
with any resales of such New Notes. Each holder of
Old Notes who wishes to exchange Old Notes for New
Notes in the Exchange Offer will be required to
represent that (i) it is not an "affiliate" of CEX,
(ii) any New Notes to be received by it are being
acquired in the ordinary course of its business,
(iii) it has no arrangement or understanding with
any person to participate in a distribution (within
the meaning of the Securities Act) of such New
Notes, and (iv) if such holder is not a
broker-dealer, such holder is not engaged in, and
does not intend to engage in, a distribution
(within the meaning of the Securities Act) of such
New Notes. Each broker-dealer that receives New
Notes for its own account pursuant to the Exchange
Offer must acknowledge that it acquired the Old
Notes for its own account as the result of
market-making activities or other trading
activities and must agree that it will deliver a
prospectus meeting the requirements of the
Securities Act in connection with any resale of
such New Notes. The Letter of Transmittal states
that, by so acknowledging
6
<PAGE> 15
and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities
Act. Based on the position taken by the staff of
the Division of Corporation Finance of the
Commission in the interpretive letters referred to
above, CEX believes that Participating
Broker-Dealers who acquired Old Notes for their own
accounts as a result of market-making activities or
other trading activities may fulfill their
prospectus delivery requirements with respect to
the New Notes received upon exchange of such Old
Notes (but not Old Notes that were acquired other
than pursuant to market-making or other trading
activities) with a prospectus meeting the
requirements of the Securities Act, which may be
the prospectus prepared for an exchange offer so
long as it contains a description of the plan of
distribution with respect to the resale of such New
Notes. Accordingly, this Prospectus, as it may be
amended or supplemented from time to time, may be
used by a Participating Broker-Dealer in connection
with resales of New Notes received in exchange for
Old Notes where such Old Notes were acquired by
such Participating Broker-Dealer for its own
account as a result of market-making or other
trading activities. Subject to certain provisions
set forth in the Registration Rights Agreement and
to the limitations described below under "The
Exchange Offer -- Resales of New Notes," CEX has
agreed that this Prospectus, as it may be amended
or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with
resales of such New Notes for a period ending one
year after the Expiration Date (subject to
extension under certain limited circumstances) or,
if earlier, when all such New Notes have been
disposed of by such Participating Broker-Dealer.
See "Plan of Distribution." Any Participating
Broker-Dealer who is an "affiliate" of CEX may not
rely on such interpretive letters and must comply
with the registration and prospectus delivery
requirements of the Securities Act in connection
with any resale transaction. See "The Exchange
Offer -- Resales of New Notes."
EXCHANGE AGENT............. The exchange agent with respect to the Exchange
Offer is The Bank of New York (the "Exchange
Agent"). The addresses, and telephone and facsimile
numbers, of the Exchange Agent are set forth in
"The Exchange Offer -- Exchange Agent" and in the
Letter of Transmittal.
USE OF PROCEEDS............ CEX will not receive any cash proceeds from the
issuance of the New Notes offered hereby. See "Use
of Proceeds."
CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS........... Holders of Old Notes should review the information
set forth under "Certain Federal Income Tax
Consequences" prior to tendering Old Notes in the
Exchange Offer.
7
<PAGE> 16
THE OFFERING
CEX........................ CEX Holdings, Inc.
CEI........................ Corporate Express, Inc.
CORPORATE EXPRESS.......... CEI, CEX and all of their respective domestic and
foreign Subsidiaries.
SECURITIES OFFERED......... $350,000,000 aggregate principal amount of Series B
9 5/8% Senior Subordinated Notes due 2008.
MATURITY DATE.............. June 1, 2008.
INTEREST RATE; PAYMENT
DATES...................... The New Notes will bear interest at the rate of
9 5/8% per annum from the date of issuance, payable
semi-annually on June 1 and December 1 of each
year, commencing December 1, 1998.
GUARANTEES................. The New Notes will be guaranteed by CEI and will be
guaranteed by CEX's Subsidiaries and any future
Subsidiaries, other than Receivables Subsidiaries,
Finance Subsidiaries, Excluded Subsidiaries,
Foreign Subsidiaries and Unrestricted Subsidiaries
(such guaranteeing Subsidiaries being referred to
collectively as the "Subsidiary Guarantors" and,
together with CEI, the "Guarantors") on a senior
subordinated basis.
RANKING.................... The New Notes will be subordinated in right of
payment to existing and future Senior Debt of CEX,
including indebtedness incurred under the New
Credit Facility. The guarantees of CEI and the
Subsidiary Guarantors (the "Guarantees") will be
subordinated to the prior payment in full of all
Senior Debt of CEI and the Subsidiary Guarantors.
As of August 1, 1998 CEX and the Subsidiary
Guarantors would have had outstanding an aggregate
principal amount of approximately $446.1 million of
Senior Debt which would rank senior in right of
payment to the Notes and guarantees, respectively,
and the nonguarantor subsidiaries would have had
approximately $81.5 million of indebtedness which
would be effectively senior to the Notes and the
guarantees, respectively. Thus, in total, as of
August 1, 1998, the New Notes would have been
subordinated in right of payment to approximately
$527.6 million of indebtedness. As of August 1,
1998, CEI had no Senior Debt but had outstanding
$325.0 million of Convertible Notes which would
rank pari passu with CEI's guarantee of the New
Notes, but which would be structurally subordinated
to the New Notes. See "Description of the
Notes -- Subordination."
OPTIONAL REDEMPTION........ Except as described below, the New Notes will not
be redeemable by CEX prior to June 1, 2003. On or
after that date, the New Notes may, subject to
certain requirements, be redeemed at the option of
CEX, in whole or in part, at the redemption prices
set forth herein, together with accrued and unpaid
interest to the date of redemption. In addition, at
any time on or before June 1, 2001, CEX may redeem
up to 35% of the aggregate principal amount of the
Notes and any Additional Notes issued under the
Indenture with the net cash proceeds of one or more
Public Equity Offerings at a redemption price equal
to 109.625% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages,
if any, to the date of redemption, provided that
not less than 65% of the aggregate principal amount
of the Notes and any Additional Notes issued under
the Indenture is outstanding immediately
8
<PAGE> 17
after giving effect to such redemption. See
"Description of the Notes -- Optional Redemption."
CHANGE OF CONTROL.......... Upon an occurrence of a Change of Control, CEX will
be required to make an offer to repurchase the New
Notes at a price equal to 101% of the aggregate
principal amount thereof plus accrued and unpaid
interest and Liquidated Damages thereon, if any, to
the date of purchase. CEX may be prohibited from
making such repurchase either because sufficient
funds are not available at the time of the Change
of Control, or because restrictions in the New
Credit Facility or under Corporate Express' debt
instruments existing at such time prohibit CEX from
making such repurchase. The Indenture provides that
prior to making an offer to repurchase the New
Notes upon a Change of Control, CEX must repay the
outstanding indebtedness under the New Credit
Facility (or any replacement thereof) or obtain
consents from the lenders thereunder to permit the
repurchase of the Notes. As a result of the
adoption of a Shareholder Rights Plan on January
14, 1998, it is unlikely that a "change of control"
would occur without the approval of the board of
directors of Corporate Express. See "Risk
Factors -- Inability to Purchase Notes upon a
Change of Control" and "Description of
Notes -- Certain Covenants."
A Change of Control under the Indenture will
constitute a Change of Control under the New Credit
Facility and result in an obligation to repay
indebtedness thereunder. However, a Change of
Control under the New Credit Facility may not
constitute a Change of Control under the Indenture
because the Change of Control provisions of the
Indenture are, in limited circumstances, less
restrictive than those contained in the New Credit
Facility. See "Description of New Credit
Facility -- Events of Default."
CERTAIN COVENANTS.......... The Indenture contains certain covenants that
impose limitations on, among other things:
(i) the incurrence of additional indebtedness;
(ii) the issuance of Disqualified Capital Stock
by CEX and its subsidiaries;
(iii) the making of certain Restricted Payments.
The Indenture does not prohibit CEX from
paying dividends to CEI for the purpose of
making certain principal and interest
payments on the Convertible Notes. In
addition, the Indenture permits CEX and the
Subsidiary Guarantors to make Investments
in (i) non-guarantor subsidiaries that are
Wholly Owned Foreign Subsidiaries engaged
in a Related Business and (ii) other
non-guarantor subsidiaries; provided that,
after giving effect to the Investment in
such other non-guarantor subsidiary, (1) no
event of default shall have occurred under
the Indenture, (2) the aggregate of all
Restricted Investments made under the
Indenture to the date of the proposed
Investment, with certain exceptions, does
not exceed the sum of (x) $50.0 million,
and (y) an amount, not to exceed $65.5
million, related to Investments made prior
to the date of original issuance of the Old
Notes; See "Description of
9
<PAGE> 18
Notes -- Certain Covenants -- Limitation on
Restricted Payments";
(iv) the imposition of restrictions on the
payments of dividends and other payment
restrictions affecting subsidiaries. There
are no provisions under existing
indebtedness of CEX or the Subsidiary
Guarantors that restrict the Subsidiary
Guarantors' ability to pay dividends to
CEX;
(v) the incurrence of liens;
(vi) transactions with affiliates; and
(vii) the consummation of certain mergers,
consolidations or sales of assets. The
Indenture provides that in lieu of making
an offer to repurchase the Notes with the
proceeds of an Asset Sale, CEX or a
Subsidiary Guarantor may (a) with certain
exceptions, make Permitted Investments or
acquire assets or property for any Related
Business, or (b) with certain exceptions,
retire other indebtedness of CEX and its
Subsidiaries which is either senior in
right of payment to the New Notes or
permitted to be incurred under provisions
of the Indenture. Asset sales that are
material to Corporate Express, as a whole,
are approved by the board of directors of
Corporate Express. See "Description of
Notes -- Certain Covenants -- Limitation on
Sale of Assets and Subsidiary Stock."
The Indenture prohibits the modification of, among
other things, the Change of Control covenant and
certain provisions of the Asset Sale covenant
without the required consent of holders of the
outstanding Notes. See "Description of
Notes -- Amendments and Supplements."
EVENTS OF DEFAULT AND
REMEDIES................... The Indenture provides that upon the occurrence of
an event of default thereunder (including, without
limitation, upon the failure to repurchase the New
Notes when required upon the occurrence of a Change
of Control or an Asset Sale), either the trustee
under the Indenture or holders of at least 25% in
aggregate principal amount of the outstanding Notes
may, subject to certain limitations related to
Senior Debt under the New Credit Facility, declare
all principal and interest on the Notes immediately
due and payable. See "Description of
Notes -- Events of Default and Remedies."
Certain defaults under certain other indebtedness
of Corporate Express, including indebtedness under
the New Credit Facility (primarily those defaults
related to the failure to pay such indebtedness or
defaults resulting in the acceleration of the
maturity of such indebtedness), will result in an
Event of Default under the Indenture. See
"Description of Notes -- Events of Defaults and
Remedies." Likewise, certain defaults under the
Indenture (primarily those defaults related to the
failure to pay indebtedness under the Indenture or
defaults resulting in the acceleration of the
maturity of indebtedness under the Indenture) will
result in an Event of Default under other
indebtedness of Corporate Express, including the
New Credit Facility. See "Description of New Credit
Facility -- Events of Default."
10
<PAGE> 19
USE OF PROCEEDS............ CEX will not receive any cash proceeds in the
Exchange Offer. CEX used the net proceeds of the
offering of the Old Notes to repay indebtedness
under the New Credit Facility and to fund the
Tender Offer and the Consent Solicitation. See "Use
of Proceeds."
NO PERSONAL LIABILITY OF
DIRECTORS, OFFICERS,
EMPLOYEES AND
STOCKHOLDERS............. The Indenture provides that no direct or indirect
stockholder, employee, officer or director, as
such, past, present or future of CEX, the
Guarantors or any successor entity shall have any
personal liability in respect of the obligations of
CEX or the Guarantors under the Indenture or the
Notes solely by reason of his or its status as such
stockholder, employee, officer or director.
Corporate Express has been advised that it is the
opinion of the Commission that the indemnification
described in the preceding sentence may be
unenforceable in that it is against public policy.
For more complete information regarding the New Notes, including
definitions of certain capitalized terms used above, see "Description of Notes."
RISK FACTORS
Holders should consider carefully the information set forth under the
caption "Risk Factors," and all other information set forth in this Prospectus
in deciding whether to tender their Old Notes in the Exchange Offer.
11
<PAGE> 20
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth summary consolidated historical and pro forma
financial data of Corporate Express. The summary consolidated financial data for
each of fiscal years 1994, 1995 and 1996 and the eleven months ended January 31,
1998 has been derived from the audited consolidated financial statements of
Corporate Express and the related notes thereto. The summary consolidated
financial data for the eleven months ended February 1, 1997 and the six month
periods ended August 2, 1997 and August 1, 1998 has been derived from the
unaudited consolidated financial statements of Corporate Express. The Pro Forma
As Adjusted financial data for the twelve months ended January 31, 1998 and the
Pro Forma financial data for the six months ended August 1, 1998 have been
derived from the Unaudited Pro Forma Consolidated Financial Data and related
notes thereto included elsewhere herein. The data presented below should be read
in conjunction with Corporate Express' Annual Report on Form 10-K, as amended by
the Form 10-K/A filed on October 23, 1998, the Quarterly Reports on Form 10-Q
and the Current Report on Form 8-K filed on July 29, 1998, as amended by the
Form 8-K/A filed on October 23, 1998, each incorporated by reference herein, the
Unaudited Pro Forma Consolidated Financial Data and the related notes thereto
included elsewhere herein, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED
TWELVE MONTHS
ELEVEN MONTHS ENDED ENDED
FISCAL YEAR ------------------------- -------------
------------------------------------ FEBRUARY 1, JANUARY 31, JANUARY 31,
1994 1995 1996 1997(1) 1998 1998(2)
---------- ---------- ---------- ----------- ----------- -------------
(UNAUDITED) (UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.................. $1,145,151 $1,890,639 $3,196,056 $2,911,189 $3,573,311 $4,076,035
Gross profit............... 289,790 467,321 778,310 705,830 840,003 968,943
Warehouse operating and
selling expenses......... 219,213 342,581 562,879 508,676 605,243 689,826
Corporate general and
administrative
expenses................. 29,624 49,742 95,101 87,793 105,055 120,580
Merger and other non-
recurring charges(4)..... -- 36,838 19,840 19,841 14,890 10,400
Operating profit........... 40,953 38,160 100,490 89,520 114,815 148,137
Interest expense, net...... 16,915 17,968 26,949 24,550 38,115 89,699
Income from continuing
operations............... 16,237 6,776 41,996 35,708 44,404 34,569
Pro forma income per share
from continuing
operations -- Basic(5)..... $ 0.20 $ 0.06 $ 0.33 $ 0.28 $ 0.34 $ 0.25
Pro forma income per share
from continuing
operations -- Diluted(5)... $ 0.19 $ 0.06 $ 0.31 $ 0.26 $ 0.32 $ 0.24
Weighted average common
shares outstanding:
Basic...................... 75,400 104,162 121,901 121,612 131,423 140,021
Diluted.................... 79,026 110,408 130,029 129,749 137,858 146,707
<CAPTION>
PRO FORMA
SIX MONTHS
SIX MONTHS ENDED ENDED
----------------------- -----------
AUGUST 2, AUGUST 1, AUGUST 1,
1997(1) 1998(1) 1998(3)
---------- ---------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.................. $1,846,538 $2,226,222 $2,226,222
Gross profit............... 434,328 517,249 517,249
Warehouse operating and
selling expenses......... 321,183 363,087 363,087
Corporate general and
administrative
expenses................. 55,379 66,873 66,873
Merger and other non-
recurring charges(4)..... 333 -- --
Operating profit........... 57,433 87,289 87,289
Interest expense, net...... 18,825 35,436 46,915
Income from continuing
operations............... 24,674 28,087 21,085
Pro forma income per share
from continuing
operations -- Basic(5)..... $ 0.19 $ 0.23 $ 0.20
Pro forma income per share
from continuing
operations -- Diluted(5)... $ 0.19 $ 0.22 $ 0.19
Weighted average common
shares outstanding:
Basic...................... 127,268 121,142 107,873
Diluted.................... 133,015 125,156 111,887
</TABLE>
<TABLE>
<CAPTION>
AT AUGUST 1, 1998
-----------------
ACTUAL(7)
-----------------
(DOLLARS IN
THOUSANDS)
<S> <C>
BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 30,327
Total assets.............................................. 2,454,942
Total Issuer debt(6)...................................... 930,278
Total debt................................................ 1,255,278
Total stockholders' equity................................ 575,056
</TABLE>
- ------------------------------
(1) The summary unaudited consolidated financial data for the six months ended
August 1, 1998 and August 2, 1997 and the eleven months ended February 1,
1997 have been prepared on the same basis as the audited consolidated
financial statements and, in the opinion of management, contain all
adjustments, consisting of only normal recurring adjustments, necessary for
a fair presentation of the results of operations for this period.
(2) Pro forma to give effect to (i) the results of Data Documents Incorporated
("DDI") for the period beginning February 2, 1997 and ending immediately
prior to the acquisition of DDI by Corporate Express on November 26, 1997
and (ii) the unaudited results of Corporate Express for the one month period
ended March 1, 1997; adjusted to reflect (a) the Share Repurchase and the
New Credit Facility and (b) the sale of the Old Notes and the anticipated
application of the net proceeds therefrom.
(3) Pro forma to give effect to the Share Repurchase, the New Credit Facility
and the sale of the Old Notes and the application of the net proceeds
therefrom as if they were completed at the beginning of the fiscal year
1997. See "Use of Proceeds."
(4) Merger and other non-recurring charges in the eleven months ended January
31, 1998 include acquisition costs incurred by DDI in connection with the
DDI acquisition, the continued integration of delivery services and certain
provisions for reductions in workforce and facility closures at other
locations. Merger and other non-recurring charges in prior periods relate
primarily to the mergers with Sofco, HMI, Nimsa and UT in fiscal 1996 and
Delivery and Young in fiscal 1995 and include, among other things, costs to
complete the acquisitions, costs of merging and closing redundant
facilities, and costs associated with personnel reductions and centralizing
certain administrative functions.
(5) Pro forma income from continuing operations reflects the additional taxes
that would be incurred to treat a subchapter S acquisition as if the
acquired company was a C corporation. Pro forma income per share from
continuing operations is calculated by dividing pro forma income from
continuing operations, after preferred stock dividend requirements of Young
of $432,000 for fiscal 1994, by basic and diluted weighted common shares
outstanding.
(6) Excludes $325 million principal amount of CEI's 4 1/2% Convertible Notes due
July 2000 (the "Convertible Notes").
(7) Balance Sheet Data at August 1, 1998 includes the share repurchase, the New
Credit Facility and the sale of the Old Notes which were completed during
the six months ended August 1, 1998. See "Use of Proceeds."
(8) EBITDA represents net income before net interest expense, income tax
expense, depreciation and amortization expense and merger and other non-
recurring charges. Corporate Express has presented EBITDA because it is
commonly used by certain investors and analysts to analyze and compare
companies on the basis of operating performance, leverage and liquidity and
to determine a company's ability to service debt. However, EBITDA should not
be considered in isolation or as a substitute for net income (loss), cash
flow from continuing operations or other data prepared in accordance with
generally accepted accounting principles or as a measure of Corporate
Express' profitability or liquidity. EBITDA for the pro forma as adjusted
twelve months ended January 31, 1998, the six months ended August 2, 1997
and August 1, 1998 and the pro forma six months ended August 1, 1998 was
$234,518,000, $90,337,000, $126,800,000 and $126,800,000, respectively. For
the pro forma as adjusted twelve months ended January 31, 1998, the ratios
of Issuer Debt to EBITDA, Consolidated Net Debt to EBITDA and EBITDA to Net
Interest Expense were 3.8x, 5.0x and 2.6x, respectively. For the pro forma
six months ended August 1, 1998, the ratios of Issuer Debt to EBITDA,
Consolidated Net Debt to EBITDA and EBITDA to Net Interest Expense were
3.7x, 4.8x and 2.7x, respectively. Consolidated EBITDA as defined in the
Indenture for the pro forma as adjusted twelve months ended January 31,
1998, the six months ended August 2, 1997 and August 1, 1998 and the pro
forma six months ended August 1, 1998 was $262,878,000, $103,492,000,
$145,746,000 and $145,746,000, respectively.
12
<PAGE> 21
RISK FACTORS
Prospective investors should consider carefully the specific factors set
forth below, as well as the other information included in this Prospectus,
before deciding to tender their Old Notes in the Exchange Offer.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS: THIS PROSPECTUS INCLUDES
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995 (SECTION 27A OF THE SECURITIES ACT AND SECTION 21E
OF THE EXCHANGE ACT). CORPORATE EXPRESS WISHES TO ENSURE THAT ALL SUCH
FORWARD-LOOKING STATEMENTS ARE ACCOMPANIED BY MEANINGFUL CAUTIONARY STATEMENTS
PURSUANT TO THE SAFE HARBOR ESTABLISHED IN SUCH ACT. ALL STATEMENTS OTHER THAN
STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS PROSPECTUS, INCLUDING WITHOUT
LIMITATION, CERTAIN STATEMENTS UNDER "SUMMARY," "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "THE BUSINESS,"
MAY CONSTITUTE FORWARD-LOOKING STATEMENTS. FORWARD-LOOKING STATEMENTS INCLUDE
THE INTENT, BELIEF OR CURRENT EXPECTATIONS OF CORPORATE EXPRESS AND MEMBERS OF
ITS SENIOR MANAGEMENT TEAM. ALL FORWARD-LOOKING STATEMENTS ARE INHERENTLY
UNCERTAIN AS THEY ARE BASED ON VARIOUS EXPECTATIONS AND ASSUMPTIONS CONCERNING
FUTURE EVENTS AND THEY ARE SUBJECT TO NUMEROUS KNOWN AND UNKNOWN RISKS AND
UNCERTAINTIES WHICH COULD CAUSE ACTUAL EVENTS OR RESULTS TO DIFFER MATERIALLY
FROM THOSE PROJECTED. DUE TO THOSE UNCERTAINTIES AND RISKS, PROSPECTIVE
PARTICIPANTS IN THE EXCHANGE OFFER ARE URGED NOT TO PLACE UNDUE RELIANCE ON SUCH
FORWARD-LOOKING STATEMENTS CONTAINED IN THIS PROSPECTUS. ALTHOUGH CORPORATE
EXPRESS BELIEVES THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING
STATEMENTS ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL
PROVE TO HAVE BEEN CORRECT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO
DIFFER MATERIALLY FROM CORPORATE EXPRESS' EXPECTATIONS ("CAUTIONARY STATEMENTS")
ARE DISCLOSED IN THIS PROSPECTUS, INCLUDING, WITHOUT LIMITATION, IN CONJUNCTION
WITH THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS AND UNDER "RISK
FACTORS." ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS
ATTRIBUTABLE TO CORPORATE EXPRESS OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY
QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS. CORPORATE EXPRESS
UNDERTAKES NO OBLIGATION TO UPDATE OR REVISE THIS "SAFE-HARBOR COMPLIANCE
STATEMENT FOR FORWARD-LOOKING STATEMENTS" TO REFLECT FUTURE DEVELOPMENTS.
Corporate Express hereby identifies the following important factors, among
others, which could cause its results to differ from any results which might be
projected, forecasted or estimated in any such forward-looking statements: risks
associated with the substantial leverage of Corporate Express, subordination of
the Notes, restrictive debt covenants, enforceability of guarantees, integration
of acquisitions, acceptance of Corporate Express' expanded product and service
offerings, dependence on systems, dependence on acquisitions for additional
growth, international expansion, as well as other factors described elsewhere in
this Prospectus.
Leverage. Corporate Express has substantial indebtedness. As of August 1,
1998, on a pro forma basis giving effect to the Share Repurchase, the New Credit
Facility and the Old Note Offering and the application of the net proceeds
therefrom, Corporate Express had total consolidated indebtedness of
approximately $1.3 billion. On a pro forma as adjusted basis (as described in
the Unaudited Pro Forma Consolidated Financial Data), Corporate Express' ratio
of earnings to fixed charges was 1.6 to 1 for the latest six months ended August
1, 1998. Subject to the restrictions in the New Credit Facility and the
Indenture, Corporate Express and its subsidiaries may incur additional
indebtedness from time to time to finance capital expenditures and acquisitions
and for other general corporate purposes. See "Management's Discussion and
13
<PAGE> 22
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources," "Description of the New Credit Facility" and "Description of
the Notes."
The degree to which Corporate Express is leveraged could have important
consequences to the holders of the Notes, including: (i) Corporate Express may
be more vulnerable to economic downturns and other adverse developments and more
limited in its ability to withstand competitive pressures than its competitors
that are not as leveraged; (ii) the possible limitation in the future on
Corporate Express' ability to obtain additional financing for working capital,
acquisitions, capital expenditures, debt service requirements or other purposes;
(iii) a substantial portion of Corporate Express' cash flow from operations will
be dedicated to the payment of the principal of and interest on its
indebtedness, thereby reducing funds available for operations and capital
additions; (iv) certain of Corporate Express' borrowings, primarily the
borrowings under the New Credit Facility, will be at variable rates of interest
which could cause Corporate Express to be vulnerable to increases in interest
rates; (v) the Notes will mature after substantially all of CEX's and CEI's
respective other indebtedness, including all borrowings under the New Credit
Facility and the Convertible Notes; and (vi) Corporate Express's leveraged
status may affect its ability to make acquisitions in the future.
Corporate Express' ability to make scheduled payments of the principal of,
or interest on, or to refinance, its indebtedness, including the Notes, will
depend on its future operating performance and cash flow, which are subject to
prevailing economic conditions, prevailing interest rate levels, and financial,
competitive, business and other factors, many of which are beyond Corporate
Express' control, as well as the availability of borrowings under the New Credit
Facility or successor facilities. However, based upon the current and
anticipated level of operations, Corporate Express believes that its cash flow
from operations, together with amounts available under the New Credit Facility,
will be adequate to meet its anticipated cash requirements for working capital,
capital expenditures, interest payments and scheduled principal payments. There
can be no assurance, however, that Corporate Express' business will continue to
generate cash flow at or above current levels. If Corporate Express is unable to
generate sufficient cash flow from operations in the future to service its
indebtedness, it may be required to refinance all or a portion of its
indebtedness, including the Notes, or to obtain additional financing or to
dispose of material assets or operations. The New Credit Facility and the
Indenture restrict Corporate Express' ability to sell assets and/or use the
proceeds therefrom. There can be no assurance that any such refinancing or asset
sales would be possible under Corporate Express' debt instruments existing at
such time, that the proceeds which Corporate Express could realize from such
refinancing or asset sales would be sufficient to meet Corporate Express'
obligations then due or that any additional financing could be obtained.
Ranking; Foreign Subsidiaries. The Notes will be general unsecured
obligations of the Issuer and will be subordinated in right of payment to all
current and future Senior Debt of CEX. The Notes will be guaranteed by CEI and
will be guaranteed by the Subsidiary Guarantors, which consist of all of
Corporate Express's present and future Subsidiaries, other than Receivables
Subsidiaries, Finance Subsidiaries, Excluded Subsidiaries, Foreign Subsidiaries
and Unrestricted Subsidiaries. The Guarantees will be general unsecured
obligations of CEI and the Subsidiary Guarantors, as the case may be, and will
be subordinated in right of payment to all current and future Senior Debt of CEI
and the Subsidiary Guarantors. As of August 1, 1998, CEX and the Subsidiary
Guarantors would have had approximately $446.1 million of Senior Debt which
would rank senior in right of payment to the Notes and Guarantees, respectively,
and the nonguarantor subsidiaries would have had approximately $81.5 million of
indebtedness which would be effectively senior to the Notes and the guarantees.
Thus, in total, as of August 1, 1998 the New Notes would have been subordinated
in right of payment to approximately $527.6 million of indebtedness. As of
August 1, 1998, CEI had no Senior Debt but had outstanding $325.0 million of
Convertible Notes, which would rank pari passu with the Notes, but which would
be structurally subordinated to the Notes. By reason of such subordination, in
the event of a bankruptcy, liquidation, dissolution, reorganization or similar
proceeding with respect to CEI, CEX or any of the Subsidiary Guarantors, or upon
a default in payment with respect to, or the acceleration of, any Senior Debt,
the holders of such Senior Debt must be paid in full before the holders of the
Notes may be paid. Moreover, under certain circumstances, if any non-payment
default exists with respect to certain Senior Debt, CEX may not make any payment
on the Notes for a specified time, unless such default is cured or waived, any
acceleration of such Senior Debt has been rescinded or such Senior Debt has been
paid in full.
14
<PAGE> 23
See "Description of Notes -- Subordination." The approximately $1.2 million
principal amount of 9 1/8% Notes remaining outstanding after the Tender Offer,
and any additional pari passu debt that CEX may issue, would be entitled to
share ratably with the holders of the Notes in any proceeds distributed in
connection with any insolvency, liquidation, reorganization, dissolution or
other winding-up of CEX.
Corporate Express conducts certain of its foreign operations through
Foreign Subsidiaries. The Foreign Subsidiaries will not, and future Foreign
Subsidiaries are not expected to, guarantee the Notes. Consequently, any right
of Corporate Express or the Subsidiary Guarantors to receive the assets of any
such Foreign Subsidiary upon such Foreign Subsidiary's liquidation or
reorganization (and the consequent right of the holders of the Notes to
participate in the distribution of the proceeds of those assets) effectively
will be subordinated by operation of law to the claims of such Foreign
Subsidiary's creditors (including trade creditors) and holders of its preferred
stock.
Rapid Expansion; Integration of Acquisitions. Through numerous acquisitions
completed since 1991, Corporate Express significantly increased the scope of its
operations from a regional operation in Colorado to operations throughout the
United States, Canada, the United Kingdom, Australia, New Zealand, Germany,
France, Italy, Ireland and Switzerland. The majority of these acquisitions have
occurred since 1994. There can be no assurance that Corporate Express'
management and financial controls, personnel, computer systems and other
corporate support systems will be adequate to manage the increase in the size
and scope of Corporate Express' operations and acquisition activity.
An important part of Corporate Express' strategy is to integrate its
acquisitions in North America into its operations. Such integration of
operations is an ongoing, continuous process for Corporate Express and Corporate
Express has not fully integrated all of its acquired businesses into existing
operations. There can be no assurance that Corporate Express will successfully
integrate recent and future acquisitions into its existing operations. Recent
acquisitions may not achieve sales, profitability or asset productivity
commensurate with Corporate Express' more mature regions. In addition,
acquisitions involve a number of special risks, including adverse short-term
effects on Corporate Express' reported operating results, the diversion of
management's attention, the dependence on retention, hiring and training of key
personnel, the amortization of acquired intangible assets and risks associated
with unanticipated problems or legal liabilities, some or all of which could
have a material adverse effect on Corporate Express' operations and financial
performance.
International Expansion. To date, Corporate Express has acquired or made
investments in companies in Canada, Australia, the United Kingdom, Germany,
France, New Zealand, Italy, Ireland and Switzerland. Corporate Express
anticipates that such international expansion will continue in the future.
Corporate Express' existing Foreign Subsidiaries are not, and future Foreign
Subsidiaries will not be, guarantors of the obligations under the Notes. Over
time, Corporate Express plans to implement appropriate aspects of Corporate
Express' business model in its international operations, including creating
in-stock catalogs, consolidating warehouses, upgrading information systems,
acquiring companies offering complementary products and services and focusing on
larger customers and national and international accounts. Expansion into
international markets may involve additional risks relating to implementing key
aspects of Corporate Express' business model, as well as risks relating to
fluctuations in currency exchange rates, new and different legal, tax,
accounting and regulatory requirements, difficulties in staffing and managing
foreign operations, operating difficulties and other factors. In addition,
Corporate Express' results may be negatively affected by competitive or
operating difficulties arising out of the evolving integration of Europe into a
single economic unit.
Expanded Product and Service Offerings. Corporate Express has significantly
expanded its product and service offerings through the acquisition of Richard
Young Journal, Inc. ("Young"), a computer products distributor, U.S. Delivery
Systems, Inc. ("Delivery") and United TransNet, Inc. ("UT"), same-day local
delivery companies, ASAP Software Express, Inc. ("ASAP"), a direct reseller of
computer software and provider of related services, Hermann Marketing, Inc.
("HMI"), an advertising specialties distributor, Sofco-Mead, Inc. ("Sofco"), a
janitorial and cleaning supplies distributor and DDI, a designer and provider of
custom business forms, pressure-sensitive label products and forms management
systems. Certain complementary products now offered by Corporate Express, such
as computer software, have lower gross profit
15
<PAGE> 24
margins than the products traditionally sold by Corporate Express. To the extent
such lower gross profit margins cannot be offset by lower operating expenses
associated with such products, Corporate Express would expect that operating
profit as a percentage of consolidated net sales would decline. Corporate
Express intends to continue to make additions to its product and service
offerings in the future. Moreover, the addition by Corporate Express to its
product and service offerings presents certain risks and uncertainties involving
Corporate Express' relative unfamiliarity with these new products and services
and the market for such new products and services. There can be no assurance
that Corporate Express will be successful in developing or integrating these or
other additions, or that its existing customers will accept such additions, to
the products and services currently offered by Corporate Express. In addition,
Corporate Express' delivery services business has experienced, and may continue
to experience, significant fluctuations in operating performance as it
consolidates operations and introduces new systems, procedures and controls in
its efforts to stabilize and standardize operations. This business sector has
recently experienced significant changes in management and there is no assurance
that the new management will be successful in improving operating performance or
in maintaining current operating margins. This business sector may become
subject to unionization efforts or have its existing relationships with
independent contractors challenged or altered, thereby potentially increasing
Corporate Express' operating costs with respect to this business sector.
Dependence on Systems. Corporate Express continues to develop its computer
software and has implemented its national accounts system. Corporate Express'
ISIS software is being developed to incorporate three-tier client/server
architecture that is expected to permit customers and suppliers to better
communicate with Corporate Express. ISIS is intended to give Corporate Express
the ability to more readily customize its product offerings, operating
procedures and customer services. This is expected to give Corporate Express the
ability to integrate various product and service offerings, enabling it to
reduce procurement costs for its customers and add value as a service provider.
There can be no assurance that Corporate Express' goals with respect to the
systems will be attained or that Corporate Express' existing systems (or systems
acquired by Corporate Express in connection with business acquisitions) will not
experience difficulties as a result of the advent of the year 2000. See "Impact
of the Year 2000." Pending full introduction of the ISIS upgrades, which could
take longer than expected, various of Corporate Express' operations will be
dependent upon different hardware or software operating systems which may be
costly to maintain or integrate. Further, Corporate Express anticipates that
ongoing modifications to its computer systems such as the introduction of the
new release of ISIS will continue to be made in the future and such
modifications may cause disruptions in operations, delay the integration of
acquisitions, or cost more to design, implement or operate than currently
budgeted. Any such disruptions, delays or costs could have a material adverse
effect on Corporate Express' operations and financial performance. Although
Corporate Express uses computers which have been reliable to date, it does not
currently have redundant computer systems or redundant dedicated communication
lines linking one of its computers to each regional warehouse.
Impact of the Year 2000. Corporate Express' ISIS computer software has been
designed with the Year 2000 issue in mind, and Corporate Express believes that
such software is Year 2000 compliant. However, Corporate Express utilizes many
different computer systems to process and summarize business transactions.
Corporate Express is continuing the evaluation of its various operating systems
and determining the additional remediation efforts required to ensure its
computer systems will properly utilize dates beyond December 31, 1999.
Preliminary results of this assessment have revealed that remediation efforts
required will vary from system to system. Corporate Express presently believes
that with modifications to existing software and conversion to new software for
those sites which it believes may be effected, the Year 2000 issue can be
mitigated. However, if such modifications are not made, or are not timely
completed, the Year 2000 issue could have a material adverse effect on the
operations of Corporate Express. The total estimated cost of the Year 2000
project, which will utilize both external and internal resources to reprogram or
replace and test the software for Year 2000 modifications, is estimated to be
between $6,000,000 and $8,000,000 and is being funded through operating cash
flows. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Impact of the Year 2000."
16
<PAGE> 25
Dependence on Acquisitions for Future Growth. An element of Corporate
Express' business strategy is to pursue strategic acquisitions that either
expand or complement its business. Acquisitions have historically constituted a
principal component of growth in revenue and operating income. There can be no
assurance that Corporate Express will be able to identify and acquire acceptable
acquisition candidates on terms favorable to it and in a timely manner to the
extent necessary to fulfill its expansion plans. A substantial portion of
Corporate Express' capital resources could be used for these acquisitions.
Consequently, Corporate Express may require additional debt or equity financing
for future acquisitions, which additional financing may not be available on
favorable terms, if at all. As Corporate Express proceeds with its acquisition
strategy, it will continue to encounter the risks associated with the
integration of acquisitions described above.
Substantial Competition. Corporate Express, in many of its product lines
and services, operates in a highly competitive environment. Corporate Express'
principal competitors in North America for office supplies and computer products
are regional and national contract stationers, including the contract stationer
operations of office products superstores, large direct resellers,
privately-held companies that generally operate in only one location and
distributors of business software for personal computers. In Europe and
Australia, Corporate Express' competitors include primarily local and regional
contract stationers and, to a limited extent, national and multi-country
contract stationers. In the delivery services sector, Corporate Express has
numerous competitors, certain of which have service offerings which are similar
to Corporate Express' and others which provide different types or levels of
service. Each of Corporate Express' major product and service categories are
within fragmented industries which are currently experiencing a trend toward
consolidation. Certain of Corporate Express' competitors have greater financial
resources than Corporate Express. In addition, there may be increasing
competition for acquisition candidates and there can be no assurance that
acquisitions will continue to be available on favorable terms, if at all.
Effect of Price Fluctuations. Certain of Corporate Express' product
offerings, including paper products, have been and are expected to continue to
be subject to significant price fluctuations due to inflationary and other
market conditions. Corporate Express generally is able to pass such increased
costs on to its customers through price increases, although it may not be able
to adjust its prices immediately. Significant increases in paper, fuel and other
costs in the future could materially affect Corporate Express' profitability if
these costs cannot be passed on to customers on a timely basis, if at all.
Dependence on Key Management. Corporate Express' success will continue to
depend to a significant extent on its executive officers, including Jirka
Rysavy, Robert King, Gary Jacobs, Sam Leno, Mark Hoffman and Thomas Frank. For a
description of Corporate Express' executive officers, see "Management."
Corporate Express has entered into employment agreements with certain executive
officers. There can be no assurance that Corporate Express will be able to
retain its executive officers and key personnel or attract additional qualified
members of management in the future. In addition, the success of certain of
Corporate Express' acquisitions may depend, in part, on Corporate Express'
ability to retain management personnel of the acquired companies. The loss of
the services of any key managers could have a material adverse effect upon
Corporate Express' business. Corporate Express does not maintain any key man
life insurance.
Restrictive Debt Covenants. The Indenture and the New Credit Facility
contain a number of significant covenants that, among other things, restrict the
ability of Corporate Express to dispose of assets, incur additional indebtedness
or amend certain debt instruments (including the Indenture), pay dividends,
create liens on assets, enter into sale and leaseback transactions, make
investments, loans or advances, make acquisitions, engage in mergers or
consolidations, change the business conducted by Corporate Express or its
subsidiaries, or engage in certain transactions with affiliates and otherwise
restrict certain corporate activities. See "Description of the Notes." In
addition, under the New Credit Facility, Corporate Express is required to comply
with specified financial ratios and tests, including minimum interest coverage
ratios, leverage ratios below a specified maximum, minimum net worth levels and
minimum ratios of inventory to senior debt. See "Description of the New Credit
Facility."
Corporate Express' ability to comply with such agreements may be affected
by events beyond its control, including prevailing economic, financial and
industry conditions. The breach of any such covenants or
17
<PAGE> 26
restrictions could result in a default under the New Credit Facility or the
Indenture, which would permit the senior lenders, or the holders of the Notes,
or both, as the case may be, to declare all amounts borrowed thereunder to be
due and payable, together with accrued and unpaid interest, and the commitments
of the senior lenders to make further extensions of credit under the New Credit
Facility could be terminated. If Corporate Express is unable to repay its
indebtedness to its senior lenders, such lenders could proceed against the
collateral securing such indebtedness.
The Guarantors and the Enforceability of the Guarantees. CEI and the
Subsidiary Guarantors will guarantee CEX's obligations under the Notes. The
Guarantees will be limited to the extent necessary so as not to result in a
fraudulent conveyance. Nevertheless, the obligations of each Guarantor under its
Guarantee may be subject to review under state or federal fraudulent transfer
laws. Under such laws, if in a lawsuit by an unpaid creditor or representative
of creditors of a Guarantor (such as a trustee in bankruptcy for such Guarantor
as debtor in possession), a court were to find that, at the time such Guarantor
incurred its obligations under its Guarantee, it either (i) was insolvent, (ii)
was rendered insolvent, (iii) was engaged in a business or transaction for which
its remaining unencumbered assets constituted unreasonably small capital, or
(iv) intended to incur or believed that it would incur debts beyond its ability
to pay as such debts matured, such court could avoid such Guarantor's Guarantee
and its obligations thereunder, and direct the return of any amounts paid
thereunder to the Guarantor or to a fund for the benefit of its creditors.
Moreover, regardless of the factors identified in the foregoing clauses (i)
through (iv), the court could avoid the Guarantee and direct such repayment if
it found that the Guarantee was entered into with actual intent to hinder,
delay, or defraud the Guarantor's creditors. The measure of insolvency for
purposes of the foregoing will vary depending on the law of the jurisdiction
being applied. Generally, however, an entity would be considered insolvent if
the sum of its debts (including contingent or unliquidated debts) is greater
than all of its property at a fair valuation or if the present fair salable
value of its assets is less than the amount that will be required to pay its
liability on its existing debts as they become absolute and matured.
Inability to Purchase Notes Upon a Change of Control. Upon a Change of
Control, CEX will be required to offer to repurchase all outstanding Notes at
101% of the principal amount thereof plus accrued and unpaid interest and
Liquidated Damages, if any, to the date of repurchase. However, there can be no
assurance that sufficient funds will be available at the time of any Change of
Control to make any required repurchases of Notes tendered, or that restrictions
in the New Credit Facility or under Corporate Express' debt instruments existing
at such time will allow CEX to make such required purchases. Notwithstanding
these provisions, CEX could enter into certain transactions, including certain
recapitalizations, that would not constitute a Change of Control but would
increase the amount of debt outstanding at such time. See "Description of the
Notes -- Repurchase of Notes at the Option of the Holder Upon a Change of
Control."
Absence of Public Market for Notes. The Old Notes have not been registered
under the Securities Act or any state securities law and, unless so registered,
may not be offered or sold except pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act
and any applicable state securities laws.
Although the New Notes may be resold or otherwise transferred by the
holders (who are not affiliates of Corporate Express) without compliance with
the registration requirements under the Securities Act, they will be new
securities for which there is currently no established trading market. CEX does
not intend to apply for listing of the New Notes on a national securities
exchange or for quotation of the New Notes on an automated dealer quotation
system. Although the Initial Purchasers in the offering of the Old Notes have
informed CEX that they currently intend to make a market in the New Notes, they
are not obligated to do so, and any such market-making, if initiated, may be
discontinued at any time without notice. The liquidity of any market for the New
Notes will depend upon the number of holders of the Notes, the interest of
securities dealers in making a market in the New Notes and other factors.
Accordingly, there can be no assurance as to the development or liquidity of any
market for the New Notes. If an active trading market for the New Notes does not
develop, the market price and liquidity of the New Notes may be adversely
affected. If the New Notes are traded, they may trade at a discount from their
face value, depending upon prevailing interest rates, the market for similar
securities, the performance of Corporate Express and certain other factors. The
liquidity of, and
18
<PAGE> 27
trading markets for, the New Notes may also be adversely affected by general
declines in the market for non-investment grade debt. Such declines may
adversely affect the liquidity of, and trading markets for, the New Notes
independent of the financial performance of, or prospects for, Corporate
Express.
Notwithstanding the registration of the New Notes in the Exchange Offer,
holders who are "affiliates" (as defined under Rule 405 of the Securities Act)
of Corporate Express may publicly offer for sale or resell the New Notes only in
compliance with provisions of Rule 144 under the Securities Act.
Historically, the market for non-investment grade debt has been subject to
disruptions that have caused substantial volatility in the prices of securities
similar to the New Notes. There can be no assurance that the market, if any, for
the New Notes will not be subject to similar disruptions. Any such disruptions
may have an adverse effect on the holders of the New Notes.
Consequences of a Failure to Exchange Old Notes. The Old Notes have not
been registered under the Securities Act or any state securities laws and
therefore may not be offered, sold or otherwise transferred except in compliance
with the registration requirements of the Securities Act and any other
applicable securities laws, or pursuant to an exemption therefrom or in a
transaction not subject thereto, and in each case in compliance with certain
other conditions and restrictions. Old Notes which remain outstanding after
consummation of the Exchange Offer will continue to bear a legend reflecting
such restrictions on transfer. In addition, upon consummation of the Exchange
Offer, holders of Old Notes which remain outstanding will not be entitled to any
rights to have such Old Notes registered under the Securities Act or to any
similar rights under the Registration Rights Agreement (subject to certain
limited exceptions). CEX does not intend to register under the Securities Act
any Old Notes which remain outstanding after consummation of the Exchange Offer
(subject to such limited exceptions, if applicable). To the extent that Old
Notes are tendered and accepted in the Exchange Offer, a holder's ability to
sell untendered Old Notes could be adversely affected.
The New Notes and any Old Notes which remain outstanding after consummation
of the Exchange Offer will vote together as a single class for purposes of
determining whether holders of the requisite percentage in outstanding principal
amount thereof have taken certain actions or exercised certain rights under the
Indenture.
Exchange Offer Procedures. Subject to the conditions set forth under "The
Exchange Offer -- Conditions to the Exchange Offer," delivery of New Notes in
exchange for Old Notes tendered and accepted for exchange pursuant to the
Exchange Offer will be made only after timely receipt by the Exchange Agent of
(i) certificates for Old Notes or a book-entry confirmation of a book-entry
transfer of Old Notes into the Exchange Agent's account at DTC, including an
Agent's Message if the tendering holder does not deliver a Letter of
Transmittal, (ii) a completed and signed Letter of Transmittal (or facsimile
thereof), with any required signature guarantees or, in the case of a book-entry
transfer, an Agent's Message in lieu of the Letter of Transmittal, and (iii) any
other documents required by the Letter of Transmittal. Therefore, holders of Old
Notes desiring to tender such Old Notes in exchange for New Notes should allow
sufficient time to ensure timely delivery. Corporate Express is not under a duty
to give notification of defects or irregularities with respect to the tenders of
Old Notes for exchange.
Goodwill. Corporate Express' balance sheet includes $856.7 million
designated as "goodwill" as of August 1, 1998. Goodwill arises when an acquiror
pays more for a business than the fair value of the tangible and separately
measurable intangible assets. GAAP requires that this and all other intangible
assets be amortized over the period benefitted. Corporate Express amortizes
goodwill on a straight-line basis over periods of 25 to 40 years.
If management were to use a shorter amortization period for a material
portion of the goodwill attributable to any or all of its acquisitions, then
Corporate Express' earnings would be lower following such acquisitions.
Additionally, earnings in later years also could be significantly affected if
management were to determine that the then remaining balance of goodwill is
impaired. Corporate Express evaluates intangible assets periodically in
accordance with Statement of Financial Accounting Standards No. 121 to determine
whether they are properly reflected in the financial statements based upon
future undiscounted operating cash
19
<PAGE> 28
flows. If an impairment is determined to exist, the impaired asset is written
down to fair market value at the time such determination of impairment is made.
Management currently believes that there is no impairment and that the lives
being used are consistent with GAAP.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
In connection with the sale of the Old Notes, CEX and the Guarantors
entered into the Registration Rights Agreement with the Initial Purchasers,
pursuant to which CEX and the Guarantors agreed to file and to use its
commercially reasonable efforts to cause to become effective with the Commission
a registration statement with respect to the exchange of the Old Notes for notes
with terms identical in all material respects to the terms of the Old Notes. A
copy of the Registration Rights Agreement has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part.
The Exchange Offer is being made to satisfy the contractual obligations of
CEX and the Guarantors under the Registration Rights Agreement. The form and
terms of the New Notes are the same as the form and terms of the Old Notes
except that the New Notes have been registered under the Securities Act and will
not provide for any increase in the interest rate thereon. In that regard, the
Old Notes provide, among other things, that if a registration statement relating
to the Exchange Offer has not been filed by , 1998 and
declared effective by , 1998, Liquidated Damages will be
payable on the Old Notes. Upon consummation of the Exchange Offer, holders of
Old Notes will not be entitled to any Liquidated Damages thereon or any further
registration rights under the Registration Rights Agreement, except under
limited circumstances. See "Risk Factors -- Consequences of a Failure to
Exchange Old Notes" and "Description of Notes."
The Exchange Offer is not being made to, nor will Corporate Express accept
tenders for exchange from, holders of Old Notes in any jurisdiction in which the
Exchange Offer or the acceptance thereof would not be in compliance with the
securities or blue sky laws of such jurisdiction.
Unless the context requires otherwise, the term "holder" with respect to
the Exchange Offer means any person in whose name the Old Notes are registered
on the books of Corporate Express or any other person who has obtained a
properly completed bond power from the registered holder, or any person whose
Old Notes are held of record by The Depository Trust Company ("DTC") who desires
to deliver such Old Notes by book-entry transfer at DTC.
TERMS OF THE EXCHANGE OFFER
CEX hereby offers, upon the terms and subject to the conditions set forth
in this Prospectus and in the accompanying Letter of Transmittal, to exchange up
to $350,000,000 aggregate principal amount of New Notes for a like aggregate
principal amount of Old Notes properly tendered on or prior to the Expiration
Date and not properly withdrawn in accordance with the procedures described
below. CEX will issue, promptly after the Expiration Date, an aggregate
principal amount of up to $350,000,000 of New Notes in exchange for a like
principal amount of outstanding Old Notes tendered and accepted in connection
with the Exchange Offer. Holders may tender their Old Notes in whole or in part
in denominations of $1,000 or any integral multiple thereof.
The Exchange Offer is not conditioned upon any minimum principal amount of
Old Notes being tendered. As of the date of this Prospectus, $350,000,000
aggregate principal amount of the Old Notes are outstanding.
Holders of Old Notes do not have any appraisal or dissenters' rights in
connection with the Exchange Offer. Old Notes which are not tendered for or are
tendered but not accepted in connection with the Exchange Offer will remain
outstanding and be entitled to the benefits of the Indenture, but will not be
entitled to any further registration rights under the Registration Rights
Agreement, except under limited circumstances. See "Risk Factors -- Consequences
of a Failure to Exchange Old Notes."
20
<PAGE> 29
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof promptly after the Expiration
Date.
Holders who tender Old Notes in connection with the Exchange Offer will not
be required to pay brokerage commissions or fees or, subject to the instructions
in the Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes in connection with the Exchange Offer. Corporate Express will pay all
charges and expenses, other than certain applicable taxes described below, in
connection with the Exchange Offer. See "-- Fees and Expenses."
NEITHER CORPORATE EXPRESS NOR THE BOARD OF DIRECTORS OF CORPORATE EXPRESS
MAKES ANY RECOMMENDATION TO HOLDERS OF OLD NOTES AS TO WHETHER TO TENDER OR
REFRAIN FROM TENDERING ALL OR ANY PORTION OF THEIR OLD NOTES PURSUANT TO THE
EXCHANGE OFFER. IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH
RECOMMENDATION. HOLDERS OF OLD NOTES MUST MAKE THEIR OWN DECISIONS WHETHER TO
TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF OLD
NOTES TO TENDER BASED ON SUCH HOLDERS OWN FINANCIAL POSITIONS AND REQUIREMENTS.
The term "Expiration Date" means 5:00 p.m., New York City time, on
, 1998 unless the Exchange Offer is extended by CEX (in
which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offer is extended).
CEX expressly reserves the right in its sole and absolute discretion,
subject to applicable law, at any time and from time to time, (i) to delay the
acceptance of the Old Notes for exchange, (ii) to terminate the Exchange Offer
(whether or not any Old Notes have theretofore been accepted for exchange) if
CEX determines, in its reasonable judgment, that any of the events or conditions
referred to under "-- Conditions to the Exchange Offer" have occurred or exist
or have not been satisfied, (iii) to extend the Expiration Date of the Exchange
Offer and retain all Old Notes tendered pursuant to the Exchange Offer, subject,
however, to the right of holders of Old Notes to withdraw their tendered Old
Notes as described under "-- Withdrawal Rights," and (iv) to waive any condition
or otherwise amend the terms of the Exchange Offer in any respect. If the
Exchange Offer is amended in a manner determined by CEX to constitute a material
change, or if CEX waives a material condition of the Exchange Offer, CEX will
promptly disclose such amendment by means of a prospectus supplement that will
be distributed to the holders of the Old Notes, and CEX will extend the Exchange
Offer to the extent required by Rule 14e-1 under the Exchange Act.
Any such delay in acceptance, extension, termination or amendment will be
followed promptly by oral or written notice thereof to the Exchange Agent and by
making a public announcement thereof, and such announcement in the case of an
extension will be made no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. Without limiting
the manner in which CEX may choose to make any public announcement and subject
to applicable law, CEX shall have no obligation to publish, advertise or
otherwise communicate any such public announcement other than by issuing a
release to an appropriate news agency.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF NEW NOTES
Upon the terms and subject to the conditions of the Exchange Offer, CEX
will exchange, and will issue to the Exchange Agent, New Notes for Old Notes
validly tendered and not withdrawn (pursuant to the withdrawal rights described
under "-- Withdrawal Rights") promptly after the Expiration Date.
Subject to the conditions set forth under "-- Conditions to the Exchange
Offer," delivery of New Notes in exchange for Old Notes tendered and accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of (i) certificates for Old Notes or a book-entry
confirmation of a book-entry transfer of Old Notes into the Exchange Agent's
account at DTC, including an Agent's Message if the tendering holder does not
deliver a Letter of Transmittal, (ii) a completed and signed Letter of
Transmittal (or facsimile thereof), with any required signature guarantees, or,
in the case of a book-entry
21
<PAGE> 30
transfer, an Agent's Message in lieu of the Letter of Transmittal, and (iii) any
other documents required by the Letter of Transmittal. Accordingly, the delivery
of New Notes might not be made to all tendering holders at the same time, and
will depend upon when certificates for Old Notes, book-entry confirmations with
respect to Old Notes and other required documents are received by the Exchange
Agent.
The term "book-entry confirmation" means a timely confirmation of a
book-entry transfer of Old Notes into the Exchange Agent's account at DTC. See
"-- Procedures for Tendering Old Notes -- Book-Entry Transfer." The term
"Agent's Message" means a message transmitted by DTC to and received by the
Exchange Agent and forming a part of a book-entry confirmation, which states
that DTC has received an express acknowledgment from the tendering participant,
which acknowledgment states that such participant has received and agrees to be
bound by the Letter of Transmittal and that CEX may enforce such Letter of
Transmittal against such participant.
Subject to the terms and conditions of the Exchange Offer, CEX will be
deemed to have accepted for exchange, and thereby exchanged, Old Notes validly
tendered and not withdrawn as, if and when CEX gives oral or written notice to
the Exchange Agent of CEX's acceptance of such Old Notes for exchange pursuant
to the Exchange Offer. The Exchange Agent will act as agent for CEX for the
purpose of receiving tenders of Old Notes, Letters of Transmittal and related
documents and as agent for tendering holders for the purpose of receiving Old
Notes, Letters of Transmittal and related documents and transmitting New Notes
to validly tendering holders. Such exchange will be made promptly after the
Expiration Date. If for any reason whatsoever, acceptance for exchange or the
exchange of any Old Notes tendered pursuant to the Exchange Offer is delayed
(whether before or after CEX's acceptance for exchange of Old Notes) or CEX
extends the Exchange Offer or is unable to accept for exchange or exchange Old
Notes tendered pursuant to the Exchange Offer, then, without prejudice to CEX's
rights set forth herein, the Exchange Agent may, nevertheless, on behalf of CEX
and subject to Rule 14e-1(c) under the Exchange Act, retain tendered Old Notes
and such Old Notes may not be withdrawn except to the extent tendering holders
are entitled to withdrawal rights as described under "-- Withdrawal Rights."
Pursuant to the Letter of Transmittal, or the Agent's Message, as the case
may be, a holder of Old Notes will warrant and agree in the Letter of
Transmittal or pursuant to the Agent's Message that it has full power and
authority to tender, exchange, sell, assign and transfer Old Notes, that CEX
will acquire good, marketable and unencumbered title to the tendered Old Notes,
free and clear of all liens, restrictions, charges and encumbrances, and the Old
Notes tendered for exchange are not subject to any adverse claims or proxies.
The holder also will warrant and agree that it will, upon request, execute and
deliver any additional documents deemed by CEX or the Exchange Agent to be
necessary or desirable to complete the exchange, sale, assignment, and transfer
of the Old Notes tendered pursuant to the Exchange Offer.
PROCEDURES FOR TENDERING OLD NOTES
Valid Tender
Except as set forth below, in order for Old Notes to be validly tendered by
book-entry transfer, an Agent's Message or a completed and signed Letter of
Transmittal (or facsimile thereof), with any required signature guarantees and
in either case any other documents required by the Letter of Transmittal, must
be delivered to the Exchange Agent by mail, facsimile, hand delivery or
overnight carrier at one of the Exchange Agent's addresses set forth under
"-- Exchange Agent" on or prior to the Expiration Date and either (i) such Old
Notes must be tendered pursuant to the procedures for book-entry transfer set
forth below or (ii) the guaranteed delivery procedures set forth below must be
complied with.
Except as set forth below, in order for Old Notes to be validly tendered by
a means other than by book-entry transfer, a completed and signed Letter of
Transmittal (or facsimile thereof), with any required signature guarantees and
any other documents required by the Letter of Transmittal, must be delivered to
the Exchange Agent by mail, facsimile (Eligible Institutions only), hand
delivery or overnight carrier at one of the Exchange Agent's addresses set forth
under "-- Exchange Agent" on or prior to the Expiration Date and either (i) such
Old Notes must be delivered to the Exchange Agent on or prior to the Expiration
Date or (ii) the guaranteed delivery procedures set-forth below must be complied
with.
22
<PAGE> 31
If less than all of the Old Notes are tendered, a tendering holder should
fill in the amount of Old Notes being tendered in the appropriate box on the
Letter of Transmittal. The entire amount of Old Notes delivered to the Exchange
Agent will be deemed to have been tendered unless otherwise indicated.
THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER,
AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL RETURN RECEIPT REQUESTED,
PROPERLY INSURED, OR AN OVERNIGHT DELIVERY, SERVICE IS RECOMMENDED. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Book-Entry Transfer
The Exchange Agent and DTC have confirmed that any Direct Participant in
DTC's book-entry transfer facility system may utilize DTC's ATOP procedures to
tender Old Notes. The Exchange Agent will establish an account with respect to
the Old Notes at DTC for purposes of the Exchange Offer within two business days
after the date of this Prospectus. Any Direct Participant may make a book-entry
delivery of the Old Notes by causing DTC to transfer such Old Notes into the
Exchange Agent's account at DTC in accordance with DTC's ATOP procedures for
transfer. However, although delivery of Old Notes may be effected through
book-entry transfer into the Exchange Agent's account at DTC, an Agent's Message
or a completed and signed Letter of Transmittal (or facsimile thereof), with any
required signature guarantees and any other documents required by the Letter of
Transmittal must in any case be delivered to and received by the Exchange Agent
at one of its addresses set forth under "-- Exchange Agent" on or prior to the
Expiration Date, or the guaranteed delivery procedure set forth below must be
complied with.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
Signature Guarantees
Certificates for the Old Notes need not be endorsed and signature
guarantees on the Letter of Transmittal are unnecessary unless (a) a certificate
for the Old Notes is registered in a name other than that of the person
surrendering the certificate or (b) such holder completes the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions" in the Letter
of Transmittal. In the case of (a) or (b) above, such certificates for Old Notes
must be duly endorsed or accompanied by a properly executed bond power, with the
endorsement or signature on the bond power and on the Letter of Transmittal
guaranteed by a firm or other entity identified in Rule 17Ad-15 under the
Exchange Act as an "eligible guarantor institution," including (as such terms
are defined therein): (i) a bank; (ii) a broker, dealer, municipal securities
broker or dealer or government securities broker or dealer; (iii) a credit
union; (iv) a national securities exchange, registered securities association or
clearing agency; or (v) a savings association that is a participant in a
Securities Transfer Association (an "Eligible Institution"), unless surrendered
on behalf of such Eligible Institution. See Instruction 1 to the Letter of
Transmittal.
Guaranteed Delivery
If a holder desires to tender Old Notes pursuant to the Exchange Offer and
the certificates for such Old Notes are not immediately available or time will
not permit all required documents to reach the Exchange Agent on or prior to the
Expiration Date, or the procedure for book-entry transfer cannot be completed on
a
23
<PAGE> 32
timely basis, such Old Notes may nevertheless be tendered, provided that all of
the following guaranteed delivery procedures are complied with:
(a) such tenders are made by or through an Eligible Institution;
(b) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form accompanying the Letter of Transmittal,
is received by the Exchange Agent, as provided below, on or prior to the
Expiration Date; and
(c) the certificates (or a book-entry confirmation) representing all
tendered Old Notes, in proper form for transfer, together with a properly
completed and duly executed Letter of Transmittal (or facsimile thereof),
with any required signature guarantees and any other documents required by
the Letter of Transmittal, are received by the Exchange Agent within three
New York Stock Exchange trading days after the date of execution of such
Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand, or transmitted
by facsimile or mail to the Exchange Agent and must include a guarantee by an
Eligible Institution in the form set forth in such notice.
Notwithstanding any other provision hereof, the delivery of New Notes in
exchange for Old Notes tendered and accepted for exchange pursuant to the
Exchange Offer will in all cases be made only after timely receipt by the
Exchange Agent of Old Notes, or of a book-entry confirmation with respect to
such Old Notes, and a properly completed and duly executed Letter of Transmittal
(or facsimile thereof), together with any required signature guarantees and any
other documents required by the Letter of Transmittal. Accordingly, the delivery
of New Notes might not be made to all tendering holders at the same time, and
will depend upon when Old Notes, book-entry confirmations with respect to Old
Notes and other required documents are received by the Exchange Agent.
Corporate Express' acceptance for exchange of Old Notes tendered pursuant
to any of the procedures described above will constitute a binding agreement
between the tendering holder and CEX upon the terms and subject to the
conditions of the Exchange Offer.
Determination of Validity
All questions as to the form of documents, validity, eligibility (including
time of receipt) and acceptance for exchange of any tendered Old Notes will be
determined by CEX, in its sole discretion, whose determination shall be final
and binding on all parties. CEX reserves the absolute right, in its sole and
absolute discretion, to reject any and all tenders determined by it not to be in
proper form or the acceptance of which, or exchange for, may, in the opinion of
counsel to CEX, be unlawful. CEX also reserves the absolute right, subject to
applicable law, to waive any of the conditions of the Exchange Offer as set
forth under "-- Conditions to the Exchange Offer" or any condition or
irregularity in any tender of Old Notes of any particular holder whether or not
similar conditions or irregularities are waived in the case of other holders.
The interpretation by CEX of the terms and conditions of the Exchange Offer
(including the Letter of Transmittal and the instructions thereto) will be final
and binding. No tender of Old Notes will be deemed to have been validly made
until all irregularities with respect to such tender have been cured or waived.
Neither CEX, any affiliates or assigns of CEX, the Exchange Agent nor any other
person shall be under any duty to give any notification of any irregularities in
tenders or incur any liability for failure to give any such notification.
If any Letter of Transmittal, endorsement, bond power, power of attorney,
or any other document required by the Letter of Transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing, and unless waived by CEX, proper
evidence satisfactory to CEX, in its sole discretion, of such person's authority
to so act must be submitted.
24
<PAGE> 33
A beneficial owner of Old Notes that are held by or registered in the name
of a broker, dealer, commercial bank, trust company or other nominee or
custodian is urged to contact such entity promptly if such beneficial holder
wishes to participate in the Exchange Offer.
RESALES OF NEW NOTES
CEX is making the Exchange Offer for the New Notes in reliance on the
position of the staff of the Division of Corporation Finance of the Commission
as set forth in certain interpretive letters addressed to third parties in other
transactions. However, CEX has not sought its own interpretive letter and there
can be no assurance that the staff of the Division of Corporation Finance of the
Commission would make a similar determination with respect to the Exchange Offer
as it has in such interpretive letters to third parties. Based on these
interpretations by the staff of the Division of Corporation Finance of the
Commission, and subject to the two immediately following sentences, CEX believes
that New Notes issued pursuant to this Exchange Offer in exchange for Old Notes
may be offered for resale, resold and otherwise transferred by a holder thereof
(other than a holder who is a broker-dealer) without further compliance with the
registration and prospectus delivery requirements of the Securities Act,
provided that such New Notes are acquired in the ordinary course of such
holder's business and that such holder is not participating, and has no
arrangement or understanding with any person to participate, in a distribution
(within the meaning of the Securities Act) of such New Notes. However, any
holder of Old Notes who is an "affiliate" of CEX or who intends to participate
in the Exchange Offer for the purpose of distributing New Notes, or any
broker-dealer who did not acquire its Old Notes as a result of market-making or
other trading activities (a) will not be able to rely on the interpretations of
the staff of the Division of Corporation Finance of the Commission set forth in
the above-mentioned interpretive letters, (b) will not be permitted or entitled
to tender such Old Notes in the Exchange Offer and (c) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or other transfer of such Old Notes unless such sale is
made pursuant to an exemption from such requirements. In addition, as described
below, if any broker-dealer holds Old Notes acquired for its own account as a
result of market-making or other trading activities and exchanges such Old Notes
for New Notes, then such broker-dealer must deliver a prospectus meeting the
requirements of the Securities Act in connection with any resales of such New
Notes.
Each holder of Old Notes who wishes to exchange Old Notes for New Notes in
the Exchange Offer will be required to represent that (i) it is not an
"affiliate" of CEX, (ii) any New Notes to be received by it are being acquired
in the ordinary course of its business, (iii) it has no arrangement or
understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Notes, and (iv) if such holder is not
a broker-dealer, such holder is not engaged in, and does not intend to engage
in, a distribution (within the meaning of the Securities Act) of such New Notes.
In addition, CEX may require such holder, as a condition to such holder's
eligibility to participate in the Exchange Offer, to furnish to CEX (or an agent
thereof) in writing information as to the number of "beneficial owners" (within
the meaning of Rule 13d-3 under the Exchange Act) on behalf of whom such holder
holds the Old Notes to be exchanged in the Exchange Offer and evidence that such
"beneficial owners" have made to such holder, and authorized such holder to make
to CEX on their behalf via the Letter of Transmittal, the representations
referred to in the preceding sentence. Each broker-dealer that receives New
Notes for its own account pursuant to the Exchange Offer must acknowledge that
it acquired the Old Notes for its own account as the result of market-making
activities or other trading activities and must agree that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such New Notes. The Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
Based on the position taken by the staff of the Division of Corporation Finance
of the Commission in the interpretive letters referred to above, CEX believes
that Participating Broker-Dealers who acquired Old Notes for their own accounts
as a result of market-making activities or other trading activities may fulfill
their prospectus delivery requirements with respect to the New Notes received
upon exchange of such Old Notes but not Old Notes that were acquired other than
pursuant to market-making or other trading activities with a prospectus meeting
the requirements of the Securities Act, which may be the prospectus prepared for
an exchange offer so long as it contains a description of the plan of
distribution with respect to the resale of such New Notes. Accordingly, this
25
<PAGE> 34
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer during the period referred to below in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired by such Participating Broker-Dealer for its own
account as a result of market-making or other trading activities. Subject to
certain provisions set forth in the Registration Rights Agreement, CEX has
agreed that this Prospectus, as it may be amended or supplemented from time to
time, may be used by a Participating Broker-Dealer in connection with resales of
such New Notes for a period ending one year after the Expiration Date (subject
to extension under certain limited circumstances described below) or, if
earlier, when all such New Notes have been disposed of by such Participating
Broker-Dealer. See "Plan of Distribution." However, a Participating
Broker-Dealer who intends to use this Prospectus in connection with the resale
of New Notes received in exchange for Old Notes pursuant to the Exchange Offer
must notify CEX, or cause CEX to be notified, on or prior to the Expiration
Date, that it is a Participating Broker-Dealer. Such notice may be given in the
space provided for that purpose in the Letter of Transmittal or may be delivered
to the Exchange Agent at one of the addresses set forth herein under
"-- Exchange Agent." Any Participating Broker-Dealer who is an "affiliate" of
CEX may not rely on such interpretive letters and must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction.
In that regard, each Participating Broker-Dealer who surrenders Old Notes
pursuant to the Exchange Offer will be deemed to have agreed, by execution of
the Letter of Transmittal, that, upon receipt of notice from CEX of the
occurrence of any event or the discovery of any fact which makes any statement
contained or incorporated by reference in this Prospectus untrue in any material
respect or which causes this Prospectus to omit to state a material fact
necessary in order to make the statements contained or incorporated by reference
herein, in light of the circumstances under which they were made, not misleading
or of the occurrence of certain other events specified in the Registration
Rights Agreement, such Participating Broker-Dealer will suspend the sale of New
Notes pursuant to this Prospectus until CEX has amended or supplemented this
Prospectus to correct such misstatement or omission and has furnished copies of
the amended or supplemented Prospectus to such Participating Broker-Dealer or
CEX has given notice that the sale of the New Notes may be resumed, as the case
may be. If CEX gives such notice to suspend the sale of the New Notes, it shall
extend the one-year period referred to above during which Participating
Broker-Dealers are entitled to use this Prospectus in connection with the resale
of New Notes by the number of days during the period from and including the date
of the giving of such notice to and including the date when Participating
Broker-Dealers shall have received copies of the amended or supplemented
Prospectus necessary to permit resales of the New Notes or to and including the
date on which CEX has given notice that the sale of New Notes may be resumed, as
the case may be.
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time on or prior to the Expiration Date.
In order for a withdrawal to be effective a written or facsimile
transmission of such notice of withdrawal must be timely received by the
Exchange Agent at one of its addresses set forth under "-- Exchange Agent" on or
prior to the Expiration Date. Any such notice of withdrawal must specify the
name of the person who tendered the Old Notes to be withdrawn, the aggregate
principal amount of Old Notes to be withdrawn, and (if certificates for such Old
Notes have been tendered) the name of the registered holder of the Old Notes as
set forth on the Old Notes, if different from that of the person who tendered
such Old Notes. If Old Notes have been delivered or otherwise identified to the
Exchange Agent, then prior to the physical release of such Old Notes, the
tendering holder must submit the serial numbers shown on the particular Old
Notes to be withdrawn and the signature on the notice of withdrawal must be
guaranteed by an Eligible Institution, except in the case of Old Notes tendered
for the account of an Eligible Institution. If Old Notes have been tendered
pursuant to the procedures for book-entry transfer set forth in "-- Procedures
for Tendering Old Notes," the notice of withdrawal must specify the name and
number of the account at DTC to be credited with the withdrawal of Old Notes, in
which case a notice of withdrawal will be effective if delivered to the Exchange
Agent by written or facsimile transmission. Withdrawals of tenders of Old Notes
may not be rescinded. Old
26
<PAGE> 35
Notes properly withdrawn will not be deemed validly tendered for purposes of the
Exchange Offer, but may be retendered at any subsequent time on or prior to the
Expiration Date by following any of the procedures described above under
"-- Procedures for Tendering Old Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by CEX, in its sole
discretion, whose determination shall be final and binding on all parties.
Neither CEX, any affiliate or assign of CEX, the Exchange Agent nor any other
person shall be under any duty to give any notification of any irregularities in
any notice of withdrawal or incur any liability for failure to give any such
notification. Any Old Notes which have been tendered but which are withdrawn
will be returned to the holder thereof promptly after withdrawal.
INTEREST ON NEW NOTES
Holders of Old Notes whose Old Notes are accepted for exchange will not
receive interest on such Old Notes and will be deemed to have waived the right
to receive any interest on such Old Notes accrued from and after ,
1998. Accordingly, such holders of Old Notes as of the record date for the
payment of interest on , 1998 will be entitled to receive interest
on the New Notes issued in exchange therefor accrued from and after
, 1998.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any
extension of the Exchange Offer, CEX will not be required to accept for
exchange, or to exchange, any Old Notes for any New Notes, and, as described
below, may terminate the Exchange Offer (whether or not any Old Notes have
theretofore been accepted for exchange) or may waive any conditions to or amend
the Exchange Offer, if any of the following conditions have occurred or exists
or have not been satisfied:
(a) there shall occur a change in the current interpretation by the
staff of the Division of Corporation Finance of the Commission which
permits the New Notes issued pursuant to the Exchange Offer in exchange for
Old Notes to be offered for resale, resold and otherwise transferred by
holders thereof (other than broker-dealers and any such holder which is an
"affiliate" of CEX within the meaning of Rule 405 under the Securities Act)
without compliance with the registration and prospectus delivery provisions
of the Securities Act provided that such New Notes are acquired in the
ordinary course of such holders' business and such holders have no
arrangement or understanding with any person to participate in the
distribution of such New Notes; or
(b) any law, statute, rule or regulation shall have been adopted or
enacted which, in the judgment of Corporate Express, would reasonably be
expected to impair its ability to proceed with the Exchange Offer, or
(c) a stop order shall have been issued by the Commission or any state
securities authority suspending the effectiveness of the Registration
Statement or proceedings shall have been initiated or, to the knowledge of
CEX, threatened for that purpose or any governmental approval has not been
obtained, which approval CEX shall, in its sole discretion, deem necessary
for the consummation of the Exchange Offer as contemplated hereby.
If CEX determines in its reasonable judgement that any of the foregoing
events or conditions has occurred or exists or has not been satisfied, it may,
subject to applicable law, terminate the Exchange Offer (whether or not any Old
Notes have theretofore been accepted for exchange) or may waive any such
condition or otherwise amend the terms of the Exchange Offer in any respect. If
such waiver or amendment constitutes a material change to the Exchange Offer,
CEX will promptly disclose such waiver or amendment by means of a prospectus
supplement that will be distributed to the registered holders of the Old Notes
and will extend the Exchange Offer to the extent required by Rule 14e-1 under
the Exchange Act.
27
<PAGE> 36
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent for the Exchange
Offer. Delivery of the Letters of Transmittal and any other required documents,
questions, requests for assistance, and requests for additional copies of this
Prospectus or of the Letter of Transmittal should be directed to the Exchange
Agent as follows:
<TABLE>
<S> <C>
By Registered or Certified Mail: By Hand or Overnight Delivery
The Bank of New York The Bank of New York
101 Barclay Street, 7E 101 Barclay Street
New York, New York 10286 Corporate Trust Services Window
Attention: Reorganization Section Grand Level
Jackie Warren New York, New York 10286
Attention: Reorganization Section
Jackie Warren
</TABLE>
Confirm By Telephone:
(212) 815-5924
Facsimile Transmissions:
(Eligible Institutions Only)
(212) 815-6339
------------------------------------------------------
Delivery to other than the above addresses or facsimile number will not
constitute a valid delivery.
FEES AND EXPENSES
CEX has agreed to pay the Exchange Agent reasonable and customary fees for
its services and will reimburse it for its reasonable out-of-pocket expenses in
connection therewith. CEX will also pay brokerage houses and other custodians,
nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them
in forwarding copies of this Prospectus and related documents to the beneficial
owners of Old Notes, and in handling or tendering for their customers.
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith. If, however, New Notes are to be
delivered to, or are to be issued in the name of, any person other than the
registered holder of the Old Notes tendered, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes in connection with the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
CEX will not make any payment to brokers, dealers or other nominees
soliciting acceptances of the Exchange Offer.
28
<PAGE> 37
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
General
The following discussion summarizes certain United States Federal income
tax considerations associated with the exchange of Old Notes for New Notes and
the ownership and disposition of New Notes. This summary applies only to
beneficial owners of Old Notes who acquired such Old Notes at the initial
offering from Initial Purchasers for the original offering price therefor and
who acquire New Notes pursuant to the Exchange Offer. This summary is based upon
existing United States Federal income tax law, which is subject to change,
possibly with retroactive effect. This summary does not discuss all aspects of
United States Federal income taxation that may be relevant to particular holders
in the context of their specific investment circumstances or certain types of
holders subject to special treatment under such laws (including, for example,
financial institutions, insurance companies, broker-dealers, persons having a
functional currency other than the United States dollar, United States
expatriates, tax-exempt organizations, controlled foreign corporations related
to Corporate Express through stock ownership and holders (whether actual or
constructive) of 10% or more of the total combined voting power of all classes
of stock of Corporate Express). In addition, this summary does not discuss any
foreign, state or local tax considerations and assumes that holders of the New
Notes will hold the New Notes as "capital assets" (generally, property held for
investment). Prospective holders of New Notes should consult their tax advisors
regarding the United States Federal, state, local, and foreign income and other
tax considerations of the exchange of Old Notes for New Notes and the ownership
and disposition of the New Notes.
For purposes of this summary, a "United States holder" is an individual who
is a citizen or resident of the United States, a corporation or partnership
created or organized under the laws of the United States or any state or
political subdivision thereof, or a person or other entity who is otherwise
subject to United States Federal income taxation on a net income basis in
respect of income derived from the New Notes.
Exchange Offer
The exchange of Old Notes for New Notes pursuant to the Exchange Offer will
not be treated as an exchange or other taxable event for United States Federal
income tax purposes because, under United States Treasury regulations, the New
Notes will not be considered to differ materially in kind or extent from the Old
Notes. As a result, the holders of Old Notes will not recognize taxable gain or
loss upon the exchange of such Old Notes for the New Notes, and any such holder
will have the same tax basis and holding period in the New Notes as it had in
the Old Notes immediately before the exchange.
United States Holders
Interest payable on the New Notes will be includible in the income of a
United States holder at the time accrued or received in accordance with such
holder's regular method of accounting for United States Federal income tax
purposes.
A United States holder will recognize a capital gain or loss upon the sale
or other disposition of a New Note in an amount equal to the difference between
the amount realized from such disposition (exclusive of any amount paid for
accrued interest not previously included in income, which amount will be taxable
as ordinary income) and the holder's adjusted tax basis in the New Note. Such
capital gain or loss will be long-term capital gain or loss if the holder has
held the New Note for more than one year at the time of disposition. Holders of
New Notes that are individuals are generally entitled to preferential treatment
for net long-term capital gains.
Non-United States Holders
An investment in the New Notes by a non-United States holder generally will
not give rise to any United States Federal income tax consequences, unless the
interest received or any gain recognized on the sale or
29
<PAGE> 38
other disposition of the New Notes by such holder is treated as effectively
connected with the conduct by such holder of trade or business in the United
States, or, in the case of gains derived by an individual, such individual is
present in the United States for 183 days or more and certain other requirements
are met.
In order to avoid back-up withholding of 31% on payments of interest and
principal made by United States payors, a non-United States holder of the New
Notes must generally complete, and provide the payor with, an Internal Revenue
Service Form W-8 ("Certificate of Foreign Status"), or other documentary
evidence, certifying that such holder is an exempt foreign person.
USE OF PROCEEDS
CEX will not receive any cash proceeds from the issuance of the New Notes
offered hereby. In consideration for issuing the New Notes in exchange for the
Old Notes as described in the Prospectus, CEX will receive Old Notes in like
principal amount. The Old Notes surrendered in exchange for the New Notes will
be retired and canceled.
The gross proceeds from the offering of the Old Notes ($350,000,000), were
used to repay indebtedness under the New Credit Facility and to fund the Tender
Offer and the Consent Solicitation.
30
<PAGE> 39
CAPITALIZATION
The following table sets forth the consolidated capitalization of Corporate
Express at August 1, 1998 and includes the Share Repurchase, the New Credit
Facility and the sale of the Old Notes and the Tender Offer, all of which were
completed during the six months ended August 1, 1998. The following table should
be read in conjunction with Corporate Express' Annual Report on Form 10-K, as
amended by the Form 10-K/A filed on October 23, 1998, the Quarterly Reports on
Form 10-Q and the Current Report on Form 8-K filed on July 29, 1998, as amended
by the Form 8-K/A filed on October 23, 1998, each incorporated by reference
herein, the Unaudited Pro Forma Consolidated Financial Data and related notes
thereto included elsewhere herein and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
AS OF
AUGUST 1, 1998
--------------
(DOLLARS IN
THOUSANDS)
<S> <C>
Cash and cash equivalents................................... $ 30,327
==========
Total debt (including current portion):
New Credit Facility -- revolver........................... 196,705
New Credit Facility -- term loan.......................... 249,375
9 5/8% Series A Senior Subordinated Notes due 2008........ 350,000
9 1/8% Senior Subordinated Notes due 2004................. 1,200
Other indebtedness........................................ 120,325
Capital lease obligations................................. 12,673
----------
Total Issuer debt................................. $ 930,278
4 1/2% Convertible Notes due 2000......................... 325,000
----------
Total debt........................................ 1,255,278
Total stockholders' equity.................................. 575,056
----------
Total capitalization.............................. $1,830,334
==========
</TABLE>
31
<PAGE> 40
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following Unaudited Pro Forma Consolidated Financial Data has been
prepared by Corporate Express' management and should be read in conjunction with
the notes thereto, Corporate Express' Annual Report on Form 10-K, as amended by
the Form 10-K/A filed on October 23, 1998, the Quarterly Reports on Form 10-Q
and the Current Report on Form 8-K filed on July 29, 1998, as amended by the
Form 8-K/A filed on October 23, 1998, each incorporated by reference herein, and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." The Unaudited Pro Forma Consolidated Statement of Operations for
the twelve months ended January 31, 1998 combines the audited results of
Corporate Express for the eleven months ended January 31, 1998, the unaudited
results of Corporate Express for the one month ended March 1, 1997 and the
unaudited results of DDI for the period beginning February 2, 1997 and ending
immediately prior to the acquisition of DDI by Corporate Express on November 26,
1997. Results for DDI for the period from the date DDI was acquired by Corporate
Express to January 31, 1998 are included in Corporate Express' results for the
eleven months ended January 31, 1998 and for the six month period ended August
1, 1998. The Pro Forma As Adjusted data reflects adjustments to give effect to
the Share Repurchase and the New Credit Facility and the Old Notes Offering and
the application of the net proceeds therefrom as described under the caption
"Use of Proceeds" as if each of such had occurred at the beginning of the stated
period. The Unaudited Pro Forma Consolidated Financial Data are not necessarily
indicative of Corporate Express' results of operations which would have been
obtained had the transactions actually occurred at the beginning of the period
presented, nor are they necessarily indicative of the results of future
operations.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED AUGUST 1, 1998
<TABLE>
<CAPTION>
PRO FORMA
AS ADJUSTED
SIX MONTHS SIX MONTHS
ENDED ENDED
AUGUST 1, AUGUST 1,
1998(1) ADJUSTMENTS 1998
---------- ----------- -----------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................ $2,226,222 $ $2,226,222
Cost of sales............................................ 1,708,973 1,708,973
---------- ------- ----------
Gross profit........................................... 517,249 -- 517,249
Warehouse operating and selling expenses................. 363,087 363,087
Corporate general and administrative expenses............ 66,873 66,873
---------- ----------
Operating profit....................................... 87,289 87,289
Interest expense, net.................................... 35,436 11,479(2) 46,915
Other income............................................. 858 858
---------- ------- ----------
Income before income tax expense....................... 52,711 (11,479) 41,232
Income tax expense....................................... 23,667 (4,477)(3) 19,190
---------- ------- ----------
Income before minority interest income................. 29,044 (7,002) 22,042
Minority interest expense................................ 957 957
---------- ------- ----------
Income from continuing operations...................... $ 28,087 $(7,002) $ 21,085
========== ======= ==========
Income per share from continuing operations -- Basic..... $ 0.23 $ 0.20
Income per share from continuing operations -- Diluted... $ 0.22 $ 0.19
Weighted average common shares outstanding:
Basic.................................................. 121,142 107,873
Diluted................................................ 125,156 111,887
OTHER DATA:
Ratio of earnings to fixed charges....................... 1.6x
</TABLE>
32
<PAGE> 41
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS ENDED AUGUST
1, 1998
(1) The six month period ended August 1, 1998 includes the results of DDI for
the entire period and reflects the repurchase of 35,000,000 shares of common
stock pursuant to the Share Repurchase, and the repayment of the Old Credit
Facility (as defined herein) which occurred during the period.
(2) To reflect (i) the net impact on interest expense of $7,763,000 resulting
from the repurchase of 35,000,000 shares of common stock at $10.75 per share
and the repayment of $170,240,000 on the Old Credit Facility, both of which
were funded using proceeds of the New Credit Facility, and (ii) the net
impact on interest expense of $3,355,000 resulting from the sale of the
$350,000,000 Old Notes at an effective interest rate of 9.83% and the
application of the net proceeds therefrom to retire $88,800,000 of 9 1/8%
Notes pursuant to the Tender Offer and repay $245,000,000 on the New Credit
Facility as if all transactions were completed at the beginning of the
period, exclusive of the loss of $1,810,000 ($1,104,000 net of tax) related
to the deferred financing costs of the Old Credit Facility and the loss of
$7,339,000 ($4,477,000 net of tax) related to the early retirement of 9 1/8%
Notes, both of which were recorded during the six months ended August 1,
1998 as extraordinary items. The effective interest rate of 9.83% on the
$350,000,000 Old Notes reflects the settlement of an interest rate hedging
contract based on $300,000,000 of U.S. Treasury notes. The cost of the
settlement of the contract was $7,271,000 and will be amortized over the
ten-year term of the 9 5/8% Notes, bringing the effective interest rate of
the debt instrument to the 9.83%.
(3) Tax effects of the pro forma adjustments.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE TWELVE MONTHS ENDED JANUARY 31, 1998
<TABLE>
<CAPTION>
PRO FORMA
COMPANY DDI PRO FORMA AS ADJUSTED
------------------------- 298 TWELVE TWELVE
ELEVEN MONTHS ONE MONTH DAYS MONTHS MONTHS
ENDED ENDED ENDED ENDED ENDED
JANUARY 31, MARCH 1, NOVEMBER 26, JANUARY 31, JANUARY 31,
1998 1997 1997 ADJUSTMENTS 1998 ADJUSTMENTS 1998
------------- --------- ------------ ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales...................... $3,573,311 $284,867 $217,857 $ $4,076,035 $ $4,076,035
Cost of sales.................. 2,733,308 212,387 159,839 1,558(1) 3,107,092 3,107,092
---------- -------- -------- ------- ---------- -------- ----------
Gross profit................. 840,003 72,480 58,018 (1,558) 968,943 -- 968,943
Warehouse operating and selling
expenses..................... 605,243 54,203 29,794 586(2) 689,826 689,826
Corporate general and
administrative expenses...... 105,055 7,307 5,501 2,717(3) 120,580 120,580
Merger and other nonrecurring
charges(4)................... 14,890 -- -- (4,490)(5) 10,400 -- 10,400
---------- -------- -------- ------- ---------- -------- ----------
Operating profit............. 114,815 10,970 22,723 (371) 148,137 -- 148,137
Interest expense, net.......... 38,115 2,399 7,827 (4,078)(6) 44,263 45,436(8) 89,699
Other income................... 842 92 934 934
---------- -------- -------- ------- ---------- -------- ----------
Income before income tax
expense.................... 77,542 8,663 14,896 3,707 104,808 (45,436) 59,372
Income tax expense............. 34,457 2,921 6,256 754(7) 44,388 (17,720)(7) 26,668
---------- -------- -------- ------- ---------- -------- ----------
Income before minority
interest income............ 43,085 5,742 8,640 2,953 60,420 (27,716) 32,704
Minority interest income....... 1,319 546 -- 1,865 1,865
---------- -------- -------- ------- ---------- -------- ----------
Income from continuing
operations................. $ 44,404 $ 6,288 $ 8,640 $ 2,953 $ 62,285 $(27,716) $ 34,569
========== ======== ======== ======= ========== ======== ==========
Income per share from
continuing
operations -- Basic.......... $ 0.34 $ 0.80 $ 0.44 $ 0.25
Income per share from
continuing
operations -- Diluted........ $ 0.32 $ 0.78 $ 0.42 $ 0.24
Weighted average common shares
outstanding:
Basic........................ 131,423 10,740 140,021 140,021
Diluted...................... 137,858 11,018 146,707 146,707
OTHER DATA:
Ratio of earnings to fixed
charges...................... 1.5x
</TABLE>
33
<PAGE> 42
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS ENDED JANUARY
31, 1998
(1) To conform DDI inventory from a LIFO basis valuation to a FIFO basis
valuation ($1,502,000) and to conform the accounting for spare parts to be
consistent with Corporate Express' accounting policies and to record
additional depreciation related to the write-up of buildings to fair value.
(2) To record additional depreciation related to the write-up of equipment to
fair value.
(3) To record amortization of goodwill related to the DDI acquisition on a
straight-line basis over 40 years. The net purchase price was allocated as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Current assets, excluding cash acquired..................... $ 75,365
Property, plant and equipment, net.......................... 52,487
Other assets................................................ 20,591
Goodwill.................................................... 130,438
Liabilities assumed......................................... (112,938)
---------
Purchase price, net of cash acquired........................ $ 165,943
=========
</TABLE>
Total goodwill, included in the fair value of assets acquired, of
$130,438,000 includes transaction and other direct costs of such
acquisition of $1,672,000 and purchase accounting adjustments of
$8,659,000, net of related deferred taxes.
(4) Merger and other non-recurring charges include the acquisition costs
incurred by DDI, the continued integration of delivery services and certain
provisions for reductions in workforce and facility closures at other
locations.
(5) To adjust for the direct incremental external costs incurred by DDI which
include primarily investment banking fees. Such costs were paid by DDI
subsequent to the acquisition.
(6) To adjust for interest expense related to the revaluation of the DDI 13.5%
Senior Subordinated Notes from a historical carrying value of approximately
$60,500,000 to a current fair value of $69,575,000 based on market interest
rates at the date of the acquisition.
(7) Tax effects of the pro forma adjustments.
(8) To reflect (i) the net impact on interest expense of $34,932,000 resulting
from the repurchase of 35,000,000 shares of common stock at $10.75 per share
pursuant to the Share Repurchase and the repayment of $170,240,000 on the
Old Credit Facility, both of which were funded using proceeds from the New
Credit Facility, and (ii) the net impact on interest expense of $9,777,000
resulting from the sale of the $350,000,000 Old Notes at an effective
interest rate of 9.83% and the application of the net proceeds therefrom to
retire 88,800,000 of 9 1/8% Notes pursuant to the Tender Offer and repay
$245,000,000 of the New Credit Facility, exclusive of the loss of $1,810,000
($1,104,000 net of tax) related to the deferred financing costs of the Old
Credit Facility and the loss of $7,339,000 ($4,477,000 net of tax) related
to the early retirement of 9 1/8% Notes, both of which were recorded during
the six months ended August 1, 1998 as extraordinary items. The effective
interest rate of 9.83% on the $350,000,000 Old Notes reflects the settlement
of an interest rate hedging contract based on $300,000,000 of U.S. Treasury
notes. The cost of the settlement of the contract was $7,271,000 and will be
amortized over the ten-year term of the 9 5/8% Notes, bringing the effective
interest rate of the debt instrument to the 9.83%.
34
<PAGE> 43
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for fiscal 1994, 1995,
1996 and 1997 have been derived from Corporate Express' consolidated financial
statements which have been audited by independent auditors. The Selected
Consolidated Financial Data for the six months ended August 1, 1998 and August
2, 1997, the eleven months ended February 1, 1997 and fiscal 1993 and 1992 is
derived from unaudited consolidated financial statements. The unaudited
consolidated financial statements have been prepared on the same basis as the
audited Consolidated Financial Statements and, in the opinion of management,
contain all adjustments, consisting of only normal recurring adjustments,
necessary for a fair presentation of the financial position and results of
operations for these periods. The information set forth below should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of
Corporate Express incorporated by reference herein. Corporate Express has never
paid a cash dividend on its Common Stock and does not anticipate paying any cash
dividends on its Common Stock in the foreseeable future because it intends to
retain its earnings to finance the expansion of its business and for general
corporate purposes.
<TABLE>
<CAPTION>
FISCAL YEAR
----------------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- ---------- ---------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:(1)
Net sales.................................... $420,030 $520,956 $1,145,151 $1,890,639 $3,196,056
Cost of sales(2)............................. 323,922 402,142 855,361 1,417,366 2,417,746
Merger related inventory provisions(3)....... -- 1,146 -- 5,952 --
-------- -------- ---------- ---------- ----------
Gross profit............................. 96,108 117,668 289,790 467,321 778,310
Warehouse operating and selling expenses..... 76,056 97,054 219,213 342,581 562,879
Corporate general and administrative
expenses................................... 12,408 13,063 29,624 49,742 95,101
Merger and other nonrecurring charges(4)..... 2,592 1,928 -- 36,838 19,840
-------- -------- ---------- ---------- ----------
Operating profit......................... 5,052 5,623 40,953 38,160 100,490
Interest expense, net........................ 4,972 5,014 16,915 17,968 26,949
Other income (expense)....................... (993) (104) 562 1,786 244
-------- -------- ---------- ---------- ----------
Income (loss) before income taxes........ (913) 505 24,600 21,978 73,785
Income tax expense........................... 1,567 2,316 8,294 13,766 33,649
-------- -------- ---------- ---------- ----------
Income (loss) before minority interest... (2,480) (1,811) 16,306 8,212 40,136
Minority interest (income) expense........... -- 152 69 1,436 (1,860)
-------- -------- ---------- ---------- ----------
Income (loss) from continuing
operations............................. (2,480) (1,963) 16,237 6,776 41,996
Loss from discontinued operations(5)......... 4,571 712 327 1,225 --
-------- -------- ---------- ---------- ----------
Income (loss) before extraordinary
item................................... (7,051) (2,675) 15,910 5,551 41,996
Extraordinary item(6)........................ -- (1,169) 586 -- --
-------- -------- ---------- ---------- ----------
Net income (loss)........................ $ (7,051) $ (3,844) $ 16,496 $ 5,551 $ 41,996
======== ======== ========== ========== ==========
Pro forma income (loss)(7)............... $ (7,390) $ (5,124) $ 15,769 $ 5,140 $ 40,281
======== ======== ========== ========== ==========
Pro forma net income (loss) per
share -- Basic:(8)
Continuing operations.................... $ (0.10) $ 0.20 $ 0.06 $ 0.33
Discontinued operations.................. (0.02) 0.00 (0.01) --
Extraordinary item....................... (0.02) 0.00 -- --
-------- ---------- ---------- ----------
Net income (loss).................... $ (0.14) $ 0.20 $ 0.05 $ 0.33
======== ========== ========== ==========
Pro forma net income (loss) per share --
Diluted:(8)
Continuing operations.................... $ (0.10) $ 0.19 $ 0.06 $ 0.31
Discontinued operations.................. (0.02) 0.00 (0.01) --
Extraordinary item....................... (0.02) 0.00 -- --
-------- ---------- ---------- ----------
Net income (loss).................... $ (0.14) $ 0.19 $ 0.05 $ 0.31
======== ========== ========== ==========
OTHER DATA:(1)
Ratio of earnings to fixed charges(9)........ -- 1.1x 2.1x 1.8x 2.4x
Subsidiary Non-Guarantors -- net sales....... -- -- $ 1,694 $ 238,200 $ 565,126
Subsidiary Non-Guarantors -- net income...... -- -- $ 1 $ 3,771 $ 144
BALANCE SHEET DATA:(1)
Working capital.............................. $ 50,771 $ 96,880 $ 166,421 $ 253,693 $ 393,653
Total assets................................. 160,510 446,189 645,309 1,023,365 1,843,977
Long-term debt and capital lease
obligations................................ 52,375 177,523 188,340 163,399 633,250
Shareholders' equity and redeemable
preferred(10).............................. 39,584 116,363 259,325 521,776 693,607
Weighted average common shares outstanding:
Basic.................................... 47,740 75,400 104,162 121,901
Diluted.................................. 47,740 79,026 110,408 130,029
<CAPTION>
ELEVEN MONTHS ENDED SIX MONTHS ENDED
------------------------- -----------------------
FEBRUARY 1, JANUARY 31, AUGUST 2, AUGUST 1,
1997 1998 1997 1998
----------- ----------- ---------- ----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:(1)
Net sales.................................... $2,911,189 $3,573,311 $1,846,538 $2,226,222
Cost of sales(2)............................. 2,205,359 2,733,308 1,412,210 1,708,973
Merger related inventory provisions(3)....... -- -- -- --
---------- ---------- ---------- ----------
Gross profit............................. 705,830 840,003 434,328 517,249
Warehouse operating and selling expenses..... 508,676 605,243 321,183 363,087
Corporate general and administrative
expenses................................... 87,793 105,055 55,379 66,873
Merger and other nonrecurring charges(4)..... 19,841 14,890 333 --
---------- ---------- ---------- ----------
Operating profit......................... 89,520 114,815 57,433 87,289
Interest expense, net........................ 24,550 38,115 18,825 35,436
Other income (expense)....................... 152 842 342 858
---------- ---------- ---------- ----------
Income (loss) before income taxes........ 65,122 77,542 38,950 52,711
Income tax expense........................... 30,728 34,457 15,798 23,667
---------- ---------- ---------- ----------
Income (loss) before minority interest... 34,394 43,085 23,152 29,044
Minority interest (income) expense........... (1,314) (1,319) (1,522) 957
---------- ---------- ---------- ----------
Income (loss) from continuing
operations............................. 35,708 44,404 24,674 28,087
Loss from discontinued operations(5)......... -- -- -- --
---------- ---------- ---------- ----------
Income (loss) before extraordinary
item................................... 35,708 44,404 24,674 28,087
Extraordinary item(6)........................ -- -- -- (5,581)
---------- ---------- ---------- ----------
Net income (loss)........................ $ 35,708 $ 44,404 $ 24,674 $ 22,506
========== ========== ========== ==========
Pro forma income (loss)(7)............... $ 33,993 $ 44,404 $ 24,674 $ 22,506
========== ========== ========== ==========
Pro forma net income (loss) per
share -- Basic:(8)
Continuing operations.................... $ 0.28 $ 0.34 $ 0.19 $ 0.23
Discontinued operations.................. -- -- -- --
Extraordinary item....................... -- -- -- (0.04)
---------- ---------- ---------- ----------
Net income (loss).................... $ 0.28 $ 0.34 $ 0.19 $ 0.19
========== ========== ========== ==========
Pro forma net income (loss) per share --
Diluted:(8)
Continuing operations.................... $ 0.26 $ 0.32 $ 0.19 $ 0.22
Discontinued operations.................. -- -- -- --
Extraordinary item....................... -- -- -- (0.04)
---------- ---------- ---------- ----------
Net income (loss).................... $ 0.26 $ 0.32 $ 0.19 $ 0.18
========== ========== ========== ==========
OTHER DATA:(1)
Ratio of earnings to fixed charges(9)........ 2.4x 2.2x 2.2x 1.9x
Subsidiary Non-Guarantors -- net sales....... $ 509,734 $ 671,567 $ 347,933 $ 443,651
Subsidiary Non-Guarantors -- net income...... $ 430 $ 854 $ 246 $ 1,642
BALANCE SHEET DATA:(1)
Working capital.............................. $ 360,619 $ 517,476 $ 373,800 $ 533,739
Total assets................................. 1,816,434 2,349,659 1,880,107 2,454,942
Long-term debt and capital lease
obligations................................ 608,680 763,243 618,289 1,190,845
Shareholders' equity and redeemable
preferred(10).............................. 667,006 932,433 722,727 575,056
Weighted average common shares outstanding:
Basic.................................... 121,612 131,423 127,268 121,142
Diluted.................................. 129,749 137,858 133,015 125,156
</TABLE>
35
<PAGE> 44
- ------------------------------
(1) The HMI acquisition (effective January 30, 1997), the Sofco acquisition
(effective January 24, 1997), the UT acquisition (effective November 8,
1996), the Nimsa acquisition (effective October 31, 1996), the Delivery
acquisition (effective March 1, 1996), the Young acquisition (effective
February 27, 1996) and the Lucas Bros., Inc. ("Lucas") acquisition
(effective November 30, 1993) were accounted for as poolings of interests
and, accordingly, the HMI, Sofco, UT, Nimsa, Delivery, Young and Lucas
accounts and results are included for all applicable periods.
(2) Cost of sales includes occupancy and delivery expenses.
(3) Reflects the write-down to fair market value of certain inventory which
Corporate Express decided to eliminate from its product line.
(4) Merger and other non-recurring charges in fiscal 1997 include the
acquisition costs incurred by DDI, the continued integration of delivery
services and certain provisions for reductions in workforce and facility
closures at other locations. Merger and other nonrecurring charges in prior
fiscal years relate primarily to the mergers with Sofco, HMI, Nimsa and UT
in fiscal 1996, Delivery and Young in fiscal 1995 and Lucas in fiscal 1993
and include, among other things, costs to complete the acquisitions, costs
of merging and closing redundant facilities and costs associated with
personnel reductions and centralizing certain administrative functions.
(5) In fiscal 1995, Sofco adopted a plan to discontinue Sofco-Eastern, Inc; and
in February 1993, Lucas adopted a plan to discontinue its retail
operations.
(6) Reflects extraordinary loss related to a write-off of an unamortized
discount on debt in fiscal 1993, extraordinary gain related to the
repurchase by Corporate Express of $10 million principal amount of the
9 1/8% Notes in fiscal 1994. Extraordinary losses include the write-off of
deferred financing costs related to the terminated Old Credit Facility and
the early retirement of the 9 1/8% Notes which were both recorded in the
six months ended August 1, 1998.
(7) Pro forma net income reflects the additional taxes that would be incurred
to treat a subchapter S acquisition as if the acquired company was a C
corporation.
(8) Pro forma net income (loss) per share is calculated by dividing pro forma
income (loss), after preferred stock dividend requirements of Young of
$432,000 and $1,500,000 for fiscal 1994 and fiscal 1993, respectively, by
basic and diluted weighted common shares outstanding, respectively. Fiscal
1993 basic and diluted pro forma net loss per share includes preferred
shares as if they had been converted as of the beginning of the year. These
shares converted automatically upon the completion of Corporate Express'
initial public offering in fiscal 1994.
(9) The ratio of earnings to fixed charges is calculated by dividing earnings,
defined as income from continuing operations before income taxes and
minority interest plus fixed charges less capitalized interest, by fixed
charges, defined as interest expense plus capitalized interest and the
interest portion of rent expense. Fiscal 1992 earnings were lower than
total fixed charges resulting in a less than one-to-one ratio of earnings
to fixed charges, consequently, additional earnings of $913,000 would have
been required to attain a ratio of one-to-one.
(10) Redeemable preferred was converted to common stock in fiscal 1994.
36
<PAGE> 45
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Consolidated Financial Statements and related notes thereto contained in
Corporate Express' Quarterly Report on Form 10-Q for the quarterly period ended
August 1, 1998, the Annual Report on Form 10-K for the transition period from
March 2, 1997 to January 31, 1998, as amended by the Form 10-K/A filed on
October 23, 1998, and the Current Report on Form 8-K filed on July 29, 1998, as
amended by the Form 8-K/A filed on October 23, 1998, each incorporated by
reference herein. Some of the information presented in this Prospectus
constitutes forward looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. Although Corporate Express believes
that its expectations are based on reasonable assumptions within the bounds of
Corporate Express' knowledge of its business and operations, there can be no
assurance that actual results of Corporate Express' operations and acquisition
activities and their effect on Corporate Express' results of operations will not
differ materially from its expectations. See "Disclosure Regarding
Forward-Looking Statements."
GENERAL
Corporate Express has grown primarily through a series of acquisitions
including the acquisition of HMI on January 30, 1997, Sofco on January 24, 1997,
UT on November 8, 1996, Nimsa on October 31, 1996, Delivery on March 1, 1996,
and Young on February 27, 1996, all of which were accounted for as pooling of
interests transactions. Accordingly, the Consolidated Financial Statements have
been restated to include the accounts and operations of Sofco, HMI, Nimsa,
Delivery and Young for all periods prior to the mergers. The accompanying
financial statements have been restated to include the operations of UT
effective March 3, 1996 and Nimsa effective from its formation in fiscal 1995.
Reference to fiscal 1997 refers to the eleven-month period ended January 31,
1998 for Corporate Express. Reference to fiscal 1996 refers to the year ended
March 1, 1997 for Corporate Express and all pooled companies. Reference to
fiscal 1995 refers to the year ended March 2, 1996 for Corporate Express,
Delivery, Young, and Sofco, to the year ended December 31, 1995 for HMI, and to
the year ended June 30, 1996 for Nimsa. Reference to the fiscal year 1994 and
prior fiscal years refers to the February year end for Corporate Express, to the
December 31 year end for Delivery and HMI, to the May 31 year end for Sofco, and
to the September 30 year end for Young. During fiscal 1997 Corporate Express
changed its fiscal year end from February 28 to January 31 in order to better
align its fiscal year with its customers' and competitors' fiscal calendars and
to reduce the seasonality between quarters. The fiscal 1997 period refers to the
eleven months ended January 31, 1998.
During fiscal 1997, Corporate Express continued to increase the scope of
its operations throughout the United States, Canada, Germany, and Italy, and
entered new markets with acquisitions in Ireland and Switzerland. Substantial
emphasis was placed in fiscal 1997 on expanding and improving international
operations and improving operations in the services segment. Corporate Express
continued to execute its Corporate Supplier strategy and expanded the depth and
breadth of its product offerings as well as its geographic presence through 31
acquisitions during fiscal 1997.
During fiscal 1998, Corporate Express will place emphasis on internal
growth through continued implementation of the Corporate Supplier business
model. The Corporate Supplier business model reflects Corporate Express' plan to
reduce the total procurement cost of non-production goods and services for
customers. The key elements of the Corporate Supplier model are the broad
offering of products and services, global coverage for selected products and
services, a comprehensive distribution and logistics network, information
systems that integrate the complete product and service offering while linking
suppliers to customers and procurement management and consulting for customers.
Corporate Express also plans to increase sales to existing customers by
cross-selling its expanded product and service offerings and developing existing
customers into international, national or multi-regional accounts.
International markets historically have higher gross profit margins and
higher operating costs than Corporate Express experiences domestically. Certain
products now offered by Corporate Express, such as computer software, have lower
gross profit margins and lower operating costs than the products traditionally
sold by Corporate Express. In addition, the acquisition of companies with
break-even or marginal operating
37
<PAGE> 46
results or the costs of consolidating acquired business units with Corporate
Express may impact the operating margins and profitability of Corporate Express.
Corporate Express currently operates in two main sectors: product
distribution (which includes office products, computer supplies, forms
production and management, desktop software, promotional products and cleaning
and service supplies) and services (primarily same-day delivery), with the
majority of its revenue and cash flow attributable to the product distribution
business.
RESULTS OF OPERATIONS
The following table sets forth the percentages which the items in Corporate
Express Consolidated Statements of Operations bear to net sales for the periods
indicated:
<TABLE>
<CAPTION>
ELEVEN MONTHS ENDED SIX MONTHS ENDED
FISCAL YEAR ------------------------- ---------------------
--------------------- FEBRUARY 1, JANUARY 31, AUGUST 2, AUGUST 1,
1994 1995 1996 1997 1998 1997 1998
----- ----- ----- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales.......................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales...................... 74.7 75.0 75.6 75.8 76.5 76.5 76.8
Merger related inventory
provisions....................... -- 0.3 -- -- -- -- --
----- ----- ----- ----- ----- ----- -----
Gross profit..................... 25.3 24.7 24.4 24.2 23.5 23.5 23.2
Warehouse operating and selling
expenses......................... 19.1 18.1 17.6 17.5 17.0 17.4 16.3
Corporate general and
administrative expenses.......... 2.6 2.6 3.0 3.0 2.9 3.0 3.0
Merger and other nonrecurring
charges.......................... -- 1.9 0.6 0.7 0.4 0.0 --
----- ----- ----- ----- ----- ----- -----
Operating profit................. 3.6 2.1 3.2 3.0 3.2 3.1 3.9
Interest expense, net.............. 1.5 1.0 0.8 0.8 1.0 1.0 1.5
Other income....................... 0.0 0.1 0.0 0.0 0.0 0.0 0.0
----- ----- ----- ----- ----- ----- -----
Income before income taxes....... 2.1 1.2 2.4 2.2 2.2 2.1 2.4
Income tax expense................. 0.7 0.7 1.1 1.1 1.0 0.8 1.1
----- ----- ----- ----- ----- ----- -----
Income before minority
interest....................... 1.4 0.5 1.3 1.1 1.2 1.3 1.3
Minority interest (income)
expense.......................... 0.0 0.1 (0.0) (0.1) (0.0) 0.0 0.0
----- ----- ----- ----- ----- ----- -----
Income from continuing
operations..................... 1.4 0.4 1.3 1.2 1.2 1.3 1.3
Loss from discontinued
operations....................... 0.0 0.1 -- -- -- -- --
----- ----- ----- ----- ----- ----- -----
Income before extraordinary item... 1.4 0.3 1.3 1.2 1.2 1.3 1.3
Extraordinary (gain) loss.......... (0.0) -- -- -- -- -- 0.3
----- ----- ----- ----- ----- ----- -----
Net income....................... 1.4% 0.3% 1.3% 1.2% 1.2% 1.3% 1.0%
===== ===== ===== ===== ===== ===== =====
Pro forma net income (1)......... 1.4% 0.3% 1.3% 1.2% 1.2% 1.3% 1.0%
===== ===== ===== ===== ===== ===== =====
</TABLE>
- ------------------------------
(1) Pro forma net income reflects the tax impact for a subchapter S acquisition
as if the acquired company was a C corporation.
SIX MONTHS ENDED AUGUST 1, 1998 AND AUGUST 2, 1997
Net Sales. Consolidated net sales increased 20.9% to $1,118,162,000 in the
three months ended August 1, 1998 from $925,084,000 in the three months ended
August 2, 1997 and increased 20.6% to $2,226,222,000 from $1,846,538,000 for the
respective six-month periods. Net sales for Corporate Express' product
distribution segment increased 29.3% to $931,004,000 in the three months ended
August 1, 1998 from $720,130,000 in the same period last year, and increased
29.8% to $1,844,661,000 from $1,420,749,000 for the respective six-month
periods. Net sales for the services segment decreased 8.7% to $187,158,000 in
the three months ended August 1, 1998 from $204,954,000 in the same period last
year and decreased 10.4% to $381,561,000 from $425,789,000 in the respective
six-month periods. The overall increases were primarily attributable to strong
internal growth reflecting increased market penetration in Corporate Express'
product distribution segment, the acquisition of DDI completed on November 26,
1997, increased international sales and increased sales of computer software.
The decline in the services segment reflects the disposition of certain
non-strategic businesses, the effect of consolidating or closing facilities, and
the elimination of low margin customers.
38
<PAGE> 47
International operations accounted for 19.8% of consolidated net sales, or
$221,724,000, in the three months ended August 1, 1998 and 18.7% of consolidated
net sales, or $173,242,000, in the same period last year and 19.9% of
consolidated net sales, or $443,651,000, for the six months ended August 1, 1998
compared to 18.8% of net sales, or $347,932,000, for the same period last year.
This growth is primarily attributable to expansion in Germany, Italy, Ireland,
and Switzerland and strong internal growth in Canada and France.
Gross Profit. Cost of sales includes merchandise, occupancy and delivery
costs. Gross profit as a percentage of sales was 23.2% for the three months
ended August 1, 1998 and 23.4% for the same period last year compared to 23.2%
and 23.5% for the respective six-month periods. The slight decrease in the gross
profit percentage reflects increased gross profit margins in the domestic office
products business primarily attributed to enhanced vendor programs offset by
lower gross profit margins in the services segment and international operations.
The decrease in the services segment gross profit margins is primarily
attributable to consolidation costs, increases in driver and vehicle related
costs, and reductions in pricing. The decrease in the international gross profit
margins primarily reflects expansions in Switzerland and Italy which have lower
gross profit margins on their product mix compared to the product mix
traditionally sold by Corporate Express, and lower gross profit margins in the
United Kingdom due to continuation of inefficiencies resulting from facility and
system integration and the addition of certain lower margin accounts.
Warehouse Operating and Selling Expenses. Warehouse operating and selling
expenses primarily include labor and administrative costs associated with
operating regional warehouses and sales offices, selling expenses including
commissions related to Corporate Express' direct sales force, and warehouse
consolidation and relocation costs and expenses. Warehouse operating and selling
expenses as a percentage of sales decreased to 16.1% for the three months ended
August 1, 1998 from 17.3% for the same period last year and decreased to 16.3%
from 17.4% for the respective six-month periods. The improvement in operating
expenses as a percentage of net sales primarily reflects Corporate Express'
efforts to leverage and streamline its operations, including the elimination of
redundant facilities and positions.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses include the central expense incurred to provide
corporate oversight and support for regional operations, goodwill amortization
and certain depreciation. Consolidated corporate general and administrative
expenses increased slightly to 3.0% of net sales in the three months ended
August 1, 1998 from 2.9% in the three months ended August 2, 1997 (the increase
of 0.1% reflects increased goodwill amortization expense primarily from the DDI
acquisition) and were consistent at 3.0% of net sales for the respective
six-month periods. Consolidated corporate general and administrative expenses
increased to $33,771,000 in the three months ended August 1, 1998 from
$26,618,000 in the three months ended August 2, 1997 and to $66,873,000 from
$55,712,000 for the respective six-month periods reflecting increased support
for Corporate Express' expanded operations.
Operating Profit. Consolidated operating profit increased to $45,446,000,
or 4.1% of net sales, for the three months ended August 1, 1998 from
$29,480,000, or 3.2% of net sales, in the same period last year. Consolidated
operating profit increased to $87,289,000, or 3.9% of net sales, for the six
months ended August 1, 1998 from $57,433,000, or 3.1% of net sales, in the same
period last year. Operating profit for the product distribution segment
increased to $47,010,000, or 5.0% of product distribution net sales, in the
three months ended August 1, 1998 from $23,478,000, or 3.3% in the three months
ended August 2, 1997, and increased to $86,908,000, or 4.7% from $45,261,000, or
3.2% for the corresponding six-month periods. The increase in operating profit
as a percentage of net sales for the product distribution segment primarily
reflects successful consolidation of operations which decreased expenses and
continued focus on vendor support. Operating losses for the services segment of
$1,564,000, or 0.8% of services net sales, in the three months ended August 1,
1998 compared to operating profit of $6,002,000, or 2.9% in the three months
ended August 2, 1997, and operating profit decreased to $381,000, or 0.1% of
services net sales, from $12,172,000, or 2.9% in the corresponding six-month
periods. The decrease in operating profit as a percentage of net sales for the
services segment reflects lower than expected performance at several delivery
locations, expenses related to integration projects, enhanced employee benefit
plans, and investments to hire and relocate many new members of the management
team, partially offset by cost savings from the elimination of redundant
personnel.
39
<PAGE> 48
Operating profit for international operations increased to 2.4% of
international net sales in the three months ended August 1, 1998 from 1.2% in
the three months ended August 2, 1997, and to 2.5% from 1.0% in the respective
six-month periods, primarily reflecting improved performance in Australia,
Germany and Canada, partially offset by reduced operating profits in the United
Kingdom reflecting business disruptions from prior consolidation efforts.
Interest Expense. Net interest expense of $21,787,000 in the three months
ended August 1, 1998 increased from $9,530,000 in the three months ended August
2, 1997 and to $34,578,000 from $18,483,000 in the respective six-month periods
primarily due to issuance of the new $350,000,000 9 5/8% Notes and increased
borrowings under the new Senior Secured Credit Facility to fund the borrowings
to finance the repurchase of common stock.
Minority Interest. Minority interest expense of $761,000 in the three
months ended August 1, 1998 compares to $612,000 in the three months ended
August 2, 1997, and expense of $957,000 compares to income of $1,522,000 in the
corresponding six-month periods. Minority interest for the current year reflects
a 47.6% minority interest in Corporate Express Australia and in the prior period
it also reflects a 49.0% minority interest in Corporate Express United Kingdom.
Corporate Express acquired the remaining ownership interest in Corporate Express
United Kingdom in June 1997.
Extraordinary Item. The extraordinary loss of $4,477,000, net of tax of
$2,862,000, in the three months ended August 1, 1998 represents the cost of
early repayment of the 9 1/8% Senior Subordinated Notes Series B due 2004. The
extraordinary loss of $5,581,000 in the six months ended August 1, 1998 also
includes $1,104,000, net of tax of $706,000, reflecting the first quarter
write-off of deferred financing costs related to the early extinguishment of
Corporate Express' former Senior Credit Facility.
Net Income. Excluding the extraordinary item, net income of $12,275,000 in
the three months ended August 1, 1998 compared to $12,264,000 for the three
months ended August 2, 1997 and increased to $28,087,000 from $24,674,000 in the
corresponding six-month periods. Including the extraordinary item, net income of
$7,798,000 in the three months ended August 1, 1998 compared to $12,264,000 for
the three months ended August 2, 1997 and $22,506,000 compared to $24,674,000 in
the corresponding six-month periods. The increase in the effective tax rate
primarily reflects increased amortization of non-deductible goodwill and the
absence of operating loss carryforwards which were recorded in prior year
periods.
Other. Goodwill at August 1, 1998 of $856,680,000 increased from
$847,544,000 at January 31, 1998 reflecting net additions from acquisitions
offset by current year amortization.
The inventory balance at August 1, 1998 of $269,535,000 increased
$18,427,000 from $251,108,000 at January 31, 1998 as a result of acquired
inventories and inventory growth to support increased sales.
Accrued purchase costs at August 1, 1998 of $8,968,000 decreased by
$410,000 from the January 31, 1998 balance of $9,378,000, reflecting acquisition
additions of $1,840,000 and usage of $2,250,000.
The accrued merger and related costs balance at August 1, 1998 of
$10,323,000 decreased by $5,189,000 from the January 31, 1998 balance of
$15,512,000, reflecting current period usage.
ELEVEN MONTHS ENDED JANUARY 31, 1998 AND FEBRUARY 1, 1997
Net Sales. Consolidated net sales increased 22.7% to $3,573,311,000 in the
eleven months ended January 31, 1998 from $2,911,189,000 in the same
eleven-month period last year. Net sales for Corporate Express' product
distribution segment increased 26.6% to $2,816,244,000 in the current
eleven-month fiscal period from $2,224,203,000 in the same eleven-month period
last year while net sales for its service segment increased 10.2% to
$757,067,000 from $686,986,000 in the same periods. These increases were
primarily attributable to 31 acquisitions in the eleven months ended January 31,
1998, the full year impact of 100 acquisitions completed in fiscal 1996, and
strong internal growth reflecting increased market penetration in Corporate
Express' products distribution business. This growth was partially offset by the
elimination of low margin customers, the effect of closing or consolidating
facilities, and the disposition of certain non-strategic businesses.
40
<PAGE> 49
International operations accounted for 18.8% of total sales or $671,567,000
in the eleven months ended January 31, 1998 and 17.5% of total sales or
$509,734,000 in the same eleven-month period last year. Corporate Express
expanded its international operations in Germany, Italy and Canada in the eleven
months ended January 31, 1998 and entered markets in Ireland and Switzerland.
Gross Profit. Cost of sales includes merchandise, occupancy and delivery
costs. Consolidated gross profit as a percentage of sales was 23.5% for the
eleven months ended January 31, 1998 compared to 24.2% for the same period in
the prior year. The gross profit percentage of sales for the product
distribution segment was 23.9% in the eleven months ended January 31, 1998 and
23.8% in the same eleven-month period last year. The gross profit percentage in
the services segment was 21.9% in the eleven months ended January 31, 1998
compared to 25.7% in the same eleven-month period last year. The decrease in the
gross profit percentage in the services segment is attributable to consolidation
costs, increases in driver and vehicle related costs, and pricing concessions.
Also affecting gross profit were lower international gross margins primarily as
a result of increased competitive pressures and increased computer software
sales (with lower gross margins), all of which were partially offset by
increased vendor rebates as a result of improved programs.
Warehouse Operating and Selling Expenses. Warehouse operating and selling
expenses primarily include labor and administrative costs associated with
operating regional warehouses and sales offices, selling expenses including
commissions related to Corporate Express' direct sales force, and warehouse
consolidation and relocation costs and expenses. Warehouse operating and selling
expenses decreased as a percentage of sales to 17.0% in the eleven months ended
January 31, 1998 from 17.5% in the same eleven-month period last year. This
decrease is primarily attributable to Corporate Express' efforts to leverage and
streamline its operations, including the elimination of redundant facilities and
positions.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses include the central expense incurred to provide
corporate oversight and support for regional operations, goodwill amortization
and depreciation. Corporate general and administrative expenses increased to
$105,055,000 in the eleven months ended January 31, 1998 from $87,793,000 in the
same eleven-month period last year reflecting Corporate Express' expanded
operations. As a percentage of net sales, corporate general and administrative
expenses decreased to 2.9% in the current period from 3.0% in the prior period.
This decrease reflects Corporate Express' efforts to leverage these expenses
over expanded operations, partially offset by increased goodwill amortization.
Merger and Other Nonrecurring Charges. During the eleven months ended
January 31, 1998, Corporate Express recorded $14,890,000 in net merger and other
nonrecurring charges. The charge includes $4,485,000 of transaction costs
incurred by DDI in connection with its merger with Corporate Express, costs
related to the continued integration of the delivery service business and
certain provisions for reductions in the workforce and facility closures at
other locations including the planned closure of 34 facilities and reduction of
722 employees. These exit plans are expected to be completed by the end of
fiscal 1998.
Operating Profit. Consolidated operating profit increased 28.3% to
$114,815,000 or 3.2% of net sales for the eleven months ended January 31, 1998
compared to operating profit of $89,520,000 or 3.0% of net sales in the same
period last year. Before merger related and other nonrecurring charges,
operating profit increased to $129,705,000 in the current period from
$109,361,000 in the prior period due largely to internal growth and improved
operating efficiencies. Before merger related and other nonrecurring charges,
operating profit for the product distribution segment increased 42.0% to
$112,961,000 or 4.0% of net product distribution sales in the current fiscal
period from $79,549,000 or 3.6% of net sales in the same period last year.
Operating profit before nonrecurring charges for the services segment decreased
to $16,744,000 or 2.2% of net service sales in the current fiscal period from
$29,812,000 or 4.3% of net service sales in the prior fiscal period. The
decrease in operating profit for the services segment reflects poor performance
at several delivery locations and expenses related to integration projects,
partially offset by the cost savings from the elimination of redundant
personnel. Operating profit before nonrecurring charges for international
operations increased 114.0% to 2.0% of net international sales in the current
eleven-month fiscal period from 1.2% of net international sales in the prior
eleven-month fiscal period reflecting improved performance in Australia and
Canada, partially offset by decreased operating profits in the United Kingdom.
International operating profit before nonrecurring charges
41
<PAGE> 50
accounted for 11.7% of total product distribution operating profit in the
current fiscal period and 7.8% in the prior fiscal period.
Interest Expense. Net interest expense of $38,115,000 in the eleven months
ended January 31, 1998 increased from $24,550,000 in the prior eleven-month
fiscal period. This increase reflects increased borrowings under Corporate
Express' previous credit facility (the "Old Credit Facility"), interest on
acquired debt, and the sale in June 1996 of $325,000,000 aggregate principal
amount of the Convertible Notes. The proceeds from the sale of the Convertible
Notes and borrowings under the Old Credit Facility were used to fund
acquisitions and provide the additional working capital required as a result of
increased business and for general corporate purposes.
Minority Interest. Minority interest income of $1,319,000 in the eleven
months ended January 31, 1998 compares to income of $1,314,000 in the prior
eleven-month fiscal period, reflecting a 47.6% minority interest in Corporate
Express Australia and a 49.0% minority interest in Corporate Express United
Kingdom through June 1997. Corporate Express acquired a majority ownership
interest in Corporate Express Australia in May 1995 and a majority ownership
interest in Corporate Express United Kingdom in December 1995. In June 1997,
Corporate Express acquired the remaining 49.0% ownership interest in Corporate
Express United Kingdom.
Net Income. Net income of $44,404,000 in the eleven months ended January
31, 1998 increased 24.4% from net income of $35,708,000 in the prior
eleven-month fiscal period. This increase reflects the increased profits from
Corporate Express' mature product distribution operations, the lower merger and
other nonrecurring charges recorded in the current eleven-month fiscal period
and corporate expense leverage offset in part by higher goodwill amortization.
Corporate Express experienced an effective tax rate of 44.4% in the fiscal 1997
period compared to 47.2% in the fiscal 1996 period. The tax rate for both
periods reflects certain non-deductible merger costs and certain non-deductible
goodwill.
Other. The net accounts receivable balance at January 31, 1998 of
$616,574,000 increased $122,375,000 from $494,199,000 at March 1, 1997 primarily
as a result of acquired receivables and internal sales growth in existing
regions. The allowance for doubtful accounts as a percentage of consolidated
accounts receivable was 2.4% and 2.6% at the end of the fiscal 1997 and fiscal
1996 periods, respectively. Corporate Express' historical bad debt write-offs
have been very low due to the high credit quality of its customers, resulting
from Corporate Express' focus on large corporations, and the fact that in
certain acquisitions the seller guarantees acquired receivables.
The inventory balance at January 31, 1998 of $251,108,000 increased
$63,550,000 from $187,558,000 at March 1, 1997 primarily as a result of acquired
inventories and inventory growth to support increased sales.
Goodwill at January 31, 1998 of $847,544,000 increased $175,577,000 from
$671,967,000, reflecting additions from acquisitions of $197,250,000 (primarily
attributable to the DDI acquisition) offset by current year amortization of
$21,087,000 and reversals of $586,000.
The accounts payable trade balance at January 31, 1998 of $354,915,000
increased $62,874,000 from $292,041,000 at March 1, 1997 primarily as a result
of acquired trade payables and increased inventory purchases to support sales
growth.
Accrued purchase costs at January 31, 1998 of $9,378,000 decreased by
$3,510,000 from the March 1, 1997 balance of $12,888,000. This decrease reflects
acquisition additions of $6,365,000, payments of $9,289,000, and reversals of
$586,000 reducing previously recorded goodwill.
FISCAL YEARS 1996 AND 1995
Net Sales. Consolidated net sales increased 69.0% to $3,196,056,000 in
fiscal 1996 from $1,890,639,000 in fiscal 1995. Net sales for Corporate Express'
product distribution segment increased 57.4% to $2,436,296,000 in fiscal 1996
from $1,548,175,000 in fiscal 1995 while net sales for its service segment
increased 121.9% to $759,760,000 from $342,464,000 in the same periods. These
increases were primarily attributable to 100 acquisitions in fiscal 1996 of
which 77 were product based companies (48 domestic and
42
<PAGE> 51
29 international) and 23 were service based companies (21 domestic and two
international) and the acquisition of UT, which was accounted for as a pooling
of interests with operations from March 3, 1996 (prior year results were
immaterial). Also contributing to the sales increase was strong internal growth
reflecting increased market penetration in product distribution.
International operations accounted for 17.7% of total sales or $565,126,000
in fiscal 1996 and 12.6% of total sales or $238,201,000 in fiscal 1995.
Corporate Express expanded its international operations in fiscal 1996 to
include operations in New Zealand, Germany, France, and Italy.
Gross Profit. Cost of sales includes merchandise, occupancy and delivery
costs. Consolidated gross profit as a percentage of sales was 24.4% for fiscal
1996 compared to 24.7% for fiscal 1995. Included in cost of sales in fiscal 1995
is a merger related inventory provision of $5,952,000, representing 0.3% of
sales. In fiscal 1995, Corporate Express made the decision to expand to new
product categories, while discontinuing certain low-end products, to standardize
core product lines and to eliminate certain inventory historically maintained
for specific customers and wrote certain inventory down to its fair market
value. Impacting the declining gross profit percentage in fiscal 1996 was the
addition of a desktop software line of products which has substantially lower
gross profit margins, and decreased gross margins in the delivery business.
The gross profit percentage of sales for the product distribution segment
was 24.0% in fiscal 1996 and 23.8% in fiscal 1995 (excluding the merger related
inventory provision). The increase reflects gross margin improvement in all of
the domestic office product distribution operations which was partially offset
by lower margin sales from an acquired desktop software distributor. The
improvement in domestic office product distribution gross profit is due, in
part, to the expanded usage of Corporate Express' proprietary, full color
catalog resulting in fewer wholesaler purchases and increased vendor rebates.
The gross profit percentage in the services segment was 25.5% in fiscal 1996
compared to 30.8% in fiscal 1995. The decrease in the gross profit percentage in
the service segment is primarily attributable to the acquisition of UT which had
lower gross profit margins than other delivery services operations.
Warehouse Operating and Selling Expenses. Warehouse operating and selling
expenses primarily include labor and administrative costs associated with
operating regional warehouses and sales offices, selling expenses and
commissions related to Corporate Express' direct sales force, and warehouse
assimilation costs. Warehouse operating and selling expenses decreased as a
percentage of sales to 17.6% in fiscal 1996 from 18.1% in fiscal 1995. This
decrease is primarily attributable to Corporate Express' efforts to leverage and
streamline its operations and to the software distribution operation and UT,
both of which have lower operating expenses as a percentage of sales.
Corporate General and Administrative Expenses. Corporate general and
administrative expenses increased to $95,101,000 in fiscal 1996 from $49,742,000
in fiscal 1995, reflecting Corporate Express' expanded operations. As a
percentage of net sales, corporate general and administrative expenses increased
to 3.0% in fiscal 1996 from 2.6% in fiscal 1995. This increase reflects
increased goodwill amortization resulting from purchase acquisitions in fiscal
1995 and fiscal 1996 and costs associated with developing a larger corporate
staff to support acquisition efforts and expanded operations, including an
expanded information system staff.
Merger and Other Nonrecurring Charges. During fiscal 1996, Corporate
Express recorded $19,840,000 in net merger and other non-recurring charges
primarily in conjunction with the acquisitions of Nimsa, UT, Sofco and HMI. Of
the total charge, a net $12,366,000 was recorded in the third quarter and
$7,474,000 was recorded in the fourth quarter of fiscal 1996. The third quarter
charge is comprised of merger and other nonrecurring charges primarily in
conjunction with the acquisitions of UT and Nimsa, offset by $7,571,000 in
adjustments to the merger and other nonrecurring charge established in the
fourth quarter of fiscal 1995. The fiscal 1995 charge included an exit plan for
the integration of the newly acquired delivery business into Corporate Express'
core product distribution business. In the third quarter of fiscal 1996, nine
months after the creation of the original exit plan, Corporate Express acquired
UT, approximately doubling its delivery services capacity. At that time,
Corporate Express adopted a new plan to integrate the delivery services business
separate from the core product distribution business. In connection with the new
exit plan, Corporate Express evaluated its facility and personnel requirements
and identified duplicate facilities consistent with the new plan. As a result of
this new plan, the closure of thirteen delivery facilities and five distribution
facilities,
43
<PAGE> 52
incorporated in the original fiscal 1995 plan, was superseded. The third quarter
fiscal 1996 charge includes the planned closure of 115 facilities and reduction
of approximately 485 employees. The fourth quarter fiscal 1996 charge primarily
reflects the actual costs of completing the acquisitions of Sofco and HMI. (See
Note 4 to the Consolidated Financial Statements).
Operating Profit. Consolidated operating profit was $100,490,000, or 3.2%
of net sales, in fiscal 1996, compared to operating profit of $38,160,000, or
2.1% of net sales, in fiscal 1995. Before merger related and other nonrecurring
charges, operating profit increased 48.6% to $120,330,000 in fiscal 1996 from
$80,950,000 in fiscal 1995, reflecting increased acquisitions, internal growth
and improved operating efficiencies. Before merger related and other
nonrecurring charges, operating profit for the product distribution segment
increased 52.1% to $88,802,000, or 3.6% of net sales, in fiscal 1996 from fiscal
1995 operating profit of $58,394,000 or 3.8% of net sales. Operating profit
before nonrecurring charges for the service segment increased 39.8% to
$31,528,000, or 4.1% of net sales, in fiscal 1996 from $22,556,000, or 6.6% of
net sales, in fiscal 1995. The decrease in operating profit for the service
segment as a percentage of sales reflects the results of UT which had lower
operating margins, poor performance at several delivery locations and expenses
related to consolidation projects. Operating profit before nonrecurring charges
for international operations decreased to 1.1% of net international sales in
fiscal 1996 from 3.9% of net international sales in fiscal 1995 reflecting
operating losses in Australia related to warehouse consolidation projects and
expansion to new European markets, partially offset by increased operating
profits in Canada. International operating profit before nonrecurring charges
accounted for 6.8% of total office products operating profit in fiscal 1996 and
15.8% of total office products operating profit in fiscal 1995.
Interest Expense. Net interest expense of $26,949,000 in fiscal 1996
increased from $17,968,000 in fiscal 1995. This increase reflects increased
borrowings under the Old Credit Facility and the sale of $325,000,000 aggregate
principal amount of the Convertible Notes. The proceeds from the sale of the
Convertible Notes were used to fund acquisitions and provide the additional
working capital required as a result of increased business and general corporate
purposes.
Minority Interest. Minority interest income of $1,860,000 in fiscal 1996
compares to an expense of $1,436,000 in fiscal 1995, reflecting a 47.6% minority
interest in the operating losses at Corporate Express Australia partially offset
by a 49.0% minority interest in operating profits in Corporate Express United
Kingdom.
Net Income. Net income of $41,996,000 in fiscal 1996 compares to net income
of $5,551,000 in fiscal 1995. This increase reflects the increased profits from
Corporate Express' more mature operations, the lower merger and other
nonrecurring charges recorded in fiscal 1996 and the purchase acquisitions.
Corporate Express experienced an effective tax rate of 45.6% in fiscal 1996
compared to 62.6% in fiscal 1995. The fiscal 1995 tax rate reflects certain
non-deductible merger costs, the utilization of certain net operating losses
("NOLs"), and certain non-deductible goodwill. The fiscal 1996 tax rate reflects
certain non-deductible merger costs and certain non-deductible goodwill. The
principal reason the 1995 effective tax rate exceeds the 1996 rate is the higher
level of non-deductible merger costs in fiscal 1995.
FISCAL YEARS 1995 AND 1994
Net Sales. Net sales increased 65.1% to $1,890,639,000 in fiscal 1995 from
$1,145,151,000 in fiscal 1994. Net sales in the product distribution segment
increased 67.4% to $1,548,175,000 in fiscal 1995 from $924,886,000 in fiscal
1994, while the service segment increased 55.5% to $342,464,000 from
$220,265,000 in the same periods. These increases were primarily attributable to
51 acquisitions, of which 28 were product based companies (17 domestic and 11
international), seven were repurchases of computer product franchises by Young,
and 16 were service based companies principally in the delivery services
business (all domestic). Also contributing to the sales increase was the
inclusion of the results of operations of acquisitions accounted for as
purchases during fiscal 1995 and internal growth.
Gross Profit. Consolidated gross profit as a percentage of sales was 24.7%
for fiscal 1995 compared to 25.3% for fiscal 1994. Included in cost of sales for
fiscal 1995 is a merger related inventory provision of $5,952,000. The gross
profit percentage, excluding the merger related inventory provision was 25.0% in
fiscal
44
<PAGE> 53
1995. The gross profit percentage in product distribution, excluding the merger
related inventory provision was 23.8% in fiscal 1995 compared to 23.9% in fiscal
1994 and services segment gross profit percentage was 30.8% in fiscal 1995
compared to 31.3% in fiscal 1994. Decreases in services are primarily
attributable to increased delivery costs resulting from unusually severe weather
in the Northeast.
Warehouse Operating and Selling Expenses. Warehouse operating and selling
expenses decreased as a percentage of sales to 18.1% in fiscal 1995 from 19.1%
in fiscal 1994. This decrease reflects cost savings as a result of the
implementation of the Corporate Express business model at certain regional
warehouses, which includes centralizing certain administrative functions. Also
contributing to this decrease is a reduction of approximately $3,100,000 in
Delivery compensation expense which was eliminated in fiscal 1995 pursuant to
agreements made in connection with companies acquired in poolings of interest
acquisitions.
Corporate General and Administrative Expenses. As a percentage of net
sales, corporate general and administrative expenses were 2.6% in both fiscal
1995 and fiscal 1994. Expenses increased to $49,742,000 in fiscal 1995 from
$29,624,000 in fiscal 1994, reflecting Corporate Express' expanded operations.
Merger and Other Nonrecurring Charges. During the fourth quarter of fiscal
1995, Corporate Express recorded $36,838,000 in merger and other nonrecurring
charges (in addition to $5,952,000 in merger related inventory provisions)
primarily in conjunction with the acquisitions of Delivery and Young. The
charges include the actual costs of completing the acquisitions and additional
costs associated with a plan to integrate the combined companies' operations.
The major activities associated with the plan include merging various Delivery
and Young facilities into Corporate Express locations, closing duplicate
facilities and centralizing certain administrative functions. These merger and
other nonrecurring charges include merger transaction related costs of
$13,273,000; severance and employee termination costs of $7,457,000
(representing approximately 760 employees); facility closure and consolidation
costs of $9,693,000; and other asset write-downs and costs of $6,415,000. Of the
$36,838,000 charges, $7,724,000 are non-cash charges.
Operating Profit. Operating profit of $38,160,000 in fiscal 1995 compares
to operating profit of $40,953,000 in fiscal 1994. Operating profit before
nonrecurring charges for product distribution increased to $58,394,000 in fiscal
1995 from $29,811,000 in fiscal 1994. This increase reflects the contribution of
acquired companies and increased regional operating profits at Corporate
Express' other regional operations. Operating profit before nonrecurring charges
for services increased to $22,556,000, or 6.6% of net sales, in fiscal 1995 from
$11,142,000, or 5.1% of net sales, in fiscal 1994.
Interest Expense. Net interest expense increased to $17,968,000 in fiscal
1995 from $16,915,000 in fiscal 1994. Increases due to the elimination of the
0.5% per annum additional illiquidity payment of the 9 1/8% Notes effective upon
completion of a registered exchange offer in March 1995 and principal reductions
on the line of credit using funds from the public offerings of Common Stock
completed in March 1995 and September 1995 were offset by higher levels of
Delivery, Young and HMI debt outstanding as a result of their increased
borrowings to fund acquisitions and to provide the additional working capital
required as a result of increased business. On February 27, 1996, Corporate
Express borrowed on its line of credit and repaid in full, as required under its
terms, the Young revolving line of credit balance of $10,809,000 which bore
interest at prime plus 1.25%, the Young subordinated debt of $11,930,000 which
bore interest at 17.5% and debt payable to the selling shareholders of
$10,834,000 which bore interest at 9.75%. The Delivery bank credit facility
became due as of the acquisition date due to a change of control provision. This
facility was amended to expire on May 31, 1996 to provide time for Corporate
Express to renegotiate its primary bank revolver, which has been completed and
the Delivery credit facility has been repaid. See "Liquidity and Capital
Resources."
Extraordinary Item. The extraordinary gain of $586,000, net of tax, in the
second quarter of fiscal 1994 related to the repurchase of $10,000,000 principal
amount of the 9 1/8% Notes.
Net Income. Net income of $5,551,000 in fiscal 1995 decreased compared to a
net income of $16,496,000 in fiscal 1994. This decrease reflects the merger and
other nonrecurring charges recorded in fiscal 1995 offset by contributions from
purchase acquisitions and increased profits from Corporate Express' more mature
operations. The pre-tax profitability is reduced by an increase in the effective
tax rate to 62.6% in fiscal 1995 from 33.7% in fiscal 1994. The fiscal 1995 tax
rate reflects certain non-deductible merger costs, international
45
<PAGE> 54
tax rates, the utilization of certain NOLs, and certain non-deductible goodwill.
The fiscal 1994 tax rate included the utilization of certain NOLs and certain
non-deductible goodwill. The principal reason the 1995 effective tax rate
exceeds the 1994 effective tax rate is the non-deductibility of certain merger
costs. The fiscal 1994 period included in net income an extraordinary gain of
$586,000, net of tax, related to the repurchase of $10,000,000 principal amount
of the 9 1/8% Notes.
LIQUIDITY AND CAPITAL RESOURCES
Historically, Corporate Express has financed its operations through
internally generated funds and borrowings from commercial banks and has financed
its acquisitions through the use of such funds and the issuance of equity and
debt securities.
On February 5, 1998 Corporate Express announced a Dutch Auction issuer
tender offer to purchase for cash up to 35,000,000 shares of its issued and
outstanding common stock, par value $.0002 per share. The terms of the tender
offer invited Corporate Express' shareholders to tender up to 35,000,000 shares
of Corporate Express' common stock to Corporate Express at prices not greater
than $11.50 nor less than $10.00 per share, as specified by the tendering
shareholders. On April 10, 1998, Corporate Express closed the tender offer and
purchased 35,000,000 shares tendered at a price of $10.75 per share. Shares
tendered at prices in excess of the purchase price and shares not purchased
because of proration were returned to shareholders. Corporate Express funded the
purchase of such shares and the payment of related fees and expenses through the
New Credit Facility. The New Credit Facility consists of a $250,000,000
seven-year term loan and a $750,000,000 five-year revolving credit facility. The
New Credit Facility is guaranteed by substantially all domestic subsidiaries of
Corporate Express and is collateralized by all tangible and intangible property
of the guarantors including inventory and accounts receivables. At the
borrower's option interest rates are at a base rate or a Eurodollar rate plus an
applicable margin determined by a leverage ratio as defined in the loan
agreements. The term loan's interest rate ranges from 0.25% to 0.75% above the
revolving loan interest rate. Corporate Express is subject to usual covenants
customary for this type of facility including financial covenants. The available
funds may be used for general corporate purposes, including permitted
acquisitions and permitted share repurchases including the Share Repurchase and
other share repurchases. As of August 31, 1998, Corporate Express had
$480,597,000 outstanding (which includes outstanding Letters of Credit) under
the New Credit Facility and an unused borrowing capacity of $519,403,000.
Corporate Express' Board of Directors has recently authorized the
repurchase of shares of common stock from time to time in open market
transactions, block purchases, privately negotiated transactions and otherwise,
at prevailing prices. Financing for such purchases is available through the New
Credit Facility, as well as from cash flow from operations. In addition to the
35,000,000 shares repurchased on April 10, 1998 (described above), Corporate
Express has repurchased (through August 31, 1998) approximately 2,473,000 shares
in total, of which 430,000 shares were purchased in the second fiscal quarter of
1998, and the balance was purchased in August 1998.
On April 22, 1998 Corporate Express' Old Credit Facility was replaced and
paid in full with proceeds from the New Credit Facility. Approximately
$1,810,000 of deferred financing costs related to the Old Credit Facility were
expensed in the first quarter of fiscal 1998 and are shown as an extraordinary
item of $1,104,000, net of tax of $706,000.
On May 29, 1998 Corporate Express issued $350,000,000 principal amount of
the Old Notes. The Old Notes are guaranteed by all material domestic
subsidiaries of Corporate Express and are subordinated in right of payment to
all senior debt. On or after June 1, 2003 through maturity the Old Notes may be
redeemed at the option of Corporate Express, in whole or in part, at redemption
rates ranging from 104.813% to 100%. At any time on or before June 1, 2001
Corporate Express may redeem up to 35% of the notes with the net cash proceeds
of one or more Public Equity Offerings at a redemption price equal to 109.625%
of the principal amount thereof, subject to certain restrictions. Semi-annual
interest payments are due on June 1 and December 1 commencing on December 1,
1998. A portion of the proceeds from the sale of the Old Notes was used to
retire the 9 1/8% Notes pursuant to the Tender Offer and the Consent
Solicitation and to repay a portion of the New Credit Facility. As a result of
the early extinguishment of the 9 1/8% Notes, Corporate Express
46
<PAGE> 55
incurred an extraordinary loss of $7,339,000 ($4,477,000 net of tax). Corporate
Express settled an interest rate hedging contract based on $300,000,000 of U.S.
Treasury notes related to the completed Old Note Offering. The cost of the
settlement of the contract was $7,271,000 and will be amortized over the
ten-year term of the Notes as an adjustment to the effective interest rate of
the debt instrument bringing the effective interest rate to 9.83%.
During the eleven months ended January 31, 1998, Corporate Express invested
$24,572,000 net cash and approximately 14,895,000 shares of common stock in its
acquisition program. Total liabilities assumed in connection with these
acquisitions were $171,928,000. In addition, Corporate Express made payments of
approximately $8,797,000 and issued approximately 252,000 shares of common stock
related to acquisitions completed in prior fiscal years.
During the six months ended August 1, 1998 and the eleven months ended
January 31, 1998, Corporate Express had capital expenditures of $46,878,000 and
$82,959,000, respectively, for warehouse reconfigurations, computer systems and
software, telecommunications equipment, delivery vehicles, leasehold
improvements and investments in facilities. Corporate Express continues to
invest in advanced facilities, the development of its proprietary computer
software, and the upgrade of its computer systems.
Significant uses of cash in the six months ended August 1, 1998 were as
follows: repurchase of common stock of $383,980,000, capital expenditures of
$46,878,000, cash paid for acquisitions of $25,664,000, debt issuance costs of
$32,188,000, net payments on lines of credit of $61,497,000 and other uses of
$2,246,000, partially offset by net proceeds from debt of $510,966,000, and
operating activities of $27,452,000. Significant uses of cash in the eleven
months ended January 31, 1998 were as follows: capital expenditures of
$82,959,000, cash paid for acquisitions of $33,369,000, net debt repayments of
$10,393,000, retirement of DDI bonds of $62,178,000, and net other uses of
$2,168,000, partially offset by cash provided by net borrowings on lines of
credit of $122,376,000, operating activities of $26,916,000, proceeds from the
sale of assets of $21,100,000, issuance of common stock of $8,104,000, and
issuance of subsidiary common stock of $2,434,000.
Corporate Express expects net capital expenditures for fiscal 1998 of
approximately $80,000,000 comprised of approximately $59,000,000 to be used for
upgrading and enhancing its information systems and telecommunications equipment
and approximately $21,000,000 for warehouse reconfigurations and equipment.
Actual capital expenditures for fiscal 1998 may be greater or less than expected
amounts.
Corporate Express continues to make substantial investments in the
development and enhancement of its proprietary computer software applications.
During fiscal 1997, Corporate Express completed the development and
implementation of its ISIS computer software for its national account customers
and successfully launched the internet version of E-Way, its electronic
commerce, ordering and fulfillment system. Corporate Express began amortizing
its ISIS national account software and E-way in fiscal 1997 over a seven-year
and five-year life, respectively, on a straight-line basis. All costs associated
with the maintenance and production of its ISIS national account software are
being expensed as incurred. The integrated divisional version of the ISIS
software continues to be developed and is currently in beta test mode at two
operating divisions. As of August 1, 1998, Corporate Express estimates that the
costs to complete and implement ISIS integrated divisional software will be
approximately $40 million and the software will be implemented at all existing
domestic office products distribution centers by the end of fiscal 2002.
During fiscal 1996, Corporate Express acquired, for a net cash purchase
price of $241,846,000 and 5,542,000 shares of common stock, 77 office products
distributors and 23 service companies. Of these 100 acquisitions, 86 were
accounted for as purchases and 14 were accounted for as immaterial poolings of
interest. In addition, Corporate Express acquired UT, which was accounted for as
a pooling of interests with financial results included from March 3, 1996 for
6,332,000 shares of common stock. Total liabilities assumed in connection with
these acquisitions were $282,777,000 (including accounts payable and assumed
debt). In addition, Corporate Express made payments of approximately $13,984,000
related to prior acquisitions. Included in the net cash purchase price of
$241,846,000 is the purchase of ASAP, a computer software distribution company,
in May 1996 for approximately $98,000,000 in cash offset by cash acquired of
approximately $14,000,000.
47
<PAGE> 56
On June 24, 1996, CEI issued $325,000,000 aggregate principal amount of
Convertible Notes which are structurally subordinated to the Notes. The notes
are convertible into CEI's common stock at a conversion price of $33.33 per
share, subject to adjustments under certain conditions. A portion of the
proceeds from the sale of the Convertible Notes was used to repay a previous
credit facility and an acquisition note payable with the remaining proceeds
being used to fund acquisitions and for other general corporate purposes.
Cash and cash equivalents increased by $24,686,000 in fiscal 1996. This
increase reflects proceeds of $325,000,000 from issuance of the Convertible
Notes, net borrowings on lines of credit of $104,382,000 and cash from
operations of $25,753,000, offset by capital expenditures of $119,639,000,
payments for acquisitions of $255,830,000, repayment of debt of $64,893,000 and
net other additions of $9,913,000. Net cash provided by operating activities of
$25,753,000 reflects cash generated by net income plus non-cash expenses,
primarily depreciation and amortization, offset by an increase in accounts
receivable, inventories, and accrued liabilities reflecting increased sales. The
repayment of debt is primarily debt of acquired operations.
During fiscal 1995, Corporate Express purchased 45 companies for a net cash
purchase price of $96,971,000 and newly issued securities representing a 52.5%
interest in Corporate Express Australia for a net cash outlay of $98,000
($16,785,000 purchase price less cash acquired of $16,687,000). Corporate
Express also repurchased seven computer product franchises for $21,187,000.
Total liabilities assumed in connection with these acquisitions were
$118,447,000 (including accounts payable and assumed debt). In addition,
Corporate Express made payments of approximately $6,044,000 related to
acquisitions completed in fiscal 1994. During fiscal 1995, Corporate Express
sold its high-end furniture business for $4,362,000, which was acquired as part
of the acquisition of Joyce International, Inc.'s office products division
("Joyce"). The sale was contemplated at the time of the Joyce acquisition and
was reflected in the financial statements accordingly.
Cash and cash equivalents increased by $14,314,000 in fiscal 1995. This
increase reflects net proceeds from the sale of common stock of $449,288,000
(primarily from the March and September 1995 public offerings) offset by the
purchase of common stock held by OfficeMax, Inc. for $195,831,000, net payments
on the line of credit of $18,871,000, payments for capital expenditures during
fiscal 1995 of $53,124,000, cash paid for acquisitions of $124,300,000, cash
used in operating activities and repayment of debt of $99,838,000 and net other
additions of $56,990,000. Net cash used in operating activities of $16,433,000
reflects cash generated by net income plus non-cash expenses offset by an
increased investment in accounts receivable and inventories reflecting increased
sales and the introduction of Corporate Express' catalog into acquired
operations. The repayment of debt includes the repayment of debt of acquired
companies.
CEI and each of the Subsidiary Guarantors have fully and unconditionally
guaranteed, on a joint and several basis, the obligation to pay principal and
interest on the Notes. These guarantees are expressly subordinate to all Senior
Debt of CEX, CEI and the guarantor subsidiaries, including the New Credit
Facility. Substantially all of CEX's income and cash flow is generated by it's
subsidiaries. As a result, funds necessary to meet CEX's debt service
obligations are provided in large part by distributions or advances from its
subsidiaries. Under certain circumstances, contractual and legal restrictions,
as well as the financial condition and operating requirements of CEX's
subsidiaries, could limit CEX's ability to obtain cash from its subsidiaries for
the purpose of meeting its debt service obligations, including the payment of
principal and interest on the Notes. In addition, certain of CEX's subsidiaries
are not included among the guarantor subsidiaries and such subsidiaries will not
be obligated with respect to the Notes. As a result, the claims of creditors of
such non-guarantor subsidiaries will effectively have priority with respect to
the assets and earnings of such companies over the claims of creditors of CEX,
including holders of the Notes.
Corporate Express believes that the borrowing capacity under the New Credit
Facility, together with proceeds from future debt and equity financings, in
addition to Corporate Express' cash on hand, capital resources and cash flows
from operations, will be sufficient to fund Corporate Express' ongoing
operations, anticipated capital expenditures and acquisition activity for the
next twelve months. However, actual capital needs may change, particularly in
connection with acquisitions which Corporate Express may complete in the future.
48
<PAGE> 57
INFLATION
Certain of Corporate Express' product offerings, particularly paper
products, have been and are expected to continue to be subject to significant
price fluctuations due to inflationary and other market conditions. Corporate
Express generally is able to pass such increased costs on to its customers
through price increases, although it may not be able to adjust its prices
immediately. Significant increases in paper, fuel and other costs in the future
could materially affect Corporate Express' profitability if these costs cannot
be passed on to customers. In general, Corporate Express does not believe that
inflation has had a material effect on its results of operations in recent
years. However, there can be no assurance that Corporate Express' business will
not be affected by inflation in the future.
SEASONALITY AND QUARTERLY RESULTS
Corporate Express' product distribution business is subject to seasonal
influences. In particular, net sales and profits in the United States, Canada
and Europe are typically lower in the summer months due to lower levels of
business activity. Because cost of sales includes delivery and occupancy
expenses, gross profit as a percentage of net sales may be impacted by seasonal
fluctuations in net sales, higher delivery costs during inclement weather, and
the acquisition of less efficient operations. Quarterly results may be
materially affected by the timing of acquisitions and the timing and magnitude
of acquisition integration costs. Therefore, the operating results for any three
month period are not necessarily indicative of the results that may be achieved
for any subsequent fiscal quarter or for a full fiscal year.
Revenues and profit margins from Corporate Express' local delivery services
are subject to seasonal variations. Prolonged inclement weather can have an
adverse impact on Corporate Express' business to the extent that transportation
and distribution channels are disrupted.
ACCOUNTING STANDARDS
Corporate Express is required to adopt SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," in the fourth quarter of
fiscal 1998. SFAS No. 131 will supersede the business segment disclosure
requirements currently in effect under SFAS No. 14. SFAS No. 131, among other
things, establishes standards regarding the information a company is required to
disclose about its operating segments and provides guidance regarding what
constitutes a reportable operating segment. Corporate Express is currently
evaluating disclosures under SFAS No. 131 compared to current disclosures.
Corporate Express is required to adopt the disclosure requirements of SFAS
No. 132, "Employer's Disclosures about Pensions and Other Postretirement
Benefits," in the fourth quarter of fiscal 1998. SFAS No. 132 revises disclosure
requirements for such pension and postretirement benefit plans to, among other
things, standardize certain disclosures and eliminate certain other disclosures
no longer deemed useful. SFAS No. 132 does not change the measurement or
recognition criteria for such plans.
On March 4, 1998, the Accounting Standards Executive Committee (AcSEC)
issued Statement of Position (SOP) 98-1 providing guidance on accounting for the
costs of computer software developed or obtained for internal use. The effective
date of this pronouncement is for fiscal years beginning after December 15,
1998. Corporate Express is in the process of reviewing its current policies of
accounting for costs associated with internal software development projects and
how they may be affected by SOP 98-1. Corporate Express believes its current
policies are materially consistent with the SOP, however, the ultimate impact on
Corporate Express' future results of operations has not yet been determined.
IMPACT OF THE YEAR 2000
The Year 2000 issue is a result of computer programs being written using
two digits rather than four to define the applicable year. Any of Corporate
Express' computer programs that have date-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system/job failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar business activities.
Corporate Express' ISIS computer software has been designed with the Year
2000 issue in mind, and Corporate Express believes it is Year 2000 compliant;
however, Corporate Express utilizes many different
49
<PAGE> 58
systems and software programs to process and summarize business transactions.
Corporate Express is continuing the evaluation of its various operating systems
and determining the additional remediation efforts required to ensure its
computer systems will properly utilize dates beyond December 31, 1999.
Preliminary results of this assessment have revealed that remediation efforts
required will vary from system to system. For example, it appears some systems
will not require any additional programming efforts, while others may require
significant programming changes.
Corporate Express has initiated formal communications with all of its
significant suppliers and large customers to determine the extent to which
Corporate Express is vulnerable to those third parties' failure to remediate
their own Year 2000 issue. However, there can be no guarantee that the systems
of other companies on which Corporate Express' systems rely will be timely
converted, or that a failure to convert by another company, or a conversion that
is incompatible with Corporate Express' systems, would not have a material
adverse effect on Corporate Express.
For those systems identified as non-compliant, Corporate Express has begun
and, in certain cases, completed remediation efforts. Corporate Express will
utilize both internal and external resources to reprogram, or replace, and test
the software for Year 2000 modifications. Corporate Express plans to complete
the Year 2000 project before January 31, 1999. The total estimated cost of the
Year 2000 project is estimated to be between $6,000,000 and $8,000,000 and is
being funded through operating cash flows. These costs are not expected to be
material to Corporate Express' consolidated results of operations. Of the total
project cost, approximately $2,000,000 is attributable to the purchase of new
software or equipment which will be capitalized. The remaining $4,000,000 to
$6,000,000 will be expensed as incurred. In a number of instances, Corporate
Express may decide to install new software or upgraded versions of current
software programs which are Year 2000 compliant. In these instances, Corporate
Express may capitalize certain costs of the new system in accordance with
current accounting guidelines.
Corporate Express presently believes that with modifications to existing
software and conversions to new software for those sites which it believes may
be effected, the Year 2000 issue can be mitigated. However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 issue could have a material adverse effect on the operations of
Corporate Express.
The costs of the project and the date on which Corporate Express plans to
complete the Year 2000 modifications are based on management's best estimates,
which were derived utilizing numerous assumptions of future events including the
continued availability of certain resources, third party modification plans and
other factors. However, there can be no guarantee that these estimates will be
achieved and actual results could differ materially from those plans. Specific
factors that might cause such material differences include, but are not limited
to, the availability and cost of personnel trained in this area, the ability to
locate and correct all relevant computer codes, and similar uncertainties.
MARKET RISK
Corporate Express is primarily exposed to currency exchange-rate risk with
respect to its transactions and net assets denominated in Canadian and
Australian Dollars, U.K. Pound Sterling, French Francs, German Marks, Irish
Pounds, Swiss Francs and Italian Lira. Business activities in various currencies
expose Corporate Express to the risk that the eventual net dollar cash inflows
resulting from transactions with foreign customers and suppliers denominated in
foreign currencies may be adversely affected by changes in currency exchange
rates.
50
<PAGE> 59
BUSINESS
OVERVIEW
Corporate Express is a leading global provider of non-production goods and
services to large corporations that value innovative procurement solutions.
Corporate Express believes it has developed a unique "Corporate Supplier" model
which focuses on providing its customers with a broad array of non-production
goods and services while reducing the customer's overall procurement costs and
providing a high level of customer service. The products and services provided
by Corporate Express include office supplies, computer and imaging supplies,
computer desktop software, office furniture, advertising specialties, custom
business forms, forms management services, printing, cleaning and service
supplies, same-day local delivery services and distribution logistics
management.
Corporate Express has grown internally and through strategic acquisitions
to a global enterprise with locations throughout the United States and in
various international markets. Corporate Express' pro forma net sales for the
twelve months ended January 31, 1998 has increased to $4.1 billion from net
sales of $1.1 billion for fiscal 1994.
Corporate Express' target customers are large corporations which Corporate
Express believes increasingly seek to reduce their cost of procuring
non-production goods and services, including the time and effort spent managing
functions that are not considered core to their operations. Corporate Express
believes that, as part of such effort, corporations seek to reduce their number
of suppliers in order to eliminate the internal costs associated with complex
and varied ordering procedures, multiple invoices, multiple deliveries, uneven
service levels and inconsistent product availability. In addition, many large
corporations operate from multiple locations and benefit from selecting
suppliers who can provide service to their national and international locations.
Corporate Express markets its products and services to existing and prospective
customers through a direct sales force and delivers its products and services
utilizing approximately 700 world wide locations including over 90 distribution
centers and a fleet of over 10,000 owned or contracted vehicles.
CORPORATE SUPPLIER STRATEGY
Corporate Express' Corporate Supplier strategy is designed to reduce its
customers' total costs, including their internal costs incurred in managing the
procurement of non-production goods and services. Corporate Express believes
that customers value Corporate Express' broad product and service offerings, low
cost structure, extensive geographic coverage and delivery capabilities.
Corporate Express also believes that its customers value the high level of
service Corporate Express provides through its account relationship managers,
same-day delivery, customized pricing, product availability, electronic
interfaces and customized reporting.
Corporate Express seeks to continually reduce its merchandise and operating
costs, enabling it to offer its customers competitive prices while increasing
its operating margins. Corporate Express is able to reduce such costs primarily
through utilizing its increasing purchasing power and advanced information
systems. By purchasing most of its products directly from manufacturers in large
volumes and limiting the number of manufacturers represented in its proprietary,
full-color catalog, Corporate Express is able to obtain increasing volume
discounts and allowances from its vendors. Corporate Express believes its
information systems represent a key strategic advantage differentiating
Corporate Express from its competitors while permitting it to achieve cost
savings, provide unique capabilities to its customers, and centrally manage its
operations. Corporate Express intends to continue improving and enhancing the
capabilities of its information systems which will enable Corporate Express to
further differentiate its product and service offerings, while increasing its
operating margins.
GROWTH STRATEGY
Corporate Express has historically grown primarily through strategic
acquisitions. Corporate Express believes that it has substantially completed its
infrastructure and, accordingly, its growth strategy is now focused primarily on
internal growth combined with selective strategic acquisitions. Corporate
Express plans to increase sales to existing customers by cross-selling its
expanded product and service offerings and by
51
<PAGE> 60
developing existing customers into multi-regional, national or international
accounts. Corporate Express seeks to attract new customers, including national
and international accounts, through its marketing efforts and the use of its
direct sales force. Corporate Express continues to expand its product depth,
while also expanding its geographic coverage outside the United States and its
sales efforts in all geographic regions.
OPERATING STRATEGY
Corporate Express intends to continue to increase its revenues and
profitability through continued implementation of its Corporate Supplier and
growth strategies, including the following key elements:
Provide a Broad Offering of Products and Services. Corporate Express
believes that large corporations are focused on minimizing their total
procurement costs, including internal costs, by reducing their total number of
suppliers to a small group of reliable and cost-efficient partners. Corporate
Express believes that its broad product and service offerings and extensive
distribution network provide Corporate Express with an important competitive
advantage in servicing these large corporations. Over the last several years,
Corporate Express has expanded its product offerings to include forms printing
and management, same-day local delivery services, distribution logistics
management, advertising specialties and computer and imaging supplies. Corporate
Express' extensive product and service offerings enable it to reduce customer
procurement costs, including costs associated with dealing with multiple
vendors, such as multiple invoices, deliveries, ordering procedures, uneven
service levels and inconsistent product availability, while also fulfilling its
customers' broad service and delivery requirements.
Focus on Large Corporations. Corporate Express believes that its transition
from a regional contract stationer to a full service Corporate Supplier is
substantially complete in the United States and that Corporate Express is
positioned to effectively and profitably service large, multi-location
customers. Moreover, Corporate Express believes that these large customers value
Corporate Express' broad product and service offerings, extensive geographic
distribution network, high customer service levels and sophisticated information
systems. Larger customers typically utilize many of Corporate Express'
capabilities, which enhances Corporate Express' purchasing power and economies
of scale. Approximately 90% of the Fortune 500 companies, including General
Motors Corporation, Hewlett-Packard Company, Oracle Corporation, AT&T
Corporation, The Walt Disney Company, IBM Corporation and Exxon Corporation,
order a portion of their required non-production goods or services from one or
more of Corporate Express' business segments.
Provide Superior Customer Service. Corporate Express believes that its
customers value the high level of customer service which Corporate Express
provides through its experienced direct sales force, sophisticated information
systems and highly efficient global distribution network. Corporate Express'
Corporate Supplier model enables it to differentiate itself from competitors by
offering its customers important services including reliable delivery, a broad
product assortment, national account service, electronic interfaces, customized
reporting and other customized services. A key element to providing these
services is Corporate Express' advanced computer systems which, when installed
or linked to a customer's systems, provide significant cost savings for both
Corporate Express and the customer and enhanced access to information.
Enhance and Utilize Purchasing Power. Corporate Express believes that the
large volume of its purchases combined with its centralized purchasing and
merchandising operation provides Corporate Express with an important competitive
advantage. Corporate Express continually seeks to reduce its merchandise costs,
enabling it to offer its customers competitive prices while increasing its
margins. By purchasing most of its products directly from manufacturers in large
volumes and limiting the number of manufacturers represented in its catalogs,
Corporate Express is increasingly able to improve its vendor terms, including
earning increased volume discounts and allowances.
Consolidate and Upgrade Facilities. Corporate Express has historically
grown internally and through numerous acquisitions of small office products and
service companies. Corporate Express seeks to increase the sales, profitability
and asset productivity of its acquisitions by combining them with Corporate
Express' existing operations, implementing Corporate Express' business model,
eliminating redundant facilities and upgrading certain existing facilities. The
process of integrating acquisitions and consolidating facilities often has
certain short-term adverse effects on operations including, in certain cases,
increased operating costs
52
<PAGE> 61
associated with consolidation or relocation of facilities and a reduction in
sales as smaller, unprofitable accounts are discontinued. Once completed,
however, facility consolidations allow Corporate Express to reduce its operating
costs, enhance its customer service and increase its revenues and profitability
as management's attention shifts from managing the consolidations to increasing
account penetration. Because Corporate Express has completed a majority of the
planned facility consolidations in its domestic office products business and in
several of its international markets, Corporate Express believes that it is
well-positioned to expand its operating margins over the next several years.
Utilize Proprietary Computer Software and Systems. Corporate Express
believes that its proprietary software and information systems represent key
strategic advantages which enable Corporate Express to achieve cost savings,
provide superior customer service and centrally manage its operations. Corporate
Express has made substantial investments in the development and enhancement of
its proprietary computer software applications and believes that its software
and information systems are the most sophisticated in the industry. Corporate
Express' proprietary software is protected under general copyright law and
Corporate Express is pursuing patent protection with respect to certain features
of the software. In most instances, Corporate Express uses confidentiality
agreements with third parties to protect disclosure of its proprietary software.
During fiscal 1997, Corporate Express completed the development and
implementation of its ISIS computer software for its national account customers
and successfully launched the internet version of E-Way, its electronic
commerce, ordering and fulfillment system. Corporate Express' proprietary ISIS
system utilizes three-tier client/server architecture that allows customers and
suppliers to better communicate with Corporate Express while providing lower
operating costs and streamlined operations.
INDUSTRY OVERVIEW
In many non-production goods and services business sectors, including
office products and same-day local delivery, competition is fragmented and
includes many small local or regional providers. Corporate Express believes that
the desire of large corporations to reduce their procurement costs by decreasing
their number of suppliers to a small group of reliable and cost-effective
partners will continue to cause the consolidation of many currently fragmented
product segments, as well as consolidation between separate sectors where the
key differentiation among suppliers will be their relative ability to fulfill
customer needs, rather than their ability to supply an individual product or
service. Corporate Express believes that it is well positioned to capitalize on
these industry trends.
Corporate Express currently operates in two main sectors: product
distribution (which includes office products, computer supplies, forms
production and management, desktop software, promotional products and cleaning
and service supplies) and services (primarily same-day delivery), with the
majority of its revenue and cash flow attributable to the product distribution
business.
PRODUCT DISTRIBUTION
The office products distribution industry in the U.S. is consolidating
rapidly and undergoing other significant changes. As a result of consolidation,
the number of independent, midsize office products contract distribution
companies (those with annual sales of more than $15 million) has declined
significantly. Large companies (including Corporate Express) serving a broad
range of customers have acquired many of these smaller businesses. As the office
products industry continues to consolidate, Corporate Express believes that many
of the remaining smaller office products distribution companies will be unable
to compete due, in part, to their inability to purchase products at favorable
prices or provide all of the services customers require. Corporate Express
expects that these independent businesses will be acquired by larger companies
or will close.
The office products industry consists primarily of companies that operate
in one or more of three broad sales channels: contract distribution, direct
mail-order marketing and retail. Contract distributors typically serve large and
medium-sized business customers through the use of a product catalog and a
direct sales organization and typically stock these products in distribution
centers and deliver such products to customers on the next business day. The
major contract distributors carry a significant proportion of their merchandise
53
<PAGE> 62
in-stock, relying only upon wholesaler intermediaries for inventory backup and
increased product breadth, while smaller contract distributors carry a much
smaller portion of their merchandise in stock. Direct mail-order marketers of
office products typically target small business customers and home offices.
While their procurement and order fulfillment functions are similar to contract
distributors, direct mail-order marketers rely almost exclusively on catalogs
and other direct marketing programs, rather than direct sales forces, to sell
their products, and generally use third parties to deliver such products. Office
product retailers typically serve smaller businesses, home office and
individuals. Over the last decade, the retail channel has undergone significant
change, primarily as the result of the emergence of office products superstores.
Corporate Express believes that every major metropolitan area in the U.S. is now
served by at least one office product superstore.
Also included in Corporate Express' product distribution sector are desktop
software, forms production and management, advertising specialties, promotional
products and cleaning and service supplies. Companies in the desktop software
industry provide corporate clients with a wide array of personal computer and
network software titles on a shrink-wrapped and volume license basis. Net
revenue includes the sale of shrink-wrapped product and the sale of licenses for
the use of software produced by major software publishers. Corporate Express'
other product distribution business lines are also large markets served by many
large and small competitors.
SERVICES
The services segment consists primarily of delivery and logistics services
along with certain call center services. The delivery industry offers a variety
of customized distribution services for corporate customers with time-sensitive
pickup and delivery requirements. Customized distribution services include
regularly scheduled deliveries to replenish on-site inventories of
non-production goods, individual special orders and door-to-door courier
deliveries. Through both ground and air divisions, Corporate Express provides
same-day delivery fulfillment and next flight out services to its corporate
clients.
PRODUCTS, SERVICES AND REGIONS OF OPERATION
Corporate Express provides a broad range of non-production goods and
services to large corporations throughout North America as well as Europe and
the Southern Pacific. Corporate Express' product and service offerings include
office products, computer supplies, forms production and management, desktop
software, promotional products, cleaning and service supplies and services
(primarily same-day delivery). Name brands offered by Corporate Express include
such brands as 3M, Microsoft and Hewlett-Packard, as well as Corporate Express'
own "EXP" private label. The approximate percentages of Corporate Express' net
sales by product and service category and by geographical segments are as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------
1994 1995 1996 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
INDUSTRY SEGMENTS:
Product Distribution(1)................................... 81% 82% 76% 79%
Delivery Services......................................... 19% 18% 24% 21%
GEOGRAPHICAL SEGMENTS:
Domestic (U.S. only)...................................... 100% 87% 82% 81%
International............................................. 0% 13% 18% 19%
</TABLE>
- ------------------------------
(1) Included in the product distribution segment is office products, computer
supplies, forms production and management, desktop software, promotional
products and cleaning and service supplies.
54
<PAGE> 63
Net sales, merger and other nonrecurring charges, operating profit and
identifiable assets pertaining to the geographic segments are as follows:
<TABLE>
<CAPTION>
DOMESTIC INTERNATIONAL
CONSOLIDATED OPERATIONS OPERATIONS
------------ ---------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Eleven months ended January 31, 1998
Net sales.............................................. $3,573,311 $2,901,744 $671,567
Merger and other nonrecurring charges.................. 14,890 13,285 1,605
Operating profit....................................... 114,815 103,199 11,616
Identifiable assets.................................... 2,349,659 1,987,177 362,482
Fiscal year ended March 1, 1997
Net sales.............................................. $3,196,056 $2,630,930 $565,126
Merger and other nonrecurring charges.................. 19,840 18,511 1,329
Operating profit....................................... 100,490 95,788 4,702
Identifiable assets.................................... 1,843,977 1,519,152 324,825
Fiscal year ended March 2, 1996
Net sales.............................................. $1,890,639 $1,652,438 $238,201
Merger and other nonrecurring charges.................. 42,790 42,790 --
Operating profit....................................... 38,160 28,943 9,217
Identifiable assets.................................... 1,023,365 868,227 155,138
Fiscal year ended February 25, 1995
Net sales.............................................. $1,145,151 $1,143,457 $ 1,694
Operating profit....................................... 40,953 40,939 14
Identifiable assets.................................... 645,309 641,898 3,411
</TABLE>
55
<PAGE> 64
SUMMARY DESCRIPTION OF PRODUCT AND SERVICE OFFERINGS
Corporate Express currently operates in two main sectors: product
distribution and services. The following describes the products and services
offered in each of these sectors:
PRODUCT DISTRIBUTION SECTOR
<TABLE>
<CAPTION>
<S> <C>
Office Products, Computer Supplies and Forms
Production and Management..................... Corporate Express offers its customers a full
range of office products, including traditional
office supplies, computer and imaging supplies
and furniture, offering next-day delivery.
Corporate Express also offers forms production
and forms management capabilities, including
custom business forms, electronic forms,
pressure-sensitive label products and forms
management systems.
Specialty Products............................... Corporate Express offers its customers desktop
software, promotional products, advertising
specialties, and cleaning and service supplies.
Corporate Express' desktop software product
offerings include major business programs for
word processing, spreadsheets, electronic mail,
suites/offices, databases, graphics, operating
systems, utilities and languages.
SERVICES SECTOR
Services......................................... In addition to delivering its own products,
Corporate Express provides, through a separate
business unit, same-day local delivery service
including both prescheduled and on-demand
delivery services, core replenishment services
and distribution logistics management.
</TABLE>
EXPANSION OF PRODUCT AND SERVICE OFFERINGS
Corporate Express believes that its domestic and international network of
centrally-managed distribution centers, delivery fleet, computer systems and
direct sales force provides the infrastructure to efficiently supply corporate
customers with a broad range of non-production goods and services. To capitalize
on this competitive advantage, Corporate Express has added through acquisitions
the following major product and service categories since 1994: forms printing
and management, same-day local delivery services, distribution logistics
management, computer and imaging supplies, desktop software, advertising
specialties, janitorial and cleaning supplies, business forms and pressure
sensitive labels. Corporate Express may add additional product and service
categories through acquisitions or product line expansion. Following the
acquisition of a company whose product and service offerings are complementary
to Corporate Express' existing offerings, Corporate Express' initial integration
efforts are focused on cross selling its products and services and those of the
acquired operations to each respective customer base.
MERCHANDISING STRATEGY
Corporate Express' domestic office products merchandising strategy is based
primarily on offering its customer's products featured Corporate Express'
proprietary, full-color catalog. This catalog provides a comprehensive selection
and variety of the best-selling items in the core office products categories
which Corporate Express typically maintains in inventory in its regional
warehouses for next-day delivery. Corporate Express is currently expanding the
assortment of products featured in its office products catalog to include a
broader assortment of products. This merchandising strategy differs from that of
traditional contract stationers which typically provide their customers with
wholesaler-produced catalogs and typically maintain less then half of that
product assortment on hand. Corporate Express has introduced its office products
catalog in all of
56
<PAGE> 65
its United States regions and has introduced a similar country-specific catalog
in Canada, Australia and the United Kingdom. Most of the products featured in
Corporate Express's office products catalog are purchased by Corporate Express
directly from the manufacturer, eliminating the wholesaler's mark-up. The number
of items found in Corporate Express' office products catalog is generally
comparable to that found in a typical office products superstore, although the
merchandise mix differs substantially. Corporate Express also offers various
electronic versions of the office products catalog, complete with pictures and
custom pricing.
In addition to its office products catalog, Corporate Express produces
specialty catalogs for complementary products and services, including additional
computer and imaging products, office furniture, promotional products and
advertising specialties. Products are selected for each of Corporate Express'
catalogs utilizing computerized sales trend analyses which determine the
best-selling items and needs of the large corporate customer. The office
products catalog is updated annually to account for new sales trends, new
product introductions and changes in manufacturer's list prices, while the other
catalogs are updated as appropriate. Corporate Express' catalogs generally
include a full-color photograph of each item, a narrative product description
that emphasizes the particular benefits and features of each item and a bar code
to permit scanning order entry.
Corporate Express' catalog contains Corporate Express registered
trademarks, service marks and logos. In addition, the layout and design of the
catalog are unique and protected by copyright laws. Corporate Express registers
trademarks, service marks and logos contained in the catalog with the U.S.
Patent and Trademark Office to obtain protection of these marks. The catalog
also contains copyright notices.
DISTRIBUTION FACILITIES
Corporate Express' distribution network consists of over 90 distribution
centers that maintain significant inventory for resale and approximately 600
distribution breakpoints and satellite sales offices which extend Corporate
Express' geographic coverage. In its office product business, Corporate Express
generally operates from a single regional distribution center which supports
multiple distribution breakpoints and satellite sales offices. Items stocked in
these regional office products' distribution centers generally consist of the
most commonly ordered items for which customers generally demand next-day
delivery through Corporate Express vehicles.
PROPRIETARY COMPUTER SOFTWARE APPLICATIONS
Corporate Express continues to make substantial investments in the
development and enhancement of its proprietary computer software applications.
During fiscal 1997, Corporate Express completed the development and
implementation of its ISIS computer software for its national account customers
and successfully launched the internet version of E-Way, its electronic
commerce, ordering and fulfillment system. The integrated multi-divisional
version of the ISIS software continues to be developed and enhanced and is
currently in beta test mode at two operating divisions.
Key features of the ISIS system are the use of three-tier client/server
architecture that allows customers and suppliers to better communicate with
Corporate Express, object oriented design techniques and a relational database
designed to handle customer inquiry, data warehouse and management information
applications. Through the implementation of these enhanced systems, Corporate
Express plans to make its products and services available to a broader range of
customers through its Corporate Supplier business model and to further customize
customer services and account information while lowering the customer's overall
procurement cost. In addition, the new systems are expected to allow Corporate
Express to more effectively integrate acquisitions and streamline operations by
providing greater electronic access to information between Corporate Express,
its customers and its suppliers.
MARKETING
Corporate Express markets its various products and services directly to
individual customers by designing and offering customized merchandise and
service packages tailored to each customer's specific needs. Corporate Express
generally offers discounts from the manufacturer's suggested list prices on many
products.
57
<PAGE> 66
Prices for some high volume items are often established by competitive bidding.
A substantial portion of Corporate Express's revenues from its service segment
are derived from customers who have entered into contracts with Corporate
Express. Corporate Express has a broad customer base and believes that no single
customer accounted for more than one percent of total sales during fiscal 1997.
Corporate Express markets its products and services through a combination
of national account sales teams, a local sales force and account managers. The
national account sales teams take primary responsibility for maintaining and
increasing sales of Corporate Express' wide array of products and services to
multi-location customers. These efforts are supported through proprietary
information technology resources dedicated to the national account teams.
Corporate Express' local sales force is generally commission-based and is
organized within each of Corporate Express' major product and service
categories. Corporate Express believes that this structure maximizes the
productivity as well as the product and service knowledge of its sales force.
Each customer is assigned an account manager who maintains regular contact with
the customer. Account managers share in the responsibility of maintaining
customer satisfaction, resolving any potential customer issues and increasing
Corporate Express' sales to each account. Account managers are also assigned a
list of prospective customers for whom the account manager takes responsibility
in directing all marketing efforts. Additional responsibilities of the account
managers include designing and implementing customized merchandise and service
packages for each of their accounts as well as responding to all special service
requests.
STRUCTURE AND INTEGRATION OF ACQUISITIONS
Corporate Express has historically grown through numerous acquisitions of
small office products and service companies which generally have annual sales of
less than $30 million. Corporate Express intends to continue to grow in the
future, through internal growth coupled with selective strategic acquisitions.
Corporate Express plans to increase sales to existing customers by cross-selling
its expanded product and service offerings and developing existing customers
into multi-regional, national or international accounts. Corporate Express seeks
to attract new customers, including national and international accounts, through
the marketing efforts of its direct sales force.
Additionally, Corporate Express generally seeks to increase the sales,
profitability and asset productivity of its acquisitions by combining them with
Corporate Express' existing operations, implementing Corporate Express' business
model and eliminating redundant facilities. Integration of acquisitions is often
a complex process which may entail material nonrecurring expenditures, including
facility closing costs, warehouse consolidation expenses, asset write downs and
severance payments. Integration of acquisitions generally involves the following
elements:
- Elimination of Redundant Facilities and Services. In cases where acquired
companies have facilities, systems and administrative functions in
Corporate Express' existing markets, these operations are generally
eliminated or consolidated with Corporate Express' existing operations.
- Upgrading of Facilities. In addition to eliminating redundant facilities,
Corporate Express has undertaken a program to upgrade certain of its
existing facilities to enable these facilities to handle higher sales
volumes resulting from its internal growth and acquisition activity.
These upgrades include modernization of equipment and computer systems,
phone system and wide area network standardization and improved material
handling including a reconfiguration of inventory within the warehouse.
Corporate Express will also, where appropriate, construct or lease new
distribution facilities into which existing, outdated facilities will be
combined.
- Consolidation of Purchasing Power. As part of its integration of
acquisitions, Corporate Express takes advantage of its volume purchasing
power and seeks to negotiate better prices and terms from suppliers.
- Implementation of Proprietary Computer Software. Acquired product
distribution companies are generally incorporated into Corporate Express'
proprietary computer software environment, including EDI, common master
information files, national accounts software and customer ordering and
58
<PAGE> 67
inventory management software. Certain elements of these implementations
will be timed to coincide with introduction of Corporate Express' next
generation of computer software.
INTERNATIONAL ACQUISITIONS
Corporate Express has made acquisitions and established operations in
Canada, Australia, New Zealand, the United Kingdom, Germany, France, Italy,
Ireland and Switzerland, and Corporate Express may enter additional
international markets in the future. Corporate Express has typically retained
existing management and information systems in its international acquisitions.
Corporate Express' proprietary computer software will be able to accommodate
future international installations; however, Corporate Express has no immediate
plans to implement the ISIS software in these locations. Corporate Express does
not expect that any inefficiencies associated with different operating systems
will have a material adverse effect on future operations. Corporate Express has
and will continue to implement appropriate aspects of the Corporate Supplier
business model in its international operations, including creating in-stock
catalogs, consolidating warehouses, upgrading information systems, acquiring
companies offering complementary products and services, while focusing on larger
customers and developing national and international accounts. Portions of the
Corporate Supplier business model have been implemented in Canada, Australia and
the United Kingdom.
COMPETITION
Corporate Express operates in a highly competitive environment. Corporate
Express' principal competitors in North America for office supplies and computer
products include both regional and national contract stationers (including the
contract stationer operations of office products superstores), large direct
resellers, privately-held companies that generally operate in only one location,
and distributors of business software and supplies for personal computers. In
certain of its business segments Corporate Express may have various other large
and small competitors. In Europe and Australia, Corporate Express' competitors
include primarily local and regional contract stationers and, to a limited
extent, national and multi-country contract stationers. In the delivery services
sector Corporate Express has numerous competitors in each market, certain of
which have service capabilities which are similar to Corporate Express' and
others which provide different types or levels of service.
Each of Corporate Express' major product and service categories are a part
of fragmented industries which are currently experiencing a trend toward
consolidation. Although Corporate Express believes its pricing is competitive
with its competitors, Corporate Express also seeks to differentiate itself from
its competitors in each of its major product and service categories through its
systems, product assortment, service offerings and breadth of capabilities.
Certain of Corporate Express' competitors have greater financial resources than
Corporate Express. However, Corporate Express believes that its Corporate
Supplier business model differentiates Corporate Express from its competitors by
offering, through a single source, a unique selection of products and services
for large corporate customers.
EMPLOYEES
As of August 1, 1998, Corporate Express had approximately 26,100 full-time
employees, 5,800 of whom were primarily employed in management and
administration, 15,200 in regional warehouse, delivery and distribution
operations and 5,100 in sales and marketing, order processing and customer
service. Approximately 85% of these employees are in the U.S., 7% in Europe, 4%
in Canada and 4% in the Southern Pacific. As of August 1, 1998, approximately
280 of Corporate Express' employees were members of labor unions.
ENVIRONMENTAL MATTERS
Corporate Express is subject to federal, state and local laws, regulations
and ordinances that (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water as well as handling
and disposal practices for solid and hazardous wastes, or (ii) impose liability
for the costs of cleaning up, and certain damages resulting from, sites of past
spills, disposals or other releases of hazardous
59
<PAGE> 68
substances. Certain of Corporate Express' subsidiaries operate printing
facilities which may generate, or may have generated in the past, hazardous
wastes, and Corporate Express operates a fleet of vehicles, the maintenance or
fueling of which may generate hazardous waste.
Corporate Express is currently not aware of any environmental conditions
relating to present or past waste generation at or from these facilities, or any
other of Corporate Express' facilities or operations, that would be likely to
have a material adverse effect on the financial condition or results of
operations of Corporate Express. However, there can be no assurance that
environmental liabilities in the future will not have a material adverse effect
on the financial condition or results of operations of Corporate Express.
PROPERTIES
As of August 1, 1998, Corporate Express owned 46 facilities and leased 637
facilities. Of these 683 facilities, one was the corporate headquarters in
Broomfield, Colorado, 92 were product distribution warehouses and contiguous
administrative offices and 590 were separate sales or administrative offices,
delivery facilities or breakpoints. Corporate Express' principal properties are
summarized as follows:
<TABLE>
<CAPTION>
SALES, SERVICE
DISTRIBUTION & CORPORATE TOTAL
CENTERS FACILITIES FACILITIES
------------ -------------- ----------
<S> <C> <C> <C>
United States..................................... 51 541 592
Australia......................................... 8 3 11
New Zealand....................................... 6 -- 6
Canada............................................ 6 10 16
United Kingdom.................................... 5 17 22
France............................................ 1 1 2
Italy............................................. 3 4 7
Switzerland....................................... 2 -- 2
Ireland........................................... 1 -- 1
Germany........................................... 9 15 24
-- --- ---
Total................................... 92 591 683
== === ===
</TABLE>
Corporate Express periodically evaluates the location and efficiency of its
facilities to maximize customer satisfaction and increase economies of scale.
Corporate Express plans to eliminate redundant facilities such that it typically
will operate office and computer supply product distribution from a single
regional warehouse with satellite sales offices and distribution breakpoints in
each of its regions. Corporate Express also may close, consolidate or relocate
regional warehouses, satellite sales offices and distribution breakpoints from
time to time.
LEGAL PROCEEDINGS
Corporate Express is involved in routine legal proceedings incidental to
the conduct of its business. Management believes that none of these legal
proceedings will have a material adverse effect on the financial condition or
results of operations of Corporate Express. Corporate Express maintains general
liability and business interruption insurance coverage in amounts which it
believes to be adequate.
60
<PAGE> 69
MANAGEMENT
CEI
The executive officers and directors of CEI are:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Jirka Rysavy............. 44 Chairman of the Board
Robert L. King........... 47 President, Chief Executive Officer and Director
Gary M. Jacobs........... 51 Executive Vice President and Secretary
Sam R. Leno.............. 52 Executive Vice President and Chief Financial Officer
Mark Hoffman............. 45 President--North American Operations
Thomas E. Frank.......... 59 President--International Operations
Janet A. Hickey.......... 53 Director
Mo Siegel................ 48 Director
James P. Argyropoulos.... 54 Director
</TABLE>
Mr. Rysavy has been Chairman of the Board since 1986 and served as Chief
Executive Officer from 1981 until September 1998. In addition to founding
Corporate Express' business in 1986, Mr. Rysavy has been responsible for
Corporate Express' strategic vision, planning and direction.
Mr. King joined Corporate Express in August 1993 as President, Chief
Operating Officer and a director and became Chief Executive Officer in September
1998. During the previous ten years, Mr. King held various executive positions
with Foxmeyer Corporation, a distributor of pharmaceuticals and healthcare
products, serving as its President and Chief Executive Officer from 1989 to
1993. Prior to 1983, Mr. King served as Executive Vice President of Narco Drug
Co. and Vice President of computer services for Fox-Vliet Drug Co. Mr. King
serves as a director of Investment Technology Group, Inc.
Mr. Jacobs joined Corporate Express in November 1992 as Executive Vice
President and Chief Financial Officer, and currently serves as Executive Vice
President and Secretary of Corporate Express. Mr. Jacobs previously served
Corporate Express as a director from August 1988 through September 1990. From
1990 to 1992, Mr. Jacobs served as the Chief Executive Officer of Boulder Retail
Finance Corporation, an investment firm controlled by Mr. Jacobs. From 1978
through mid-1990, he served as Executive Vice President of Capital Associates,
Inc., a public equipment leasing company. Mr. Jacobs also served as a director
of Capital Associates, Inc. from 1978 to 1991 and from 1994 to present. Prior to
joining Capital Associates, Inc., Mr. Jacobs served as a director of finance for
Storage Technology Corporation, a public company which manufactures computer
peripheral devices.
Mr. Leno joined Corporate Express as Executive Vice President and Chief
Financial Officer in July 1995. From July 1994 until July 1995, Mr. Leno was the
Chief Financial Officer of Coram Healthcare. Prior thereto, for 23 years, Mr.
Leno served in various management positions with Baxter International, a
manufacturing and multinational distribution company, including Vice President
of Finance and Information Technology.
Mr. Hoffman joined Corporate Express as President -- North American Office
Product Operations during April 1997. Mr. Hoffman previously served as
President, Chief Executive Officer and a director of APS Holdings, Inc. from
August 1992 to March 1997. Mr. Hoffman was Vice President, Planning and
Development at W. W. Grainger, Inc., from April 1991 to July 1992. From 1987 to
April 1991, he was with TRW, Inc., a manufacturer of automotive parts and other
products and a provider of information system services, in various executive
capacities, including Vice President and General Manager of TRW, Inc.'s Asia
Pacific steering and suspension operations and Managing Director, TRW Products,
Ltd.
Mr. Frank joined Corporate Express as President -- International Operations
during May 1997. Mr. Frank previously served as President and Chief Executive
Officer of Hickory Farms Incorporated from 1988 to 1996. From 1972 to 1986, he
served in various management positions with Kentucky Fried Chicken,
61
<PAGE> 70
including Senior Vice President and Managing Director of KFC International
leading the operations in Great Britain, Continental Europe, South Africa and
the Middle East. From 1996 to 1997, Mr. Frank was a marketing professor at the
University of Michigan Graduate School of Business.
Ms. Hickey has served as a director of Corporate Express since December
1991. Ms. Hickey is a General Partner of the Sprout Group and a Senior Vice
President of DLJ Capital Corporation. The Sprout Group is a division of DLJ
Capital Corporation, which is a wholly-owned subsidiary of Donaldson, Lufkin &
Jenrette, Inc. Prior to joining the Sprout Group in 1985, Ms. Hickey was with
the General Electric Company for fifteen years in a variety of positions, most
recently as Senior Vice President-Venture Investments of the General Electric
Investment Corporation and as a Trustee of the General Electric Pension Trust.
Ms. Hickey also serves as a director of Loehmann's Holdings, Inc., as well as
several private companies, and is a Trustee of Mt. Holyoke College.
Mr. Siegel has been a director of Corporate Express since June 1996. In
1970, Mr. Siegel founded Celestial Seasonings, Inc., the largest manufacturer
and marketer of herb teas in the United States, and was President and Chairman
of the Board of Celestial Seasonings until 1986. From 1986 until 1991, Mr.
Siegel was involved in private investments and not-for-profit activities. He
served as Chief Executive Officer of Celestial Seasonings from 1991 to 1997 and
has served as a director since 1988 and as Chairman of the Board since 1991. Mr.
Siegel also serves on numerous other boards.
Mr. Argyropoulos has been a director of Corporate Express since June 1997.
Mr. Argyropoulos was previously a director of Corporate Express until October
1993. A private investor, Mr. Argyropoulos is the founder, Chairman and Chief
Executive Officer of The Walking Company, a lifestyle specialty retailer, and
serves on the Board of Earthshell, a concrete packaging business. Mr.
Argyropoulos previously served as Chairman of the Board and Chief Executive
Officer of The Cherokee Group Inc. between 1972 and 1989, a shoe manufacturing
and apparel business he founded in 1972.
CEX
The executive officers and directors of CEX are:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Robert L. King........... 47 President, Chief Operating Officer and Director
Sam R. Leno.............. 52 Executive Vice President and Chief Financial Officer
Gary M. Jacobs........... 51 Executive Vice President, Secretary and Director
</TABLE>
Biographical information concerning CEX's executive officers and directors
appears above under "Management -- CEI." All of the capital stock of CEX is
owned by CEI. Information relating to executive compensation paid by CEX to its
executive officers is contained in Corporate Express' Annual Report on Form 10-K
for the period ended January 31, 1998, as amended by the Form 10-K/A filed on
October 23, 1998. There are no material relationships or transactions between
CEX and any of its executive officers or directors. Other than CEI's guarantee
of certain of CEX's obligations, including its obligations under the Indenture
and the New Credit Facility, the only transaction between CEI and CEX involves
the transfer of funds to CEI from CEX to pay interest on the Parent Convertible
Notes.
62
<PAGE> 71
DESCRIPTION OF THE NEW CREDIT FACILITY
On April 22, 1998, CEX and CEI entered into the New Credit Facility, dated
as of April 17, 1998, with various banks, The First National Bank of Chicago, as
Syndication Agent, The Bank of New York, as Co-Documentation Agent, DLJ Capital
Funding, Inc., as Co-Documentation Agent and Bankers Trust Company, as
Administrative Agent (collectively, the "Banks"). The following is a summary
description of the principal terms of the New Credit Facility. The description
set forth below does not purport to be complete and is qualified in its entirety
by reference to the agreements setting forth the principal terms and conditions
of the New Credit Facility, which are available upon request from Corporate
Express.
STRUCTURE
The New Credit Facility provides for a $250,000,000 term loan facility (the
"Term Loan Facility") and up to $750,000,000 of revolving loans under a
revolving credit facility (the "Revolving Loan Facility"). The Term Loan
Facility was fully drawn on the closing of the New Credit Facility.
As of August 31, 1998, Corporate Express had $249,375,000 outstanding under
the Term Loan Facility, $231,222,000 outstanding (which includes outstanding
Letters of Credit) under the Revolving Loan Facility of the New Credit Facility
and an unused borrowing capacity of $519,403,000. The Revolving Loan Facility
may be utilized to fund Corporate Express' working capital requirements,
including issuance of stand-by and trade letters of credit, and for other
general corporate purposes.
The Term Loan Facility is comprised of a single tranche, seven-year term
facility of $250,000,000. Loans and letters of credit under the Revolving Loan
Facility will be available at any time during its five-year term subject to the
fulfillment of customary conditions precedent, including the absence of a
default under the New Credit Facility.
CEX will be required to repay loans outstanding under the Term Loan
Facility in accordance with the following amortization schedule:
<TABLE>
<CAPTION>
TERM LOANS
FISCAL YEAR AMOUNT AMORTIZED
----------- ----------------
(IN THOUSANDS)
<S> <C>
1998........................................................ $ 1,250
1999........................................................ 2,500
2000........................................................ 2,500
2001........................................................ 2,500
2002........................................................ 2,500
2003........................................................ 60,625
2004........................................................ 118,750
2005........................................................ 59,375
--------
Total............................................. $250,000
========
</TABLE>
SECURITY; GUARANTY
The obligations under the New Credit Facility are guaranteed by each of
CEI's and CEX's direct and indirect material domestic subsidiaries with certain
limited exceptions. The New Credit Facility and the guarantees thereof are,
subject to certain exceptions, secured by (i) a first priority perfected lien on
all the property and assets (tangible and intangible) of CEI, CEX and each of
the subsidiary guarantors, (ii) all of the capital stock of CEX and (iii) all of
the capital stock (or similar equity interests) of CEX's and the CEI's existing
and future direct and indirect material domestic subsidiaries. As of the date of
consummation of the Exchange Offer, the New Notes will be guaranteed by the same
subsidiaries of CEI and CEX that have guaranteed the New Credit Facility.
63
<PAGE> 72
INTEREST RATE; MATURITY
At CEX's option, borrowings under the New Credit Facility will bear
interest at (i) the base rate ("BR") or (ii) a Eurodollar rate specified in the
New Credit Facility, plus applicable margins, which vary based on leverage. On
the Issue Date, the applicable margins shall be (i) for the Revolving Loan
Facility, 150 basis points (in the case of Eurodollar loans) or 25 basis points
(in the case of BR loans) and (ii) for the Term Loan Facility 175 basis points
(in the case of Eurodollar loans) and 50 basis points (in the case of BR loans).
The Term Loan Facility matures on April 25, 2005 and the Revolving Loan Facility
will terminate on April 25, 2003.
FEES
CEX is required to pay the Banks a commitment fee based on the daily
average unused portion of the Revolving Loan Facility which accrues from the
closing date under the New Credit Facility. CEX is also obligated to pay letter
of credit fees on the aggregate stated amount of outstanding letters of credit.
COVENANTS
The New Credit Facility contains a number of covenants (in addition to the
financial covenants) that, among other things, restrict the ability of Corporate
Express to dispose of assets, incur additional indebtedness, prepay other
indebtedness (including the Notes) or amend certain debt instruments (including
the Indenture), pay dividends, create liens on assets, enter into sale and
leaseback transactions, make investments, loans or advances, make acquisitions,
make investments, engage in mergers or consolidations, change the business
conducted by Corporate Express or its subsidiaries, make capital expenditures or
engage in certain transactions with affiliates and otherwise restrict certain
corporate activities. In addition, the New Credit Facility contains financial
covenants that require CEX to maintain, on a consolidated basis, specified
financial ratios and tests, including minimum interest coverage and fixed charge
coverage ratios, and maximum leverage ratios.
EVENTS OF DEFAULT
The New Credit Facility contains customary events of default, including
nonpayment of principal, interest or fees, material inaccuracy of
representations and warranties, violation of covenants, cross-defaults to
certain other indebtedness, certain events of bankruptcy and insolvency, certain
ERISA matters, material judgments, invalidity of any guarantee or security
interest and a "change of control" of CEX or CEI. A "change of control" occurs
under the New Credit Facility when, generally, (i) CEI ceases to own 100% of the
capital stock of CEX and shares representing the right to elect a majority of
the board of directors of CEX, (ii) there occurs a "change of control" under the
provisions of the Parent Convertible Notes or any indebtedness subordinated to
the New Credit Facility, (iii) a person or group becomes the beneficial owners
of more than 25% of the voting stock of CEI, or (iv) a majority of the directors
on the board of directors of CEI as of the initial borrowing date under the New
Credit Facility (plus directors recommended by them) cease to constitute a
majority of such board of directors. The "change of control" provisions in the
Indenture are substantially similar to those contained in the New Credit
Facility, although certain thresholds (i.e., the percentage of shares triggering
an event and the date from which the composition of the board of directors is
examined for changes) in determining whether a "change of control" has occurred
are less restrictive than those described above. See "Description of
Notes -- Certain Covenants -- Repurchase of Notes at the Option of the Holder
Upon a Change of Control." The Indenture contains many of the same customary
events of default as the New Credit Facility, such as nonpayment of principal or
interest (including any amounts due as the result of a "change of control"),
violation of covenants, cross-defaults to certain other indebtedness, certain
events of bankruptcy and insolvency and material judgments, except that certain
thresholds under such Indenture provisions (i.e., grace periods and the
materiality of cross-defaulted indebtedness and judgements) are less restrictive
than those contained in the New Credit Facility. See "Description of
Notes -- Events of Default and Remedies."
64
<PAGE> 73
DESCRIPTION OF THE NOTES
Set forth below is a summary of certain provisions of the Notes. The Old
Notes were and the New Notes will be issued pursuant to an indenture (the
"Indenture") dated as of May 29, 1998, by and among CEX Holdings, Inc. ("CEX"),
Corporate Express, Inc. ("CEI"), the Subsidiary Guarantors and The Bank of New
York, as trustee (the "Trustee"). The terms of the New Notes are identical in
all material respects to the respective terms of the Old Notes, except that (i)
the New Notes have been registered under the Securities Act, and therefore will
not be subject to certain restrictions on transfer applicable to the Old Notes
and (ii) holders of the new Notes will generally not be entitled to certain
rights, including the payment of Liquidated Damages, pursuant to the
Registration Rights Agreement. The terms of the New Notes include those stated
in the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (the "Trust Indenture Act"). The New Notes are subject to
all such terms, and Holders of New Notes are referred to the Indenture and the
Trust Indenture Act for a statement thereof. In the event that the Exchange
Offer is consummated, any Old Notes which remain outstanding after consummation
of the Exchange Offer and the New Notes issued in the Exchange Offer will vote
together as a single class for purposes of determining whether holders of the
requisite percentage in outstanding principal amount thereof have taken certain
actions or exercised certain rights under the Indenture. The following summary
of the material provisions of the Indenture and the Registration Rights
Agreement does not purport to be complete and is qualified in its entirety by
reference to the Indenture and the Registration Rights Agreement, including the
definitions therein of certain terms used below. Copies of the Indenture and
Registration Rights Agreement are available as set forth below under
"-- Additional Information." The definitions of certain terms used in the
following summary are set forth below under "-- Certain Definitions."
GENERAL
The Old Notes are and the New Notes will be senior subordinated, unsecured,
general obligations of the Issuer. The Indenture provides, in addition to the
$350,000,000 aggregate principal amount of Old Notes issued on the Issue Date,
for the issuance of additional Notes having identical terms and conditions to
the Old Notes (the "Additional Notes"). The aggregate principal amount of Old
Notes, New Notes and Additional Notes will be limited to the sum of
$550,000,000. Interest will accrue on the Additional Notes issued pursuant to
the Indenture from and including the date of issuance of such Additional Notes.
The Additional Notes may only be issued in compliance with the other provisions
of the Indenture, including the covenant entitled "Limitation on Incurrence of
Indebtedness and Disqualified Capital Stock." Any such Additional Notes will be
issued on the same terms as the Old Notes and New Notes and will constitute part
of the same series of securities as the Old Notes and New Notes and will vote
together as one series on all matters with respect to the Old Notes and New
Notes. As a result, if Additional Notes are issued, holders of Old Notes and New
News will have a smaller percentage vote in connection with any amendment or
waiver of, or other action taken with respect to, the Indenture. All references
to Notes herein includes the Old Notes, the New Notes and the Additional Notes.
The Notes will be subordinate in right of payment to certain other debt
obligations of CEX. The Notes will be jointly and severally guaranteed on a
senior subordinated basis by CEI and each of the Subsidiary Guarantors, which
consist of all CEX's Subsidiaries other than the Receivables Subsidiaries,
Finance Subsidiaries, Excluded Subsidiaries and Foreign Subsidiaries, provided
that DDI and its subsidiaries shall not be required to become Guarantors until
120 days after the Issue Date. The obligations of each Guarantor under its
guarantee, however, will be limited in a manner intended to avoid it being
deemed a fraudulent conveyance under applicable law. See "Guarantees" below. The
Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and integral multiples thereof.
The Notes will mature on June 1, 2008. The Notes will bear interest at the
rate per annum stated on the cover page hereof from the date of issuance or from
the most recent Interest Payment Date to which interest has been paid or
provided for, payable semi-annually on June 1 and December 1 of each year,
commencing December 1, 1998 to the persons in whose names such Notes are
registered at the close of business on the May 15 or November 15 immediately
preceding such Interest Payment Date. Interest will be calculated on the basis
of a 360-day year consisting of twelve 30-day months.
65
<PAGE> 74
Principal of, premium, if any, and interest and liquidated damages under
the Registration Rights Agreement (the "Liquidated Damages"), if any, on the
Notes will be payable, and the Notes may be presented for registration of
transfer or exchange, at the office or agency of CEX maintained for such
purpose, which office or agency shall be maintained in the Borough of Manhattan,
The City of New York. Except as set forth below, at the option of CEX, payment
of interest may be made by check mailed to the Holders of the Notes at the
addresses set forth upon the registry books of CEX. No service charge will be
made for any registration of transfer or exchange of Notes, but CEX may require
payment of a sum sufficient to cover any tax or other governmental charge
payable in connection therewith. Until otherwise designated by CEX, CEX's office
or agency will be the corporate trust office of the Trustee presently located at
the office of the Trustee in the Borough of Manhattan, The City of New York.
The term "Subsidiaries" as used in this Description of Notes does not
include Unrestricted Subsidiaries. As of the Expiration Date of the Exchange
Offer, none of CEX's Subsidiaries will be Unrestricted Subsidiaries. However,
under certain circumstances, CEX will be able to designate current or future
Subsidiaries as Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be
subject to the restrictive covenants set forth in the Indenture.
SUBORDINATION
The Notes and the Guarantees will be general, unsecured obligations of CEX,
CEI and the Subsidiary Guarantors, respectively, subordinated in right of
payment to all Senior Debt of CEX, CEI and the Subsidiary Guarantors, as
applicable. As of August 1, 1998, CEX and the Subsidiary Guarantors would have
had outstanding an aggregate principal amount of approximately $446.1 million of
Senior Debt which would rank senior in right of payment to the Notes and the
guarantees, respectively, and the nonguarantor subsidiaries would have had
approximately $93.9 million of indebtedness which would be effectively senior to
the Notes and the guarantees, respectively. Thus, in total, as of August 1, 1998
the New Notes would have been Subordinated in right of payment to approximately
$540.0 of indebtedness. As of August 1, 1998, CEI had no Senior Debt but had
outstanding $325.0 million of Convertible Notes which would rank pari passu with
CEI's guarantee of the Notes but which would be structurally subordinated to the
Notes.
The Indenture will provide that no payment (by set-off or otherwise) may be
made by or on behalf of CEX or a Guarantor, as applicable, on account of the
principal of, premium, if any, or interest on, the Notes (including any
repurchases of any of the Notes), or any Obligation (and Claim, but only in the
case of Senior Debt under the New Credit Facility) in respect of the Notes,
including for cash or property (other than Junior Securities), or on account of
the redemption provisions of the Notes (or Liquidated Damages), (i) upon the
maturity of any Senior Debt of CEX or such Guarantor by lapse of time,
acceleration (unless waived) or otherwise, unless and until all principal of,
premium, if any, and the interest on such Senior Debt (and in the case of Senior
Debt under the New Credit Facility, all other monetary obligations in respect
thereof) are first paid in full in cash or Cash Equivalents (or such payment is
duly provided for) or otherwise to the extent holders accept satisfaction of
amounts due by settlement in other than cash or Cash Equivalents, or (ii) in the
event of default in the payment of any principal of, premium, if any, or
interest on Senior Debt of CEX or such Guarantor (and, in the case of Senior
Debt under the New Credit Facility, any other monetary obligation in respect
thereof) when it becomes due and payable, whether at maturity, a scheduled
payment date, or at a date fixed for prepayment or by declaration or otherwise
(a "Payment Default"), unless and until such Payment Default has been cured or
waived or otherwise has ceased to exist.
Upon (i) the happening of an event of default (other than a Payment
Default) that permits the holders of Senior Debt (or a trustee or agent on
behalf of such holders) to declare such Senior Debt to be due and payable (or,
in the case of letters of credit, require cash collateralization thereof) and
(ii) written notice of such event of default being given to the Trustee by the
holders (or a trustee, agent or other representative of such holders) of
Designated Senior Debt (a "Payment Notice"), then, unless and until such event
of default has been cured or waived or otherwise has ceased to exist, no payment
(by set-off or otherwise) may be made by or on behalf of CEX or any Guarantor
which is an obligor under such Senior Debt on account of any Obligation (and
Claims, but only in the case of Senior Debt under the New Credit Facility) in
respect of the Notes, including the principal of, premium, if any, or interest
on the Notes, or to repurchase any of the Notes, or on account of the redemption
provisions of the Notes, in any such case, other than payments made with
66
<PAGE> 75
Junior Securities. Notwithstanding the foregoing, unless the Senior Debt in
respect of which such event of default exists has been declared due and payable
in its entirety within 179 days after the Payment Notice is delivered as set
forth above (the "Payment Blockage Period") (and such declaration has not been
rescinded or waived), at the end of the Payment Blockage Period (but subject to
the preceding and following paragraphs), CEX and the Guarantors shall be
required to pay all sums not paid to the Holders of the Notes during the Payment
Blockage Period due to the foregoing prohibitions and to resume all other
payments as and when due on the Notes. Any number of Payment Notices may be
given; provided, however, that (i) not more than one Payment Notice shall be
given within a period of any 360 consecutive days, and (ii) no default that
existed upon the date of such Payment Notice or the commencement of such Payment
Blockage Period (whether or not such event of default relates to the same issue
of Senior Debt) shall be made the basis for the commencement of any other
Payment Blockage Period unless such other Payment Blockage Period is commenced
by a Payment Notice from the representative under the New Credit Facility and
such event of default shall have been cured or waived for a period of at least
90 consecutive days.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of CEX or any Guarantor (other than Junior Securities)
shall be received by the Trustee or the holders at a time when such payment or
distribution is prohibited by the foregoing provisions, such payment or
distribution shall be held in trust for the benefit of the holders of such
Senior Debt, and shall be paid or delivered by the Trustee or such Holders, as
the case may be, to the holders of such Senior Debt remaining unpaid (or
unprovided for) or to their representative or representatives, or to the trustee
or trustees under any indenture pursuant to which any instruments evidencing any
of such Senior Debt may have been issued, ratably according to the aggregate
principal amounts remaining unpaid on account of such Senior Debt held or
represented by each, for application to the payment of all such Senior Debt
remaining unpaid, to the extent necessary to pay all such Senior Debt in full in
cash or U.S. Legal Tender Equivalents or otherwise to the extent holders accept
satisfaction of amounts due by settlement in other than cash or U.S. Legal
Tender Equivalents after giving effect to any concurrent payment or distribution
to the holders of such Senior Debt.
Upon any distribution of assets of CEX or any Guarantor upon any
dissolution, winding up, total or partial liquidation or reorganization of CEX
or a Guarantor, whether voluntary or involuntary, in bankruptcy, insolvency,
receivership or a similar proceeding or upon assignment for the benefit of
creditors or any marshalling of assets or liabilities, (i) the holders of all
Senior Debt of CEX or such Guarantor, as applicable, will first be entitled to
receive payment in full in cash or U.S. Legal Tender Equivalents or otherwise to
the extent holders accept satisfaction of amounts due by settlement in other
than cash or U.S. Legal Tender Equivalents (or have such payment duly provided
for) before the holders are entitled to receive any payment on account of any
Obligation (and Claims, but only in the case of Senior Debt under the New Credit
Facility) in respect of the Notes, including the principal of, premium, if any,
and interest on the Notes (and Liquidated Damages pursuant to the Registration
Rights Agreement) and (ii) any payment or distribution of assets of CEX or such
Guarantor of any kind or character from any source, whether in cash, property or
securities (other than Junior Securities) to which the Holders or the Trustee on
behalf of the Holders would be entitled (by set-off or otherwise), except for
the subordination provisions contained in the Indenture, will be paid by the
liquidating trustee or agent or other Person making such a payment or
distribution directly to the holders of such Senior Debt or their representative
to the extent necessary to make payment in full in cash or Cash Equivalents (or
have such payment duly provided for) on all such Senior Debt remaining unpaid,
after giving effect to any concurrent payment or distribution to the holders of
such Senior Debt.
No provision contained in the Indenture or the Notes will affect the
obligation of CEX and the Guarantors, which is absolute and unconditional, to
pay, when due, principal of, premium, if any, and interest and Liquidated
Damages, if any, on the Notes. The subordination provisions of the Indenture and
the Notes will not prevent the occurrence of any Default or Event of Default
under the Indenture or limit the rights of the Trustee or any holder to pursue
any other rights or remedies with respect to the Notes.
As a result of these subordination provisions, in the event of the
liquidation, bankruptcy, reorganization, insolvency, receivership or similar
proceeding or an assignment for the benefit of the creditors of CEX or any
Guarantor or a marshalling of assets or liabilities of CEX or any Guarantor,
holders of the Notes may receive ratably less than other creditors.
67
<PAGE> 76
GUARANTEES
CEI is a holding company, conducting substantially all of its business
through Subsidiaries including CEX. CEX's payment obligations under the Notes
will be jointly and severally guaranteed by CEI and each of the Subsidiary
Guarantors. The Subsidiary Guarantors consist of all of CEX's Subsidiaries other
than any Receivables Subsidiaries, Excluded Subsidiaries, Finance Subsidiaries
and Foreign Subsidiaries, provided that DDI and its subsidiaries shall not be
required to become Guarantors until 120 days after the Issue Date. The
Guarantees will be general unsecured obligations of CEI and the Subsidiary
Guarantors, as the case may be, and each of the Guarantees will be subordinated
in right of payment to all Senior Debt of CEI or the Subsidiary Guarantor, as
applicable, including the indebtedness under the New Credit Facility. The
Subsidiary Guarantees will rank pari passu in right of payment with all current
and future senior subordinated Indebtedness of the Guarantors, including the
guarantees by the Subsidiary Guarantors of obligations under the 9 1/8% Notes
and CEI's obligations under the Parent Convertible Notes. Holders of the Notes
will be direct creditors of each Guarantor by virtue of their Guarantees. In the
event of the bankruptcy or financial difficulty of a Guarantor, such Guarantor's
obligations under its Guarantee may be subject to review and avoidance under
state and federal fraudulent transfer laws. Among other things, such obligations
may be avoided if a court concludes that such obligations were incurred for less
than reasonably equivalent value or fair consideration at a time when the
Guarantor was insolvent, was rendered insolvent, or was left with inadequate
capital to conduct its business. A court would likely conclude that a Guarantor
did not receive reasonably equivalent value or fair consideration to the extent
that the aggregate amount of its liability on its guarantee exceeds the economic
benefits it receives in the Offering. The obligations of each Guarantor under
its guarantee will be limited in a manner intended to cause it not to be a
fraudulent conveyance under applicable law, although no assurance can be given
that a court would give the holder the benefit of such provision. See "Risk
Factors -- The Guarantors and the Enforceability of the Guarantees."
If the obligations of a Guarantor under its Guarantee were avoided, holders
of Notes would have to look to the remaining Guarantors for payment. There can
be no assurance in that such remaining Guarantors would have the ability and
resources to pay the outstanding principal and interest on the Notes. See, "Risk
Factors -- The Guarantors and the Enforceability of the Guarantees."
The Indenture provides that no Subsidiary Guarantor may consolidate with or
merge with or into another Person unless such Subsidiary Guarantor complies with
the provisions of the covenant entitled "Limitation on Merger of Subsidiary
Guarantors and Release of Subsidiary Guarantors."
CEX conducts certain of its foreign operations through Foreign
Subsidiaries. Accordingly, CEX's ability to meet its cash obligations may in
part depend upon the ability of such Foreign Subsidiaries and any future Foreign
Subsidiaries to make cash distributions to CEX and the Subsidiary Guarantors.
Furthermore, any right of CEX and the Subsidiary Guarantors to receive the
assets of any such Foreign Subsidiary upon such Foreign Subsidiary's liquidation
or reorganization (and the consequent right of the holders of the Notes to
participate in the distribution of the proceeds of those assets) effectively
will be subordinated by operation of law to the claims of such Foreign
Subsidiary's creditors (including trade creditors) and holders of its preferred
stock, except to the extent that CEX or the Subsidiary Guarantors are recognized
as creditors or preferred stockholders of such Foreign Subsidiary, in which case
the claims of CEX or the Subsidiary Guarantors would still be subordinate to any
indebtedness or preferred stock of such Foreign Subsidiaries.
OPTIONAL REDEMPTION
CEX will not have the right to redeem any Notes prior to June 1, 2003,
other than as provided in the next paragraph. The Notes will be redeemable for
cash at the option of CEX, in whole or in part, at any time on or after June 1,
2003, upon not less than 30 days' nor more than 60 days' notice to each holder
of Notes, at the following redemption prices (expressed as percentages of the
principal amount) if redeemed during the 12-month period commencing on June 1 of
the years indicated below, in each case (subject to the right of holders of
record on a Record Date to receive the corresponding interest due (and the
corresponding Liquidated Damages due, if any) on an Interest Payment Date
corresponding to such Record Date that is on or prior to
68
<PAGE> 77
such Redemption Date) together with accrued and unpaid interest and Liquidated
Damages, if any, thereon to the Redemption Date:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003...................................................... 104.813%
2004...................................................... 103.208%
2005...................................................... 101.604%
2006 and thereafter....................................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time on or prior to June 1, 2001, CEX
may redeem, on one or more occasions, up to an aggregate of 35% of the aggregate
principal amount of the Notes originally issued under the Indenture at a
redemption price equal to 109.625% of the principal amount thereof (subject to
the right of holders of record on a Record Date to receive interest due on an
Interest Payment Date that is on or prior to such Redemption Date) together with
accrued and unpaid interest and Liquidated Damages, if any, to the date of
redemption, with cash from the Net Cash Proceeds to CEX of one or more Public
Equity Offerings; provided, that at least 65% of the aggregate principal amount
of the Notes issued under the Indenture remain outstanding immediately after the
occurrence of each such redemption; provided, further, that such notice of
redemption shall be sent within 30 days after the date of closing of any such
Public Equity Offering, and such redemption shall occur within 60 days after the
date such notice is sent.
In the case of a partial redemption, the Trustee shall select the Notes or
portions thereof for redemption on a pro rata basis, by lot or in such other
manner it deems appropriate and fair. The Notes may be redeemed in part in
multiples of $1,000 only.
The Notes will not have the benefit of any sinking fund.
Notice of any redemption will be sent, by first class mail, at least 30
days and not more than 60 days prior to the date fixed for redemption to the
holder of each Note to be redeemed to such holder's last address as then shown
upon the registry books of the Registrar. Any notice which relates to a Note to
be redeemed in part only must state the portion of the principal amount equal to
the unredeemed portion thereof and must state that on and after the date of
redemption, upon surrender of such Note, a new Note or Notes in a principal
amount equal to the unredeemed portion thereof will be issued. On and after the
date of redemption, interest will cease to accrue on the Notes or portions
thereof called for redemption, unless CEX defaults in the payment thereof.
CERTAIN COVENANTS
Repurchase of Notes at the Option of the Holder Upon a Change of Control
The Indenture provides that in the event that a Change of Control has
occurred (subject to the provisions of the immediately succeeding paragraph),
each holder of Notes will have the right, at such holder's option, pursuant to
an offer (subject only to conditions required by applicable law, if any) by CEX
(the "Change of Control Offer"), to require CEX to repurchase all or any part of
such Holder's Notes (provided, that the principal amount of such Notes must be
$1,000 or an integral multiple thereof) on a date (the "Change of Control
Purchase Date") that shall be no later than 40 Business Days after the
occurrence of such Change of Control, at a cash price (the "Change of Control
Purchase Price") equal to 101% of the principal amount thereof, together with
accrued and unpaid interest and Liquidated Damages, if any, to the Change of
Control Purchase Date. The Change of Control Offer shall be made within 35 days
following a Change of Control and shall remain open for 20 Business Days
following its commencement or such longer period as may be required by
applicable law (the "Change of Control Offer Period").
The Indenture requires that if a New Credit Facility is in effect, or any
amounts are owing thereunder, at the time of the occurrence of a Change of
Control, prior to the mailing of the notice to holders described in the
preceding paragraph, but in any event within thirty days following any Change of
Control, CEX covenants to (i) repay in full all Obligations under the New Credit
Facility or offer to repay in full all Obligations under the New Credit Facility
and repay the Obligations under the New Credit Facility of each lender who has
accepted
69
<PAGE> 78
such offer or (ii) obtain the requisite consent under the New Credit Facility to
permit the repurchase of Notes as described above. CEX must first comply with
the covenant described in the preceding sentence before it shall be required to
purchase Notes in the event of a Change of Control; provided that CEX's failure
to comply with the covenant described in the preceding sentence shall constitute
an Event of Default described in clause (iii) under "Events of Default" below if
not cured within thirty days after the notice required by such clause. As a
result of the foregoing, a holder of the Notes may not be able to compel CEX to
purchase the Notes unless CEX is able at the time to refinance all of the New
Credit Facility or obtain requisite consents under the New Credit Facility.
As used herein, a "Change of Control" means (i) any merger or consolidation
of CEX or CEI with or into any Person or any sale, transfer or other conveyance,
whether direct or indirect, of all or substantially all of the assets of CEX or
CEI, on a consolidated basis, in one transaction or a series of related
transactions, if, immediately after giving effect to such transaction(s), any
"person" or "group" (as such terms are used for purposes of Sections 13(d) and
14(d) of the Exchange Act, whether or not applicable) is or becomes the
"beneficial owner," directly or indirectly, of more than 50% of the total voting
power in the aggregate normally entitled to vote in the election of directors,
managers, or trustees, as applicable, of the transferee(s) or surviving entity
or entities, (ii) any "person" or "group" (as such terms are used for purposes
of Sections 13(d) and 14(d) of the Exchange Act, whether or not applicable) is
or becomes the "beneficial owner," directly or indirectly, of more than 50% of
the total voting power in the aggregate of all classes of Capital Stock of CEX
(other than CEI so long as CEI owns 100% of such voting power) or CEI then
outstanding normally entitled to vote in elections of directors, (iii) during
any period of 12 consecutive months after the Issue Date, individuals who at the
beginning of any such 12-month period constituted the Board of Directors of
either CEX or CEI (together with any new directors whose election by such Board
of Directors or whose nomination for election by the shareholders of CEX or CEI,
as applicable, was approved by a vote of a majority of the directors then still
in office who were either directors at the beginning of such period or whose
election or nomination for election was previously so approved, including new
directors designated in or provided for in an agreement regarding the merger,
consolidation or sale, transfer or other conveyance, of all or substantially all
of the assets of CEX or CEI, if such agreement was approved by a vote of such
majority of directors) cease for any reason to constitute a majority of the
Board of Directors of CEX or CEI then in office, as applicable, or (iv) CEI
ceases to own 100% of the Equity Interests of CEX.
On or before the Change of Control Purchase Date, CEX will (i) accept for
payment Notes or portions thereof properly tendered pursuant to the Change of
Control Offer, (ii) deposit with the Paying Agent cash sufficient to pay the
Change of Control Purchase Price (together with accrued and unpaid interest and
Liquidated Damages, if any), of all Notes so tendered and (iii) deliver to the
Trustee Notes so accepted together with an Officer's Certificate listing the
Notes or portions thereof being purchased by CEX. The Paying Agent promptly will
pay the holders of Notes so accepted an amount equal to the Change of Control
Purchase Price (together with accrued and unpaid interest and Liquidated
Damages, if any), and the Trustee promptly will authenticate and deliver to such
holders a new Note equal in principal amount to any unpurchased portion of the
Note surrendered. Any Notes not so accepted will be delivered promptly by CEX to
the holder thereof. CEX publicly will announce the results of the Change of
Control Offer on or as soon as practicable after the Change of Control Purchase
Date.
The Change of Control purchase feature of the Notes may make more difficult
or discourage a takeover of CEX, and, thus, the removal of incumbent management.
The phrase "all or substantially all" of the assets of CEX or CEI will
likely be interpreted under applicable state law and will be dependent upon
particular facts and circumstances. As a result, there may be a degree of
uncertainty in ascertaining whether a sale or transfer of "all or substantially
all" of the assets of CEX or CEI has occurred. In addition, no assurances can be
given that CEX will be able to acquire Notes tendered upon the occurrence of a
Change of Control.
Any Change of Control Offer will be made in compliance with all applicable
laws, rules and regulations, including, if applicable, Regulation 14E under the
Exchange Act and the rules thereunder and all other applicable Federal and state
securities laws. To the extent that the provisions of any securities laws or
70
<PAGE> 79
regulations conflict with the provisions of this covenant, compliance by CEX or
any of the Guarantors with such laws and regulations shall not in and of itself
cause a breach of its obligations under such covenant.
If the Change of Control Purchase Date hereunder is on or after an interest
payment Record Date and on or before the associated Interest Payment Date, any
accrued and unpaid interest (and Liquidated Damages, if any, due on such
Interest Payment Date) will be paid to the Person in whose name a Note is
registered at the close of business on such Record Date, and such interest (and
Liquidated Damages, if applicable) will not be payable to Holders who tender the
Notes pursuant to the Change of Control Offer.
Limitation on Restricted Payments
The Indenture provides that CEX and the Subsidiary Guarantors will not, and
will not permit any of their Subsidiaries to, directly or indirectly, make any
Restricted Payment if, after giving effect to such Restricted Payment on a pro
forma basis, (1) a Default or an Event of Default shall have occurred and be
continuing, (2) CEX is not permitted to incur at least $1.00 of additional
Indebtedness pursuant to the Debt Incurrence Ratio in paragraph (a) of the
covenant "Limitation on Incurrence of Additional Indebtedness and Disqualified
Capital Stock," or (3) the aggregate amount of all Restricted Payments made by
CEX and its Subsidiaries, including after giving effect to such proposed
Restricted Payment, from and after the Issue Date, would exceed the sum of,
without duplication, (a) $15.0 million, plus (b) 50% of the aggregate
Consolidated Net Income of CEX and its Consolidated Subsidiaries for the period
(taken as one accounting period), commencing on the first day of the first full
fiscal quarter commencing after the Issue Date, to and including the last day of
the fiscal quarter ended immediately prior to the date of each such calculation
(or, in the event Consolidated Net Income for such period is a deficit, then
minus 100% of such deficit), plus (c) to the extent not included in the amount
described in clause (b) above, (i) 100% of the aggregate Net Cash Proceeds
received after the Issue Date by CEX from the issue or sale of, or from Capital
Contributions in respect of, Equity Interests of CEX or of debt securities of
CEX or any Subsidiary Guarantor that have been converted into, or cancelled in
exchange for, Equity Interests of CEX (other than Equity Interests (or
convertible debt securities) sold to a Subsidiary of CEX and other than
Disqualified Capital Stock or debt securities that have been converted into or
exchanged for Disqualified Capital Stock), plus (ii) 100% of any dividends or
other distributions received by CEX or a Subsidiary of CEX after the Issue Date
from an Unrestricted Subsidiary of CEX, plus (iii) 100% of the cash proceeds (or
Cash Equivalents) realized upon the sale of any Unrestricted Subsidiary (less
the amount of any reserve established for purchase price adjustments and less
the maximum amount of any indemnification or similar contingent obligation for
the benefit of the purchaser, any of its Affiliates or any other third party in
such sale, in each case as adjusted for any permanent reduction in any such
amount on or after the date of such sale, other than by virtue of a payment made
to such Person) following the Issue Date, plus (iv) to the extent that any
Restricted Investment that was made after the Issue Date is sold for cash (or
Cash Equivalents) or otherwise liquidated or repaid for cash (or Cash
Equivalents), at CEX's option the amount of cash proceeds (or Cash Equivalents)
received by CEX or any Subsidiary Guarantor with respect to such Restricted
Investment plus, (v) upon the redesignation of an Unrestricted Subsidiary as a
Subsidiary, the lesser of (x) the fair market value of such Subsidiary or (y)
the aggregate amount of all Investments made in such Subsidiary subsequent to
the Issue Date by CEX and its Subsidiaries.
The foregoing clauses (2) and (3) of the immediately preceding paragraph,
however, will not prohibit (s) Restricted Investments, provided, that after
giving pro forma effect to such Restricted Investments, the aggregate amount of
all such Restricted Investments made on or after the Issue Date that are
outstanding (after reducing such aggregate amount by (A) the net cash proceeds
received by CEX or any Subsidiary Guarantor from any Restricted Investments made
after the Issue Date that are sold or otherwise liquidated or repaid to CEX or
its Subsidiary Guarantors, other than amounts credited, at the option of CEX,
under clause (iv) of the immediately preceding paragraph, and (B) the amount of
all Restricted Investments made after the Issue Date that have become Permitted
Investments, valued at the lesser of (x) the fair market value thereof on the
date that such Investments became Permitted Investments or (y) the aggregate
amount of such prior Investments) does not exceed the sum of (A) $50.0 million
plus (B) the aggregate amount of any Investments that, but for the fact that
such Investments were made prior to the Issue Date, would be Restricted
Investments ("Existing Restricted Investments"); provided, however, the
aggregate of (B) shall not exceed $65.5 million, less the amount by which the
net cash proceeds received by CEX and its Subsidiary
71
<PAGE> 80
Guarantors upon the sale, liquidation or repayment of Existing Restricted
Investments is less than the original amount of such Existing Restricted
Investments; (t) pro rata dividends and other distributions on the Equity
Interests of any Subsidiary of CEX by such Subsidiary; (u) payments in lieu of
fractional shares in an amount not to exceed $50,000 in the aggregate; (v)
repurchases of Capital Stock from employees of CEI, CEX or Subsidiaries of CEX
pursuant to any management agreement or stock option agreement or upon their
death or disability or the termination of their employment in an aggregate
amount to all employees not to exceed $5.0 million per year plus the net cash
proceeds received by CEX of Capital Stock (other than Disqualified Capital
Stock) of CEI sold to directors, executive officers, members of the management
or employees of CEI, CEX and its Subsidiaries in such year on and after the
Issue Date, (w) the acquisition by a Receivables Subsidiary in connection with a
Qualified Receivables Transaction of Equity Interests of a trust or other Person
established by such Receivables Subsidiary to effect such Qualified Receivables
Transaction, and the provisions of the immediately preceding paragraph will not
prohibit, (x) Permitted Payments to CEI, (y) a Qualified Exchange, or (z) the
payment of any dividend on Qualified Capital Stock within 60 days after the date
of its declaration if such dividend could have been made on the date of such
declaration in compliance with the foregoing provisions. The full amount of any
Restricted Payment made pursuant to the foregoing clauses (t), (u), (w) and (z)
(but not pursuant to clauses (s), (v), (x) and (y), of the immediately preceding
sentence, however, will be deducted in the calculation of the aggregate amount
of Restricted Payments available to be made referred to in clause (3) of the
immediately preceding paragraph.
Additionally, (a) the foregoing clauses (2) and (3) of the first paragraph
of this covenant will not prohibit any payment of cash dividends to CEI, which
dividends are used by CEI (x) to make the next scheduled interest payment, or,
at the final scheduled maturity of July 1, 2000, the then outstanding principal
due (but in no event to exceed $325.0 million), on the Parent Convertible Notes
as required by the terms of the Parent Convertible Notes in effect on the Issue
Date or (y) to pay the next scheduled interest payment on Refinanced Parent
Convertible Notes (but in no event to exceed an aggregate of $325.0 million,
less amounts, if any, used to repay the Parent Convertible Notes) and (b) the
forgoing clause (3) of the first paragraph of this covenant will not prohibit
repurchases of Capital Stock (other than Disqualified Capital Stock) of CEI in
an aggregate amount not to exceed $100.0 million and, provided the Parent
Consolidated Leverage Ratio for the most recent four consecutive fiscal quarters
ending on or prior to the date of any such repurchase would be no more than 4.5
to 1, an additional $50.0 million in the aggregate; provided, that the aggregate
amount of all payments made pursuant to clauses (a) and (b) of this paragraph
(excluding payments of interest on the Parent Convertible Notes and Refinanced
Parent Convertible Notes paid in accordance with clause (a)(x) and (a)(y)) shall
not exceed $400.0 million. Any Restricted Payment made pursuant to this
paragraph shall be counted in the calculation of the aggregate amount of
Restricted Payments available to be made pursuant to clause (3) of the first
paragraph of this covenant except that any such amount that is substantially
concurrently used by CEI to pay interest on or retire the Parent Convertible
Notes in accordance with clause (a)(x) or to pay interest on Refinanced Parent
Convertible Notes in accordance with clause (a)(y) will not be counted in such
calculation. Notwithstanding anything herein to the contrary, in no event shall
any proceeds from any debt ranking senior to or pari passu with any of the Notes
or Guarantees, as applicable, of CEX or any of its Subsidiaries (excluding
Indebtedness of any Foreign Subsidiary that is non-recourse to CEX and its other
Subsidiaries) be used (directly or indirectly) to make any principal payments in
respect of the Parent Convertible Notes unless on the date of such incurrence of
any such debt ranking senior to or pari passu with any of the Notes or
Guarantees, the Consolidated Leverage Ratio for the most recent four consecutive
fiscal quarters ending on or prior to the date of such incurrence, after giving
effect, on a pro forma basis, to such incurrence of any senior or pari passu
Indebtedness would be less than 4.5 to 1.
For purposes of this covenant, the amount of any Restricted Payment, if
other than in cash, shall be the fair market value thereof, as determined by CEX
and set forth in an Officer's Certificate delivered to the Trustee pursuant to
the next sentence. Additionally, on the date of each Restricted Payment in
excess of $10.0 million, CEX shall deliver an Officer's Certificate to the
Trustee describing in reasonable detail the nature of such Restricted Payment,
stating the amount of such Restricted Payment, stating in reasonable detail the
provisions of the Indenture pursuant to which such Restricted Payment was made
and certifying that such Restricted Payment was made in compliance with the
terms of the Indenture.
72
<PAGE> 81
Limitation on Dividends and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that CEX and the Subsidiary Guarantors will not, and
will not permit any of their Subsidiaries to, directly or indirectly, create,
assume or suffer to exist any consensual restriction on the ability of any
Subsidiary of CEX to pay dividends or make other distributions to or on behalf
of, or to pay any obligation to or on behalf of, or otherwise to transfer assets
or property to or on behalf of, or make or pay loans or advances to or on behalf
of, CEX or any Subsidiary of CEX, except (a) restrictions imposed by the Notes
or the Indenture or by other indebtedness of CEX or any of the Subsidiary
Guarantors ranking pari passu with the Notes or the Guarantees, as applicable,
provided such restrictions are no more restrictive taken as a whole than those
imposed by the Indenture and the Notes, (b) restrictions imposed by applicable
law, (c) existing restrictions under Indebtedness outstanding on the Issue Date
and any amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacements or refinancings of such Indebtedness,
provided that such amendments, modifications, restatements, renewals, increases,
supplements, refundings, replacement or refinancings are no more restrictive
taken as a whole with respect to dividend and other payment restrictions than
those contained in the applicable existing Indebtedness, (d) restrictions under
any Acquired Indebtedness not incurred in violation of the Indenture or any
agreement relating to any property, asset, or business acquired by CEX or any of
its Subsidiaries, which restrictions existed at the time of acquisition, were
not put in place in connection with or in anticipation of such acquisition and
are not applicable to any Person, other than the Person acquired, or to any
property, asset or business, other than the property, assets and business so
acquired, (e) any such restriction or requirement imposed by any Senior Debt
incurred under the covenant "Limitation on Incurrence of Additional Indebtedness
and Disqualified Capital Stock," provided such restriction or requirement is no
more restrictive than that imposed by the New Credit Facility as of the Issue
Date, (f) restrictions with respect solely to a Subsidiary of CEX imposed
pursuant to a binding agreement which has been entered into for the sale or
disposition of all or substantially all of the Equity Interests or assets of
such Subsidiary, provided such restrictions apply solely to the Equity Interests
or assets of such Subsidiary, (g) restrictions on transfer contained in Purchase
Money Indebtedness incurred pursuant to paragraph (c) of the covenant
"Limitation on Incurrence of Additional Indebtedness and Disqualified Capital
Stock," provided such restrictions relate only to the transfer of the property
acquired with the proceeds of such Purchase Money Indebtedness, (h) restrictions
contained in Indebtedness or other contractual requirements of a Receivables
Subsidiary in connection with a Qualified Receivables Transaction, provided that
such restrictions apply only to such Receivables Subsidiary, (i) restrictions
contained in Indebtedness incurred by a Foreign Subsidiary in accordance with
the covenant "Limitation on Incurrence of Additional Indebtedness and
Disqualified Capital Stock," provided such restrictions relate only to one or
more Foreign Subsidiaries, (j) any asset subject to a Lien which is not
prohibited to exist with respect to such asset pursuant to the terms of the
Indenture may be subject to restrictions on the transfer or disposition thereof
or (k) in connection with and pursuant to permitted Refinancings, replacements
of restrictions imposed pursuant to clauses (a), (c) or (d) of this paragraph
that are not more restrictive than those being replaced and do not apply to any
other person or assets than those that would have been covered by the
restrictions in the Indebtedness so refinanced. Notwithstanding the foregoing,
neither (a) customary provisions restricting subletting or assignment of any
lease entered into in the ordinary course of business, consistent with industry
practice, nor (b) Liens permitted under the terms of the Indenture on assets
securing Senior Debt or Purchase Money Indebtedness incurred in accordance with
the covenant "Limitation on Incurrence of Additional Indebtedness and
Disqualified Capital Stock" shall in and of themselves be considered a
restriction on the ability of the applicable Subsidiary to transfer such
agreement or assets, as the case may be.
Limitations on Layering Indebtedness
The Indenture provides that CEX and the Subsidiary Guarantors will not, and
will not permit any of their Subsidiaries to, directly or indirectly, incur, or
suffer to exist any Indebtedness (other than the Notes and any Acquired
Indebtedness not incurred in connection with or in contemplation of such
Acquisition by Corporate Express or a Subsidiary of Corporate Express) that is
subordinate in right of payment to any other Indebtedness of CEX or a Subsidiary
Guarantor unless, by its terms, such Indebtedness is subordinate in right of
payment to, or ranks pari passu with, the Notes or the Guarantee, as applicable.
73
<PAGE> 82
Limitation on Incurrence of Additional Indebtedness and Disqualified Capital
Stock
The Indenture provides that, except as set forth below in this covenant,
CEX and the Subsidiary Guarantors will not, and will not permit any of their
Subsidiaries to, directly or indirectly, issue, assume, guarantee, incur, become
directly or indirectly liable with respect to, extend the maturity of, or
otherwise become responsible for, contingently or otherwise (individually and
collectively, to "incur" or, as appropriate, an "incurrence"), any Indebtedness
(including Acquisition Indebtedness) or any Disqualified Capital Stock from and
after the Issue Date. Notwithstanding the foregoing:
(a) if (i) no Default or Event of Default shall have occurred and be
continuing at the time of, or would occur after giving effect on a pro
forma basis to, such incurrence of Indebtedness or Disqualified Capital
Stock and (ii) on the date of such incurrence (the "Incurrence Date"), the
Consolidated Coverage Ratio of CEX for the Reference Period immediately
preceding the Incurrence Date, after giving effect on a pro forma basis to
such incurrence of such Indebtedness or Disqualified Capital Stock and, to
the extent set forth in the definition of Consolidated Coverage Ratio, the
use of proceeds thereof, would be at least 2.0 to 1 (the "Debt Incurrence
Ratio"), then CEX may incur such Indebtedness or Disqualified Capital Stock
and the Subsidiary Guarantors may incur such Indebtedness provided that no
Guarantee may be incurred pursuant to this paragraph unless the guaranteed
Indebtedness is incurred by Corporate Express or a Subsidiary Guarantor
pursuant to this paragraph;
(b) CEX and the Subsidiary Guarantors may incur Indebtedness evidenced
by the Notes (and any related Guarantees) issued as of the original Issue
Date and the Exchange Notes (and any related Guarantees) issued in exchange
therefor;
(c) CEX and the Subsidiary Guarantors may incur Purchase Money
Indebtedness on or after the Issue Date, provided, that (i) the aggregate
amount of such Indebtedness incurred on or after the Issue Date and
outstanding at any time pursuant to this paragraph (c) (including any
Indebtedness issued to refinance, replace, defease or refund such
Indebtedness) shall not exceed (A) $35.0 million plus (B) Purchase Money
Indebtedness existing on the Issue Date; provided, however, (B) shall not
exceed $29.2 million and (ii) in each case, such Indebtedness shall not
constitute more than 100% of the cost (determined in accordance with GAAP)
to CEX or such Subsidiary Guarantor, as applicable, of the property so
purchased or leased;
(d) CEX, the Subsidiary Guarantors and the Foreign Subsidiaries, as
applicable, may incur permitted Refinancing Indebtedness with respect to
any Existing Indebtedness and Indebtedness or Disqualified Capital Stock,
as applicable, incurred in accordance with this covenant so long as, in the
case of Indebtedness used to refinance, replace, defease or refund secured
Indebtedness, such Refinancing Indebtedness is secured only by the assets
that secured the Indebtedness so refinanced;
(e) CEX and the Subsidiary Guarantors and the Foreign Subsidiaries, as
applicable, may incur Permitted Indebtedness;
(f) CEX, the Subsidiary Guarantors and the Foreign Subsidiaries may
incur Indebtedness in an aggregate amount outstanding at any time pursuant
to this clause (f) (including any Indebtedness issued to refinance,
replace, defease or refund such Indebtedness) of up to $50.0 million, minus
the amount of any such Indebtedness retired (including, in the case of a
revolver or a similar arrangement, to the extent permanently retired) with
Net Cash Proceeds from any Asset Sale (other than a sale of Assets to Be
Disposed of) or assumed by a transferee in an Asset Sale;
(g) CEX and the Subsidiary Guarantors may incur Indebtedness pursuant
to the New Credit Facility up to an aggregate amount outstanding at any
time pursuant to this clause (g) (including any Indebtedness issued to
refinance, replace, defease or refund such Indebtedness) at any time of
$1.0 billion, minus the amount of any such Indebtedness retired (including,
in the case of a revolver or a similar arrangement, to the extent
permanently retired) with Net Cash Proceeds from any Asset Sale (other than
a sale of Assets to Be Disposed of) or assumed by a transferee in an Asset
Sale;
74
<PAGE> 83
(h) the Foreign Subsidiaries may incur Indebtedness (and CEX and the
Subsidiary Guarantors may guarantee such Indebtedness of the Foreign
Subsidiaries) in an aggregate amount outstanding at any time pursuant to
this clause (h) (including any Indebtedness used to refinance, replace or
refund such Indebtedness) of up to (A) $50.0 million plus (B) the amount of
Foreign Subsidiary Indebtedness outstanding on the Issue Date; provided,
however, the aggregate of (B) shall not exceed $71.1 million, minus the
amount of any such Indebtedness retired (including, in the case of a
revolver or a similar arrangement, to the extent permanently retired) with
the Net Cash Proceeds from any Asset Sale (other than a sale of Assets to
Be Disposed of) or assumed by a transferee in an Asset Sale; and
(i) the Finance Subsidiary may incur Finance Subsidiary Indebtedness.
Indebtedness or Disqualified Capital Stock of any Person which is
outstanding at the time such Person becomes a Subsidiary of CEX (including,
without limitation, upon designation of any subsidiary or other Person as a
Subsidiary and upon the contribution of the Equity Interests thereof to CEX) or
is merged with or into or consolidated with CEX or a Subsidiary of CEX shall be
deemed to have been incurred at the time such Person becomes such a Subsidiary
of CEX or is merged with or into or consolidated with CEX or a Subsidiary of
CEX, as applicable.
Limitation on Liens Securing Indebtedness
CEX and the Subsidiary Guarantors will not, and will not permit any of
their Subsidiaries to, create, incur, assume or suffer to exist any Lien of any
kind, other than Permitted Liens, upon any of their respective assets now owned
or acquired on or after the date of the Indenture.
Limitation on Sale of Assets and Subsidiary Stock
The Indenture provides that CEX and the Subsidiary Guarantors will not, and
will not permit any of their Subsidiaries to, in one or a series of related
transactions, convey, sell, transfer, assign or otherwise dispose of, directly
or indirectly, any of its property, business or assets, including by merger or
consolidation (in the case of a Subsidiary of CEX), and including any sale or
other transfer or issuance of any Equity Interests of any Subsidiary of CEX,
whether by CEX or a Subsidiary of either or through the issuance, sale or
transfer of any Equity Interest by a Subsidiary of CEX (any of the foregoing, an
"Asset Sale"), unless (1)(a) the Net Cash Proceeds therefrom (the "Asset Sale
Offer Amount") are applied (i) within 330 days after the date of each such Asset
Sale, to the optional redemption of the Notes in accordance with the terms of
the Indenture and, at CEX's option, other Indebtedness of CEX ranking on a
parity with the Notes from time to time outstanding with similar provisions
requiring CEX to make an offer to purchase or to redeem such Indebtedness with
the proceeds from asset sales, pro rata in proportion to the respective
principal amounts (or accreted values in the case of Indebtedness issued with an
original issue discount) of the Notes and such other Indebtedness then
outstanding or (ii) within 360 days after the date of each such Asset Sale, to
the repurchase of the Notes pursuant to a cash offer to repurchase Notes and, at
CEX's option, other Indebtedness of CEX ranking on a parity with the Notes from
time to time outstanding with similar provisions requiring CEX to make an offer
to purchase or to redeem such Indebtedness with the proceeds from asset sales,
pro rata in proportion to the respective principal amounts (or accreted values
in the case of Indebtedness issued with an original issue discount) of the Notes
and such other Indebtedness then outstanding (the "Asset Sale Offer") at a
purchase price of 100% of principal amount (or accreted value in the case of
Indebtedness issued with an original issue discount) (the "Asset Sale Offer
Price") together with accrued and unpaid interest and Liquidated Damages, if
any, to the date of payment, made within 330 days of such Asset Sale, or (b)
within 330 days following such Asset Sale, the Asset Sale Offer Amount is (i)
used to make a Permitted Investment (other than pursuant to clause (i) thereof)
or otherwise invested (or committed, pursuant to a binding commitment subject
only to reasonable, customary closing conditions, to be invested, and in fact is
so invested, within an additional 90 days) in assets and property which in the
good faith reasonable judgment of CEX will immediately constitute or be a part
of a Related Business of CEX or such Subsidiary (if it continues to be a
Subsidiary) immediately following such transaction, except that no proceeds from
an Asset Sale of Existing Assets or assets acquired (directly or indirectly)
from the proceeds of an Asset Sale of Existing Assets may be invested
75
<PAGE> 84
in or used to acquire assets or property for a Foreign Subsidiary or (ii) used
to retire Purchase Money Indebtedness or other Senior Debt in accordance with
any provisions therein requiring CEX to repurchase, redeem, or otherwise retire
such Indebtedness with the proceeds from such Asset Sale, Indebtedness
outstanding under the New Credit Facility and, except with respect to the use of
proceeds from the sale of Assets to Be Disposed of, to permanently reduce (in
the case of Senior Debt that is not Purchase Money Indebtedness) the amount of
such Indebtedness outstanding on the Issue Date, any amount outstanding under
the New Credit Facility or Indebtedness permitted pursuant to paragraph (c), (f)
or (g) of the covenant "Limitation on Incurrence of Additional Indebtedness and
Disqualified Capital Stock" (including that in the case of a revolver or similar
arrangement that makes credit available, such commitment is permanently so
reduced by such amount), except that no proceeds from an Asset Sale of Existing
Assets or assets acquired from the proceeds or Asset Sale of Existing Assets may
be used to retire Indebtedness of a Foreign Subsidiary (unless such Existing
Assets were assets of such Foreign Subsidiary on the Issue Date), (2) with
respect to any transaction or related series of transactions of securities,
property or assets with an aggregate fair market value in excess of $3.0
million, at least 75% of the consideration for such Asset Sale (excluding (a)
Senior Debt assumed by a transferee which assumption permanently reduces the
amount of Indebtedness outstanding on the Issue Date or permitted pursuant to
paragraph (c), (f) or (g) of the covenant "Limitation on Incurrence of
Additional Indebtedness and Disqualified Capital Stock" (including that in the
case of a revolver or similar arrangement that makes credit available, such
commitment is permanently so reduced by such amount), (b) Purchase Money
Indebtedness assumed by a transferee and (c) property that within 30 days of
such Asset Sale is converted into cash or Cash Equivalents) consists of Cash or
Cash Equivalents which is applied as set forth above or consists of Restricted
Investments, (3) no Default or Event of Default shall have occurred and be
continuing at the time of, or would occur after giving effect, on a pro forma
basis, to, such Asset Sale, and (4) CEX determines in good faith that CEX or
such Subsidiary, as applicable, receives fair market value for such Asset Sale.
The Indenture provides that an Asset Sale Offer may be deferred until the
accumulated Net Cash Proceeds from Asset Sales not applied to the uses set forth
in clauses (1)(a)(i) or 1(b) above (the "Excess Proceeds") exceeds $20.0 million
and that each Asset Sale Offer shall remain open for 20 Business Days following
its commencement (the "Asset Sale Offer Period"). Upon expiration of the Asset
Sale Offer Period, CEX shall apply the Asset Sale Offer Amount plus an amount
equal to accrued and unpaid interest and Liquidated Damages, if any, to the
purchase of all Indebtedness properly tendered pursuant to the Asset Sale Offer
(on a pro rata basis (in $1,000 increments) if the Asset Sale Offer Amount is
insufficient to purchase all Indebtedness so tendered) at the Asset Sale Offer
Price (together with accrued interest and Liquidated Damages, if any). To the
extent that the aggregate amount of Indebtedness tendered pursuant to an Asset
Sale Offer is less than the Asset Sale Offer Amount, CEX may use any remaining
Net Cash Proceeds for general corporate purposes as otherwise permitted by the
Indenture and following each Asset Sale Offer the Excess Proceeds amount shall
be reset to zero.
Notwithstanding, and without complying with, the foregoing provisions of
the two immediately prior paragraphs: (i) CEX and its Subsidiaries may, in the
ordinary course of business, convey, sell, transfer, assign or otherwise dispose
of (x) assets or series of related assets with an aggregate fair market value
not in excess of $1.0 million, but in any case limited in the aggregate to not
more than $5.0 million for any fiscal year and (y) inventory and other assets
acquired and held for resale in the ordinary course of business; (ii) CEX and
its Subsidiaries may convey, sell, transfer, assign or otherwise dispose of
assets pursuant to and in accordance with the limitation on mergers, sales or
consolidations provisions in the Indenture; (iii) CEX and its Subsidiaries may
sell or dispose of damaged, worn out or other obsolete property in the ordinary
course of business so long as such property is no longer necessary for the
proper conduct of the business of CEX or such Subsidiary, as applicable; (iv)
CEX and the Subsidiary Guarantors may convey, sell, transfer, assign or
otherwise dispose of assets to CEX or any of the Subsidiary Guarantors; (v) CEX
and its Subsidiaries may surrender or waive contract rights or the settlement,
release or surrender of contract, tort or other claims of any kind; (vi) CEX and
its Subsidiaries may grant Liens not prohibited by the Indenture; (vii) CEX and
each of the Subsidiaries may liquidate Cash Equivalents in the ordinary course
of business; (viii) CEX and each of the Subsidiaries may sell sales of accounts
receivable and related assets of the type specified in the definition of
Qualified Receivables Transaction to a Receivables Subsidiary for the fair
market value thereof, including
76
<PAGE> 85
cash in an amount at least equal to 75% of the book value thereof as determined
in accordance with GAAP, and transfers of accounts receivable and related assets
of the type specified in the definition of Qualified Receivables Transaction (or
a fractional undivided interest therein) by a Receivables Subsidiary in a
Qualified Receivables Transaction; (ix) Foreign Subsidiaries may convey, sell,
transfer, assign or otherwise dispose of assets to CEX, any of the Subsidiary
Guarantors, or any other Foreign Subsidiary; and (x) CEX and its Subsidiaries
may make Permitted Investments (excluding clauses (b) and (1) in the definition
thereof) and Restricted Investments made under clause (s) of the third paragraph
under "Limitation on Restricted Payments."
Notwithstanding anything herein to the contrary, other than as provided in
the following sentence, CEX and its Subsidiaries may sell (including by merger,
consolidation or issuance), transfer, assign, license, sublicense or otherwise
dispose of (collectively "Transfer") any software, trademark or other
intellectual property, or any interest (including any Equity Interest) in any
entity which has as its principal assets such property or rights, and such
Transfer shall not be treated as an Asset Sale hereunder, if (a) CEX and its
Subsidiary Guarantors thereafter have unfettered access to and use of such
property or rights at a cost to CEX and its Subsidiaries which is not in excess
of the aggregate normal operating costs and third party license fees which have
been incurred by CEX and its Subsidiaries prior to any such Transfer, and (b)
any proceeds from any Transfer of any such property, rights or interests
(including Equity Interests) are used (i) solely for the purpose of the
development or installation or implementation of such property or rights (or
similar property or rights) or (ii) otherwise in accordance with the provisions
of the first paragraph of this covenant. Notwithstanding the preceding sentence
or any other provision of this covenant to the contrary, CEX and its
Subsidiaries may not Transfer the internally developed product distribution
software used by CEX and its Subsidiaries ("Core Operating Software") or
intellectual property rights therein or any interests (including any Equity
Interests) in any entity which has as its principal assets such Core Operating
Software or rights therein, unless CEX and its Subsidiary Guarantors comply with
clauses (a) and (b) of the preceding sentence in connection with such Transfer.
Any Asset Sale Offer shall be made in compliance with all applicable laws,
rules, and regulations, including, if applicable, Regulation 14E of the Exchange
Act and the rules and regulations thereunder and all other applicable Federal
and state securities laws. To the extent that the provisions of any securities
laws or regulations conflict with the provisions of this covenant, compliance by
CEX or any of its Subsidiaries with such laws and regulations shall not in and
of itself cause a breach of its obligations under such covenant.
If the payment date in connection with an Asset Sale Offer hereunder is on
or after an interest payment Record Date and on or before the associated
Interest Payment Date, any accrued and unpaid interest (and Liquidated Damages
due on such Interest Payment Date, if any) will be paid to the Person in whose
name a Note is registered at the close of business on such Record Date, and such
interest (and Liquidated Damages, if applicable) will not be payable to Holders
who tender Notes pursuant to such Asset Sale Offer.
Limitation on Transactions with Affiliates
The Indenture provides that neither CEX nor any Subsidiary of CEX will be
permitted on or after the Issue Date to enter into any contract, agreement,
arrangement or transaction with any Affiliate (an "Affiliate Transaction"), or
any series of related Affiliate Transactions, other than Exempted Affiliate
Transactions, (1) involving consideration to either party in excess of $5.0
million unless such transaction is evidenced by an Officer's Certificate
addressed and delivered to the Trustee stating that the terms of such Affiliate
Transaction are fair and reasonable to CEX or such Subsidiary, as the case may
be, and no less favorable to CEX or such Subsidiary, as the case may be, than
could have been obtained in an arm's length transaction with a non-Affiliate,
and (2) involving consideration to either party in excess of $10.0 million,
unless CEX, prior to the consummation thereof, obtains a written favorable
opinion as to the fairness of such transaction to CEX from a financial point of
view from an independent investment banking firm of national reputation or, if
pertaining to a matter for which such investment banking firms do not
customarily render such opinions, an appraisal or valuation firm of national
reputation.
77
<PAGE> 86
Limitation on Merger, Sale or Consolidation
The Indenture provides that neither CEX nor CEI will consolidate with or
merge with or into another Person or, directly or indirectly, sell, lease,
convey or transfer all or substantially all of its assets (computed on a
consolidated basis), whether in a single transaction or a series of related
transactions, to another Person or group of affiliated Persons, unless (i)
either (a) CEX or CEI, as applicable, is the continuing entity or (b) the
resulting, surviving or transferee entity is a corporation organized under the
laws of the United States, any state thereof or the District of Columbia and
expressly assumes by supplemental indenture all of the obligations of CEX or
CEI, as applicable, in connection with the Notes and the Indenture; (ii) no
Default or Event of Default shall exist or shall occur immediately after giving
effect on a pro forma basis to such transaction; (iii) except in the case of a
transaction involving only CEI, immediately after giving effect to such
transaction on a pro forma basis, the consolidated resulting, surviving or
transferee entity would immediately thereafter be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Debt Incurrence Ratio set forth
in paragraph (a) of the covenant "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock;" and (iv) Corporate Express will
have delivered to the Trustee an Officer's Certificate addressed to the Trustee,
stating that such consolidation, merger, sale, assignment, transfer, lease,
conveyance or disposition and such supplemental indenture, if any, comply with
the Indenture and that the supplemental indenture is enforceable.
Upon any consolidation or merger or any transfer of all or substantially
all of the assets of CEX or CEI, as applicable, in accordance with the
foregoing, the successor corporation formed by such consolidation or into which
CEX or CEI, as applicable, is merged or to which such transfer is made shall
succeed to, and (except in case of a lease) be substituted for, and may exercise
every right and power of, CEX or CEI, as applicable, under the Indenture with
the same effect as if such successor corporation had been named therein as CEX
or CEI, as applicable, and (except in case of a lease) CEX or CEI, as
applicable, shall be released from the obligations under the Notes and the
Indenture except with respect to any obligations that arise from, or are related
to, such transaction.
Future Subsidiary Guarantors
The Indenture provides that all present and future Subsidiaries of CEX
(other than Receivables Subsidiaries, Finance Subsidiaries, Excluded
Subsidiaries and Foreign Subsidiaries) jointly and severally will guarantee
irrevocably and unconditionally all principal, premium, if any, and interest
(and Liquidated Damages, if any) on the Notes on a senior subordinated basis,
provided that DDI shall not be required to become a Guarantor until 120 days
after the Issue Date. Notwithstanding anything herein or in the Indenture to the
contrary and if permitted by the New Credit Facility, if any Subsidiary of CEX
that is not a Subsidiary Guarantor guarantees any other Indebtedness of CEX or
CEI or of any Subsidiary of CEX or CEI, or CEX or CEI or any Subsidiary of CEX
or of CEI, individually or collectively pledges more than 65% of the Equity
Interests of such Subsidiary to a United States lender, then such Subsidiary
must become a Guarantor.
Limitation on Merger of Subsidiary Guarantors and Release of Subsidiary
Guarantors
The Indenture provides that no Subsidiary Guarantor shall consolidate or
merge with or into (whether or not such Subsidiary Guarantor is the surviving
Person) another Person unless (i) subject to the provisions of the following
paragraph, the Person formed by or surviving any such consolidation or merger
(if other than such Subsidiary Guarantor) assumes all the obligations of such
Subsidiary Guarantor pursuant to a supplemental indenture in form reasonably
satisfactory to the Trustee, pursuant to which such Person shall unconditionally
guarantee, on a senior subordinated basis, all of such Subsidiary Guarantor's
obligations under such Subsidiary Guarantor's guarantee and the Indenture on the
terms set forth in the Indenture; and (ii) immediately before and immediately
after giving effect to such transaction on a pro forma basis, no Default or
Event of Default shall have occurred or be continuing.
Upon the sale or disposition (whether by merger, stock purchase, asset sale
or otherwise) of a Subsidiary Guarantor or all or substantially all of its
assets to an entity which is not a Subsidiary Guarantor or the designation of a
Subsidiary to become an Unrestricted Subsidiary, which transaction is otherwise
in
78
<PAGE> 87
compliance with the Indenture (including, without limitation, the provisions of
the covenant "Limitations on Sale of Assets and Subsidiary Stock"), such
Subsidiary Guarantor will be deemed released from its obligations under its
Guarantee of the Notes; provided, however, that any such termination shall occur
only to the extent that all obligations of such Subsidiary Guarantor under all
of its guarantees of, and under all of its pledges of assets or other security
interests which secure, any Indebtedness of CEX or any other Subsidiary of CEX
shall also terminate upon such release, sale or transfer.
Limitation on Status as Investment Company
The Indenture prohibits CEX, its Subsidiaries and CEI from taking any
action which would require any of them to register as an "Investment Company"
(as that term is defined in the Investment Company Act of 1940, as amended), or
from otherwise becoming subject to regulation under the Investment Company Act.
REPORTS
The Indenture provides that CEI shall deliver to the Trustee and, to each
holder and to prospective purchasers of Notes identified to CEX by an Initial
Purchaser, (i) its respective annual and quarterly reports filed pursuant to
Section 13 or 15(d) of the Exchange Act, within 15 days after such reports have
been filed with the Commission or (ii) in the event CEI is not subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act within 15 days
after it would have been (if it were subject to such reporting obligations)
required to file such reports with the Commission, annual and quarterly
financial statements substantially equivalent to financial statements that would
have been included in reports filed with the Commission if CEI were subject to
the requirements of Section 13 or 15(d) of the Exchange Act, including, with
respect to annual information only, a report thereon by CEX's certified
independent public accountants as such would be required in such reports to the
Commission, and, in each case, together with a management's discussion and
analysis of financial condition and results of operations which would be so
required and, unless the Commission will not accept such reports, file with the
Commission the annual, quarterly and other reports which it is or would have
been required to file with the Commission. If at any time CEI does not file such
reports which include CEX and its Subsidiaries on a consolidated basis with CEI,
CEX shall succeed to the obligations of CEI hereunder.
EVENTS OF DEFAULT AND REMEDIES
The Indenture defines an Event of Default as (i) the failure by CEX to pay
any installment of interest (or Liquidated Damages, if any) on the Notes as and
when the same becomes due and payable and the continuance of any such failure
for 30 days, (ii) the failure by CEX to pay all or any part of the principal, or
premium, if any, on the Notes when and as the same becomes due and payable at
maturity, redemption, by acceleration or otherwise, including, without
limitation, payment of the Change of Control Purchase Price or the Asset Sale
Offer Price, or otherwise, (iii) the failure by CEX or any Guarantor to observe
or perform any other covenant or agreement contained in the Notes or the
Indenture and, subject to certain exceptions, the continuance of such failure
for a period of 45 days after written notice is given to CEX by the Trustee or
to CEX and the Trustee by the Holders of at least 25% in aggregate principal
amount of the Notes outstanding, (iv) certain events of bankruptcy, insolvency
or reorganization in respect of CEX or any of its Significant Subsidiaries, (v)
a default in any Indebtedness of CEX or any of its Subsidiaries with an
aggregate principal amount in excess of $10.0 million (a) resulting from the
failure to pay principal at final maturity or (b) as a result of which the
maturity of such Indebtedness has been accelerated prior to its stated maturity,
and (vi) final unsatisfied judgments not covered by insurance aggregating in
excess of $10.0 million, at any one time rendered against CEX or any of its
Significant Subsidiaries and not stayed, bonded or discharged within 60 days.
The Indenture provides that if a Default occurs and is continuing, the Trustee
must, within 90 days after the occurrence of such Default, give to the holders
notice of such Default.
If an Event of Default occurs and is continuing (other than an Event of
Default specified in clause (iv), above, relating to CEX), then in every such
case, unless the principal of all of the Notes shall have already become due and
payable, either the Trustee or the holders of at least 25% in aggregate
principal amount of the Notes then outstanding, by notice in writing to CEX (and
to the Trustee if given by holders) (an
79
<PAGE> 88
"Acceleration Notice"), may declare all principal, determined as set forth
below, and accrued interest thereon to be due and payable immediately; provided,
however, that if any Senior Debt is outstanding pursuant to the New Credit
Facility, upon a declaration of such acceleration, such principal and interest
shall be due and payable upon the earlier of (x) the day that is five Business
Days after the provision to CEX and the representative under the New Credit
Facility of such written notice, unless such Event of Default is cured or waived
prior to such date and (y) the date of acceleration of any Senior Debt under the
New Credit Facility. In the event a declaration of acceleration resulting from
an Event of Default described in clause (v) above has occurred and is
continuing, such declaration of acceleration shall be automatically annulled if
such Default is cured or waived or the holders of the Indebtedness which is the
subject of such Default have rescinded their declaration of acceleration in
respect of such Indebtedness within 45 days thereof and the Trustee has received
written notice of such cure, waiver or rescission and no other Event of Default
described in clause (v) above has occurred that has not been cured or waived
within 45 days of the declaration of such acceleration in respect of such
Indebtedness. If an Event of Default specified in clause (iv) above relating to
CEX occurs, all principal and accrued interest thereon will be immediately due
and payable on all outstanding Notes without any declaration or other act on the
part of Trustee or the holders. The holders of a majority in aggregate principal
amount of Notes generally are authorized to rescind such acceleration if all
existing Events of Default, other than the non-payment of the principal of,
premium, if any, and interest on the Notes which have become due solely by such
acceleration and except any Default with respect to any provision requiring a
supermajority approval to amend, which Default may only be waived by such a
supermajority, have been cured or waived.
Prior to the declaration of acceleration of the maturity of the Notes, the
Holders of a majority in aggregate principal amount of the Notes at the time
outstanding may waive on behalf of all the Holders any Default, except a Default
with respect to any provision requiring a supermajority approval to amend, which
Default may be waived only by such a supermajority, and except a Default in the
payment of principal of or interest on any Note not yet cured or a Default with
respect to any covenant or provision which cannot be modified or amended without
the consent of the holder of each outstanding Note affected. Subject to the
provisions of the Indenture relating to the duties of the Trustee, the Trustee
will be under no obligation to exercise any of its rights or powers under the
Indenture at the request, order or direction of any of the Holders, unless such
holders have offered to the Trustee reasonable security or indemnity. Subject to
all provisions of the Indenture and applicable law, the holders of a majority in
aggregate principal amount of the Notes at the time outstanding will have the
right to direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee, or exercising any trust or power conferred on
the Trustee.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Indenture provides that CEX may, at its option, elect to have its
obligations and the obligations of the Guarantors discharged with respect to the
outstanding Notes ("Legal Defeasance"). Such Legal Defeasance means that CEX
shall be deemed to have paid and discharged the entire indebtedness represented,
and the Indenture shall cease to be of further effect as to all outstanding
Notes and Guarantees, except as to (i) rights of Holders to receive payments in
respect of the principal of, premium, if any, and interest (and Liquidated
Damages, if any) on such Notes when such payments are due from the trust funds;
(ii) CEX's obligations with respect to such Notes concerning issuing temporary
Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes, and
the maintenance of an office or agency for payment and money for security
payments held in trust; (iii) the rights, powers, trust, duties, and immunities
of the Trustee, and CEX's obligations in connection therewith; and (iv) the
Legal Defeasance provisions of the Indenture. In addition, CEX may, at its
option and at any time, elect to have the obligations of CEX and the Guarantors
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Notes. In the event Covenant Defeasance occurs, certain events (not
including non-payment, guarantees, bankruptcy, receivership, rehabilitation and
insolvency events) described under "Events of Default" will no longer constitute
an Event of Default with respect to the Notes.
80
<PAGE> 89
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
CEX must irrevocably deposit with the Trustee, in trust, for the benefit of the
holders of the Notes, U.S. legal tender, U.S. Government Obligations or a
combination thereof, in such amounts as will be sufficient, in the opinion of a
nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on such Notes on the stated date for
payment thereof or on the redemption date of such principal or installment of
principal of, premium, if any, or interest on such Notes, and the holders of
Notes must have a valid, perfected, exclusive security interest in such trust;
(ii) in the case of Legal Defeasance, CEX shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that (A) CEX has received from, or there has been published by the
Internal Revenue Service, a ruling or (B) since the date of the Indenture, there
has been a change in the applicable Federal income tax law, in either case to
the effect that, and based thereon such opinion of counsel shall confirm that,
the holders of such Notes will not recognize income, gain or loss for Federal
income tax purposes as a result of such Legal Defeasance and will be subject to
Federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Legal Defeasance had not occurred; (iii) in
the case of Covenant Defeasance, CEX shall have delivered to the Trustee an
opinion of counsel in the United States reasonably acceptable to such Trustee
confirming that the holders of such Notes will not recognize income, gain or
loss for Federal income tax purposes as a result of such Covenant Defeasance and
will be subject to Federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Covenant Defeasance
had not occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit; (v) such Legal Defeasance or Covenant
Defeasance shall not result in a breach or violation of, or constitute a Default
under the Indenture or any other material agreement or instrument to which CEX
or any of its Subsidiaries is a party or by which CEX or any of its Subsidiaries
is bound; (vi) CEX shall have delivered to the Trustee an Officers' Certificate
stating that the deposit was not made by CEX with the intent of preferring the
holders of such Notes over any other creditors of CEX or with the intent of
defeating, hindering, delaying or defrauding any other creditors of CEX or
others; and (vii) CEX shall have delivered to the Trustee an Officers'
Certificate and an opinion of counsel, each stating that the conditions
precedent provided for in, in the case of the Officers' Certificate, clauses (i)
through (vi) and, in the case of the opinion of counsel, clauses (i), (with
respect to the validity and perfection of the security interest) (ii), (iii) and
(v) of this paragraph have been complied with.
If the funds deposited with the Trustee to effect Covenant Defeasance are
insufficient to pay the principal of, premium, if any, and interest on the Notes
when due, then the obligations of CEX and the Guarantors under the Indenture
will be revived and no such defeasance will be deemed to have occurred.
AMENDMENTS AND SUPPLEMENTS
The Indenture contains provisions permitting CEX, the Guarantors and the
Trustee to enter into a supplemental indenture for certain limited purposes
without the consent of the holders. With the consent of the holders of not less
than a majority in aggregate principal amount of the Notes at the time
outstanding, CEX, the Guarantors and the Trustee are permitted to amend or
supplement the Indenture or any supplemental indenture or modify the rights of
the holders; provided that no such modification may, without the consent of
holders of at least 66 2/3% in aggregate principal amount of Notes at the time
outstanding, modify the provisions (including the defined terms used therein) of
the covenant "Repurchase of Notes at the Option of the holder upon a Change of
Control" in a manner adverse to the holders; and provided, that no such
modification may, without the consent of each holder affected thereby: (i)
change the Stated Maturity on any Note, or reduce the principal amount thereof
or the rate (or extend the time for payment) of interest thereon or any premium
payable upon the redemption at the option of CEX thereof, or change the place of
payment where, or the coin or currency in which, any Note or any premium or the
interest thereon is payable, or impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity thereof (or, in
the case of redemption at the option of CEX, on or after the Redemption Date),
or reduce the Change of Control Purchase Price or the Asset Sale Offer Price or
alter the provisions (including the defined terms used therein) regarding the
right of CEX to redeem the Notes in a manner adverse to the holders, or (ii)
reduce the percentage in principal amount of the outstanding Notes, the consent
of whose holders is required for any such amendment, supplemental indenture or
waiver provided for in the Indenture, or (iii) modify any of the
81
<PAGE> 90
waiver provisions, except to increase any required percentage or to provide that
certain other provisions of the Indenture cannot be modified or waived without
the consent of the Holder of each outstanding Note affected thereby.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
The Indenture will provide that no direct or indirect stockholder,
employee, officer or director, as such, past, present or future of CEX, the
Guarantors or any successor entity shall have any personal liability in respect
of the obligations of CEX or the Guarantors under the Indenture or the Notes
solely by reason of his or its status as such stockholder, employee, officer or
director.
CERTAIN DEFINITIONS
"Acquired Indebtedness" means Indebtedness or Disqualified Capital Stock of
any Person existing at the time such Person becomes a Subsidiary of CEX,
including by designation, or is merged or consolidated into or with CEX or one
of its Subsidiaries.
"Acquisition" means the purchase or other acquisition of any Person of all
or substantially all the assets of any Person by any other Person, whether by
purchase, merger, consolidation, or other transfer, and whether or not for
consideration.
"Affiliate" means any Person directly or indirectly controlling or
controlled by or under direct or indirect common control with CEX. For purposes
of this definition, the term "control" means the power to direct the management
and policies of a Person, directly or through one or more intermediaries,
whether through the ownership of voting securities, by contract, or otherwise,
provided that a Beneficial Owner of 20% or more of the total voting power
normally entitled to vote in the election of directors, managers or trustees, as
applicable, shall for such purposes be deemed to constitute control.
"Assets to Be Disposed of" means assets identified in an Officer's
Certificate at the time of an Acquisition as assets CEX or the acquiring
Subsidiary intends to dispose of within 180 days of such Acquisition.
"Average Life" means, as of the date of determination, with respect to any
security or instrument, the quotient obtained by dividing (a) the sum of the
products (i) of the number of years (calculated to the nearest one-twelfth) from
the date of determination to the date or dates of each successive scheduled
principal (or redemption) payment of such security or instrument and (ii) the
amount of each such respective principal (or redemption) payment by (b) the sum
of all such principal (or redemption) payments.
"Beneficial Owner" or "beneficial owner" for purposes of the definitions of
Change of Control and Affiliate has the meaning attributed to it in Rules 13d-3
and 13d-5 under the Exchange Act (as in effect on the Issue Date), whether or
not applicable, except that a "Person" shall be deemed to have "beneficial
ownership" of all shares that any such Person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time.
"Board of Directors" means, with respect to any Person, the board of
directors of such Person or any committee of the Board of Directors of such
Person authorized, with respect to any particular matter, to exercise the power
of the board of directors of such Person.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
which is not a day on which banking institutions in New York, New York are
authorized or obligated by law or executive order to close.
"Capital Contribution" means any contribution to the equity of CEX from a
direct or indirect parent of CEX for which no consideration other than the
issuance of common stock with no redemption rights and no special preferences,
privileges or voting rights is given.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of
82
<PAGE> 91
this definition, the amount of such obligations at any date shall be the
capitalized amount of such obligations at such date, determined in accordance
with GAAP.
"Capital Stock" means, with respect to any corporation, any and all shares,
interests, rights to purchase (other than convertible or exchangeable
Indebtedness that is not itself otherwise capital stock), warrants, options,
participations or other equivalents of or interests (however designated) in
stock issued by that corporation.
"Cash Equivalent" means (a) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof), (b) U.S. dollar denominated
(or foreign currency fully hedged) time deposits, certificates of deposit,
Eurodollar time deposits or Eurodollar certificates of deposit of (i) any
domestic commercial bank of recognized standing having capital and surplus in
excess of $100.0 million or (ii) any bank whose short-term commercial paper
rating from S&P is at least A-1 or the equivalent thereof or from Moody's is at
least P-1 or the equivalent thereof (any such bank being an "Approved Lender"),
in each case with maturities of not more than twelve months from the date of
acquisition; (c) commercial paper and variable or fixed rate notes issued by any
Approved Lender (or by the parent company thereof) or any variable rate notes
issued by, or guaranteed by, any domestic corporation rated A-2 (or the
equivalent thereof) or better by S&P or P-2 (or the equivalent thereof) or
better by Moody's and maturing within twelve months of the date of acquisition,
(d) repurchase agreements with a bank or trust company or recognized securities
dealer having capital and surplus in excess of $100.0 million for direct
obligations issued by or fully guaranteed by the United States of America in
which Corporate Express will have a perfected first priority security interest
(subject to no other Liens) and having, on the date of purchase thereof, a fair
market value of at least 100% of the amount of repurchase obligations, (e)
interests in money market mutual funds which invest solely in assets or
securities of the type described in subparagraphs (a), (b), (c) or (d) hereof
and (f) in the case of any Foreign Subsidiary: (i) direct obligations of the
sovereign nation (or any agency thereof) in which such Foreign Subsidiary is
organized and is conducting business or in obligations fully and unconditionally
guaranteed by such sovereign nation (or any agency thereof), (ii) investments of
the type and maturity described in clauses (a) through (e) above of foreign
obligors, which investments or obligors (or the direct or indirect parents of
such obligors) have ratings described in such clauses or equivalent ratings from
comparable foreign rating agencies or (iii) investments of the type and maturity
described in clauses (a) through (e) above of foreign obligors (or the direct or
indirect parents of such obligors), which investments or obligors (or the direct
or indirect parents of such obligors) are not rated as provided in such clauses
or in clause (ii) above but which are, in the reasonable judgment of Corporate
Express, comparable in investment quality to such investments and obligors (or
the direct or indirect parent of such obligors).
"Claim" means any claim for damages arising from the purchase of the Notes
or for reimbursement or contribution on the account of such claim, in each case
to the extent relating to the purchase price of the Notes.
"Consolidated Coverage Ratio" of any Person on any date of determination
(the "Transaction Date") means the ratio, on a pro forma basis, of (a) the
aggregate amount of Consolidated EBITDA of such Person attributable to
continuing operations and businesses (exclusive of amounts attributable to
operations and businesses permanently discontinued or disposed of) for the
Reference Period to (b) the aggregate Consolidated Fixed Charges of such Person
(exclusive of amounts attributable to operations and businesses permanently
discontinued or disposed of, but only to the extent that the obligations giving
rise to such Consolidated Fixed Charges would no longer be obligations
contributing to such Person's Consolidated Fixed Charges subsequent to the
Transaction Date) during the Reference Period; provided, that for purposes of
such calculation, (i) Acquisitions which occurred during the Reference Period or
subsequent to the Reference Period and on or prior to the Transaction Date shall
be assumed to have occurred on the first day of the Reference Period, (ii)
transactions giving rise to the need to calculate the Consolidated Coverage
Ratio shall be assumed to have occurred on the first day of the Reference Period
without regard to the effect of subsection (c) of the definition of
"Consolidated Net Income", (iii) the incurrence of any Indebtedness or issuance
of any Disqualified Capital Stock during the Reference Period or subsequent to
the Reference Period and on or
83
<PAGE> 92
prior to the Transaction Date (and the application of the proceeds therefrom to
the extent used to refinance or retire other Indebtedness) shall be assumed to
have occurred on the first day of the Reference Period, and (iv) the
Consolidated Fixed Charges of such Person attributable to interest on any
Indebtedness or dividends on any Disqualified Capital Stock bearing a floating
interest (or dividend) rate shall be computed on a pro forma basis as if the
average rate in effect from the beginning of the Reference Period to the
Transaction Date had been the applicable rate for the entire period, unless such
Person or any of its Subsidiaries is a party to an Interest Swap or Hedging
Obligation (which shall remain in effect for the 12-month period immediately
following the Transaction Date) that has the effect of fixing the interest rate
on the date of computation, in which case such rate (whether higher or lower)
shall be used.
"Consolidated EBITDA" means, with respect to any Person, for any period,
the Consolidated Net Income of such Person for such period adjusted (a) to
eliminate (i) non-recurring charges related to the assimilation of Persons
acquired, and the expenses of, any Acquisitions, including expenses incurred in
connection with the retirement of Acquired Indebtedness, (ii) the write-off of
debt financing fees associated with termination of credit facilities, (iii) any
non-cash pre-Acquisition write-offs or similar charges incurred by a Person
acquired in an Acquisition that as a result of pooling of interest are included
in CEI's consolidated financial statements for such period to the extent such
write-offs or charges would either (x) not be included as an expense on CEI's
consolidated financial statements had the Acquisition not been accounted for as
a pooling of interests or (y) be eliminated by the provisions hereof if recorded
by CEI for such period and (iv) any non-cash write-offs or similar charges which
are recorded following an Acquisition in CEI's consolidated financial statements
with respect to an acquired Person's assets to the extent such amounts were
accounted for in the first twelve months following the date such Acquisition was
consummated and (b) to add thereto (to the extent deducted from net revenues in
determining Consolidated Net Income), without duplication, the sum of (i)
Consolidated income tax expense, (ii) Consolidated depreciation and amortization
expense (including any accelerations thereof), (iii) Consolidated Fixed Charges,
and (iv) non-cash charges attributable to the grant, exercise or repurchase of
options or shares of Qualified Capital Stock to or from employees.
Notwithstanding the foregoing, the provision for taxes based on the income or
profits of, and the depreciation and amortization and other non-cash charges of
a Subsidiary of a Person will be added to Consolidated Net Income to compute
Consolidated EBITDA only to the extent (and in the same proportion) that the net
income of such Subsidiary was included in calculating the Consolidated Net
Income of such Person.
"Consolidated Fixed Charges" of any Person means, for any period, the
aggregate amount (without duplication and determined in each case in accordance
with GAAP) of (a) interest expensed or capitalized, paid, accrued, or scheduled
to be paid or accrued (including, in accordance with the following sentence,
interest attributable to Capitalized Lease Obligations) of such person and its
Consolidated Subsidiaries during such period, including (i) original issue
discount and non-cash interest payments or accruals on any Indebtedness, (ii)
the interest portion of all deferred payment obligations, and (iii) all
commissions, discounts and other fees and charges owed with respect to bankers'
acceptances and letters of credit financings and currency and Interest Swap and
Hedging Obligations, in each case to the extent attributable to such period, (b)
one-third of rental expense for such period attributable to operating leases of
such person and its Consolidated Subsidiaries, (c) the amount of dividends
accrued or payable by such Person or any of its Consolidated Subsidiaries in
respect of Preferred Stock (other than by Subsidiaries of such Person to such
Person or such Person's Subsidiaries) and (d) interest expense of CEI for such
period with respect to the Parent Convertible Notes and any refinancing
indebtedness incurred with respect thereto. For purposes of this definition, (x)
interest on a Capitalized Lease Obligation shall be deemed to accrue at an
interest rate reasonably determined in good faith by CEX to be the rate of
interest implicit in such Capitalized Lease Obligation in accordance with GAAP
and (y) interest expense attributable to any Indebtedness represented by the
guaranty by such Person or a Subsidiary of such Person of an obligation of
another Person shall be deemed to be the interest expense attributable to the
Indebtedness guaranteed.
"Consolidated Leverage Ratio" shall mean the ratio on a pro forma basis of
(i) the aggregate outstanding amount of Indebtedness of CEX and its Consolidated
Subsidiaries (excluding Indebtedness ranking subordinate to the Notes and the
Guarantees and Indebtedness of any Foreign Subsidiary that is non-recourse
84
<PAGE> 93
to CEX and its other Subsidiaries) as of the date of calculation on a
consolidated basis, after giving effect to the incurrence of Indebtedness on
such date, net of cash stated on CEI's consolidated balance sheet (excluding
cash held at CEI) to (ii) the Consolidated EBTIDA of CEX for the four last full
fiscal quarters ending on or prior to the date of determination; provided, that
for purposes of such calculation, Acquisitions which occurred during the
Reference Period or subsequent to the Reference Period and on or prior to the
Transaction Date shall be assumed to have occurred on the first day of the
Reference Period.
"Consolidated Net Income" means, with respect to any Person for any period,
the net income (or loss) of such Person and its Consolidated Subsidiaries
(determined on a consolidated basis in accordance with GAAP) for such period
adjusted to exclude (only to the extent included in computing such net income
(or loss) and without duplication): (a) all gains and losses which are either
extraordinary (as determined in accordance with GAAP) or are either unusual or
nonrecurring (including any gain or loss from the sale or other disposition of
assets outside the ordinary course of business or from the issuance or sale of
any capital stock), (b) the net income, if positive, of any Person, other than a
Consolidated Subsidiary, in which such Person or any of its Consolidated
Subsidiaries has an interest, except to the extent of the amount of any
dividends or distributions actually paid in cash to such Person or a
Consolidated Subsidiary of such Person during such period, but in any case not
in excess of such Person's pro rata share of such Person's net income for such
period, (c) the net income or loss of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition, (d)
the net income, if positive, of any of such Person's Consolidated Subsidiaries
to the extent that the declaration or payment of dividends or similar
distributions is not at the time permitted by operation of the terms of its
charter or bylaws or any other agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to such Consolidated
Subsidiary, and (e) the net income of, or any dividends or other distributions
from, any Unrestricted Subsidiary, to the extent otherwise included, except to
the extent cash or Cash Equivalents are distributed to CEX or one of its
Subsidiaries in a transaction that does not relate to the liquidation of such
Unrestricted Subsidiary.
"Consolidated Subsidiary" means, for any Person, each Subsidiary of such
Person (whether now existing or hereafter created or acquired) the financial
statements of which are consolidated for financial statement reporting purposes
with the financial statements of such Person in accordance with GAAP.
"Designated Senior Debt" means, (a) so long as it is in effect, the New
Credit Facility and (b) at any time when the New Credit Facility is no longer in
effect any other Senior Debt designated by CEX to be "Designated Senior Debt"
that has an outstanding principal amount of at least $20 million at the time of
such designation.
"Disqualified Capital Stock" means (a) except as set forth in (b), with
respect to any Person, Equity Interests of such Person that, by its terms or by
the terms of any security into which it is convertible, exercisable or
exchangeable, is, or upon the happening of an event or the passage of time or
both would be, required to be redeemed or repurchased (including at the option
of the holder thereof) by such Person or any of its Subsidiaries, in whole or in
part, on or prior to the Stated Maturity of the Notes and (b) with respect to
any Subsidiary of such Person (including with respect to any Subsidiary of CEX),
any Equity Interests other than any common equity with no preference,
privileges, or redemption or repayment provisions.
"Disqualified Preferred Stock" means, with respect to any Person, Equity
Interests of such Person that, by its terms or by the terms of any security into
which it is convertible, exercisable or exchangeable, is, or upon the happening
of an event or the passage of time or both would be, required to be redeemed or
repurchased (including at the option of the holder thereof) by such Person or
any of its Subsidiaries, in whole or in part, on or prior to the Stated Maturity
of the Notes.
"Equity Interest" of any Person means any shares, interests, participations
or other equivalents (however designated) in such Person's equity, and shall in
any event include any Capital Stock issued by, or partnership or membership
interests in, such Person.
85
<PAGE> 94
"Excluded Subsidiary" means any Subsidiary which has assets with a fair
market value of $5.0 million or less and is designated as an "Excluded
Subsidiary" by CEX; provided that at no time may the aggregate fair market value
of the assets of all Subsidiaries designated as "Excluded Subsidiaries" exceed
$25.0 million.
"Exempted Affiliate Transaction" means (a) reasonable and customary
financial advisory, securities underwriting or similar arrangements with
investment banking firms of national reputation, (b) issuances of Qualified
Capital Stock of CEX, (c) customary employee compensation or incentive
arrangements approved by a majority of independent (as to such transactions)
members of the Board of Directors of CEX, (d) dividends permitted under the
terms of the covenant "Limitation on Restricted Payments" and payable, in form
and amount, on a pro rata basis to all holders of Capital Stock of CEX, and (e)
transactions solely between CEX or any of CEX's Subsidiaries or Unrestricted
Subsidiaries or solely among Subsidiaries or Unrestricted Subsidiaries of CEX.
"Existing Assets" means property, plant and equipment and other tangible
business assets existing as of the Issue Date used in a Related Business of CEX
or the Guarantors, but does not include inventory, cash or Cash Equivalents or
intangible assets, and the proceeds from the sale, disposition or other transfer
of any Existing Assets outside the ordinary course of business.
"Existing Indebtedness" means the Indebtedness of CEX and its Subsidiaries
(other than Indebtedness under the New Credit Facility) in existence on the
Issue Date, until such amounts are repaid.
"Finance Subsidiary" means any Subsidiary of CEX (other than a Subsidiary
Guarantor or a Foreign Subsidiary) organized for the sole purpose of issuing
Capital Stock or other securities and loaning the proceeds thereof to CEX or a
Subsidiary Guarantor and which engaged in no other transactions except those
incidental thereto.
"Finance Subsidiary Indebtedness" means Indebtedness of or Disqualified
Capital Stock issued by a Finance Subsidiary, which Indebtedness or Disqualified
Capital Stock does not mature and is not mandatorily redeemable or redeemable at
the option of the holder thereof, in whole or in part (other than pursuant to
customary change of control or asset sale provisions), prior to the final Stated
Maturity of the Notes.
"Foreign Subsidiary" means any Subsidiary of CEX which (a) is not organized
under the laws of the United States, any state thereof or the District of
Columbia, (b) conducts substantially all of its business operations outside the
United States of America, and (c) does not own, or have the benefit of any Lien
on, any Equity Interests of CEX or any Subsidiary Guarantor.
"GAAP" means United States generally accepted accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession in the United States as in effect on the Issue Date.
"Indebtedness" of any Person means, without duplication, (a) all
liabilities and obligations, contingent or otherwise, of such Person, to the
extent such liabilities and obligations would appear as a liability upon the
consolidated balance sheet of such Person in accordance with GAAP, (i) in
respect of borrowed money (whether or not the recourse of the lender is to the
whole of the assets of such Person or only to a portion thereof), (ii) evidenced
by bonds, notes, debentures or similar instruments, or (iii) representing the
balance deferred and unpaid of the purchase price of any property or services,
except (other than accounts payable or other obligations to trade creditors
which have remained unpaid for greater than 60 days past their original due
date) those incurred in the ordinary course of its business that would
constitute ordinarily a trade payable to trade creditors; (b) all liabilities
and obligations, contingent or otherwise, of such Person (i) evidenced by
bankers' acceptances or similar instruments issued or accepted by banks, (ii)
for the payment of money relating to any Capitalized Lease Obligation, or (iii)
evidenced by a letter of credit or a reimbursement obligation of such Person
with respect to any letter of credit; (c) all net obligations of such Person
under Interest Swap and Hedging Obligations; (d) all liabilities and obligations
of others of the kind described in the preceding clauses (a), (b) or (c) that
such Person has guaranteed or that is otherwise its legal liability; and (e) any
and all deferrals, renewals, extensions, refinancings and refundings (whether
direct or indirect) of, or
86
<PAGE> 95
amendments, modifications or supplements to, any liability of the kind described
in any of the preceding clauses (a), (b), (c) or (d), or this clause (e),
whether or not between or among the same parties; provided that any indebtedness
which has been defeased in accordance with GAAP or defeased pursuant to the
deposit of cash or Government Securities (in an amount sufficient to satisfy all
such indebtedness obligations at maturity or redemption, as applicable, and all
payments of interest and premium, if any) in a trust or account created or
pledged for the sole benefit of the holders of such indebtedness, and subject to
no other Liens, and the other applicable terms of the instrument governing such
indebtedness, shall not constitute "Indebtedness."
"Interest Swap and Hedging Obligation" means any obligation of any Person
pursuant to any interest rate swap agreement, interest rate cap agreement,
interest rate collar agreement, interest rate exchange agreement, currency
exchange agreement or any other agreement or arrangement designed to protect
against fluctuations in interest rates or currency values, including, without
limitation, any arrangement whereby, directly or indirectly, such Person is
entitled to receive from time to time periodic payments calculated by applying
either a fixed or floating rate of interest on a stated notional amount in
exchange for periodic payments made by such person calculated by applying a
fixed or floating rate of interest on the same notional amount.
"Investment" by any Person in any other Person means (without duplication)
(a) the acquisition (whether by purchase, merger, consolidation or otherwise) by
such Person (whether for cash, property, services, securities or otherwise) of
capital stock, bonds, notes, debentures, partnership or other ownership
interests or other securities, including any options or warrants, of such other
person or any agreement to make any such acquisition; (b) the making by such
Person of any deposit with, or advance, loan or other extension of credit to,
such other Person (including the purchase of property from another Person
subject to an understanding or agreement, contingent or otherwise, to resell
such property to such other Person) or any commitment to make any such advance,
loan or extension (but excluding accounts receivable, endorsements for
collection or deposits arising in the ordinary course of business); (c) other
than guarantees of Indebtedness of CEX or any Guarantor to the extent permitted
by the covenant "Limitation on Incurrence of Additional Indebtedness and
Disqualified Capital Stock," the entering into by such Person of any guarantee
of, or other credit support or contingent obligation with respect to,
Indebtedness or other liability of such other person; (d) the making of any
capital contribution by such Person to such other Person; and (e) the
designation by the Board of Directors of CEX of any Person to be an Unrestricted
Subsidiary. CEX shall be deemed to make an Investment in an amount equal to the
fair market value of the net assets of any subsidiary (or, if neither CEX nor
any of its Subsidiaries has theretofore made an Investment in such subsidiary,
in an amount equal to the Investments being made), at the time that such
subsidiary is designated an Unrestricted Subsidiary, and any property
transferred to an Unrestricted Subsidiary from CEX or a Subsidiary of CEX shall
be deemed an Investment valued at its fair market value at the time of such
transfer.
"Issue Date" means the date of first issuance of Notes under the Indenture.
"Junior Securities" means any Qualified Capital Stock and any Indebtedness
of CEX or a Guarantor, as applicable, that is subordinated in right of payment
to the Notes or the Guarantee, as applicable, and has no scheduled installment
of principal due, by redemption, sinking fund payment or otherwise, on or prior
to the Stated Maturity of the Notes; provided that in the case of subordination
in respect of Senior Debt under the New Credit Facility, "Junior Security" shall
mean any Qualified Capital Stock and any Indebtedness of CEX or the Guarantor,
as applicable, that is issued to a Holder on account of the Notes pursuant to an
order or decree of a court of competent jurisdiction in a reorganization
proceeding under any applicable bankruptcy or reorganization law, which
Qualified Capital Stock or Indebtedness (i) has a maturity, mandatory redemption
obligation or put right, if any, longer than, or occurring after the final
maturity date of, all Senior Debt outstanding under the New Credit Facility on
the date of issuance of such Qualified Capital Stock or Indebtedness (and to any
securities issued in exchange for any such Senior Debt), (ii) is unsecured,
(iii) has an Average Life longer than the security for which such Qualified
Capital Stock or Indebtedness is being exchanged, (iv) does not provide for
terms, conditions or covenants more onerous than those provided in the Notes and
(v) by their terms or by law are subordinated to Senior Debt outstanding under
the New Credit Facility on the date of issuance of such Qualified Capital Stock
or Indebtedness (and to any securities in exchange for any such Senior Debt) at
least to the same extent as the Notes.
87
<PAGE> 96
"Lien" means any mortgage, charge, pledge, lien (statutory or otherwise),
privilege, security interest, hypothecation or other encumbrance upon or with
respect to any property of any kind, real or personal, movable or immovable, now
owned or hereafter acquired.
"Net Cash Proceeds" means the aggregate amount of cash or Cash Equivalents
received by CEX in the case of a sale of its Qualified Capital Stock and by CEX
and its Subsidiaries in respect of an Asset Sale plus, in the case of an
issuance of Qualified Capital Stock of CEX upon any exercise, exchange or
conversion of securities (including options, warrants, rights and convertible or
exchangeable debt) of CEX that were issued for cash on or after the Issue Date,
the amount of cash originally received by CEX upon the issuance of such
securities (including options, warrants, rights and convertible or exchangeable
debt) less, in each case, the sum of all payments, fees, commissions and
expenses (including, without limitation, the fees and expenses of legal counsel
and investment banking fees and expenses) incurred in connection with such Asset
Sale or sale of Qualified Capital Stock, and, in the case of an Asset Sale only,
less the amount (estimated reasonably and in good faith by CEX) of income,
franchise, sales and other applicable taxes required to be paid resulting from
such sale by CEX or any of its respective Subsidiaries in the taxable year that
such sale is consummated or in the immediately succeeding taxable year, the
computation of which shall take into account the reduction in tax liability
resulting from any available operating losses and net operating loss carryovers,
tax credits and tax credit carryforwards, and similar tax attributes. "Net Cash
Proceeds" also includes the amount of cash received by CEX as a Capital
Contribution from Parent.
"New Credit Facility" means the credit agreement dated April 17, 1998 by
and among CEX, CEI, and certain financial institutions providing for an
aggregate $250.0 million term credit facility and an aggregate $750.0 million
revolving credit facility, and including any related notes, guarantees,
collateral documents, instruments and agreements executed in connection
therewith, as such credit agreement and/or related documents may be amended,
restated, supplemented, renewed, replaced, refinanced (in whole or in part) or
otherwise modified from time to time whether or not with the same agent,
trustee, representative lenders or holders, and whether or not pursuant to a
single or multiple agreements or instruments, and, subject to the proviso to the
next succeeding sentence, irrespective of any changes in their terms and
conditions thereof. Without limiting the generality of the foregoing, the term
"New Credit Facility" shall include agreements in respect of Interest Swap and
Hedging Obligations with lenders at any time party to the New Credit Facility
(which Interest Swap and Hedging Obligations shall not be deemed to increase the
amount outstanding pursuant to the New Credit Facility for purposes of
determining compliance with the "Limitation on Incurrence of Additional
Indebtedness and Disqualified Capital Stock" covenant contained herein) and
shall also include any amendment, amendment and restatement, renewal, extension,
restructuring, supplement or modification to any New Credit Facility and all
refundings, refinancings and replacements (whether in whole or in part) of all
or any part of the New Credit Facility, including any agreement or agreements
(i) extending the maturity of any Indebtedness incurred thereunder or
contemplated thereby, (ii) adding or deleting borrowers or guarantors
thereunder, so long as borrowers and issuers include one or more of CEX and its
Subsidiaries and their respective successors and assigns, (iii) increasing the
amount of Indebtedness incurred thereunder or available to be borrowed
thereunder; provided, that on the date such increased Indebtedness is incurred
it would be permitted to be incurred under the covenant "Limitation on
Incurrence of Additional Indebtedness and Disqualified Capital Stock," or (iv)
otherwise altering the terms and conditions thereof.
"Non-Recourse Indebtedness" means Indebtedness (a) as to which neither CEX
nor any of its Subsidiaries (i) provides credit support of any kind (including
any undertaking, agreement or instrument that would constitute Indebtedness),
(ii) is directly or indirectly liable (as a guarantor or otherwise), or (iii)
constitutes the lender; and (b) no default with respect to which (including any
rights that the holders thereof may have to take enforcement action against an
Unrestricted Subsidiary) would permit (upon notice, lapse of time or both) any
holder of any other Indebtedness of CEX or any of its Subsidiaries to declare a
default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity.
"Obligation" means any principal, premium, interest, penalties, fees,
reimbursements, damages, indemnification and other liabilities relating to
obligations of CEX or any Guarantor under the Notes or the Indenture, including
any liquidated damages pursuant to the Registration Rights Agreement.
88
<PAGE> 97
"Officer's Certificate" means a certificate signed on behalf of CEX or
Subsidiary Guarantor, as applicable, by an officer of CEX or Subsidiary
Guarantor, as applicable, who must be the principal executive officer, the
principal financial officer, the treasurer or the principal accounting officer
of CEX or Subsidiary Guarantor, as applicable, that meets the requirements set
forth in the Indenture.
"Parent Consolidated Leverage Ratio" shall mean the ratio on a pro forma
basis of (i) the aggregate outstanding amount of Indebtedness of CEI and its
Consolidated Subsidiaries as of the date of calculation on a consolidated basis,
after giving effect to the incurrence of Indebtedness and Disqualified Preferred
Stock on such date, net of cash stated on CEI's consolidated balance sheet, plus
the aggregate liquidation preference of all Disqualified Preferred Stock of CEI
and its Consolidated Subsidiaries to (ii) the Consolidated EBITDA of CEI for the
four last full fiscal quarters ending on or prior to the date of determination;
provided, that for purposes of such calculation, Acquisitions which occurred
during the Reference Period or subsequent to the Reference Period and on or
prior to the Transaction Date shall be assumed to have occurred on the first day
of the Reference Period.
"Parent Convertible Notes" means the $325.0 million aggregate principal
amount of 4 1/2% Convertible Notes due July 1, 2000 of CEI issued pursuant to
the Indenture, dated as of June 24, 1996, between CEI and Bankers Trust Company,
as Trustee, as in existence on the Issue Date.
"Permitted Indebtedness" means that:
(a) CEX, the Subsidiary Guarantors and the Foreign Subsidiaries may
incur Indebtedness solely in respect of bankers acceptances, bank
overdrafts, letters of credit and performance bonds (to the extent that
such incurrence does not result in the incurrence of any obligation to
repay any obligation relating to borrowed money of others), all in the
ordinary course of business in accordance with customary industry practices
and for the purposes customary in CEX's industry;
(b) CEX may incur Indebtedness to any Subsidiary Guarantor or a
Foreign Subsidiary, and any Subsidiary Guarantor or a Foreign Subsidiary
may incur Indebtedness to any other Subsidiary Guarantor or a Foreign
Subsidiary or to CEX; provided that the time any such Indebtedness becomes
held by any Person other than CEX or a Subsidiary, Guarantor or a Foreign
Subsidiary shall be deemed an Incurrence Date; provided, further, that in
the case of Indebtedness of CEX, such obligations shall be unsecured and
subordinated in all respects to CEX's obligations pursuant to the Notes;
(c) any Subsidiary Guarantor may guaranty any Indebtedness of CEX or
another Subsidiary Guarantor that was permitted to be incurred pursuant to
the Indenture, substantially concurrently with such incurrence or at the
time such Person becomes a Subsidiary Guarantor;
(d) a Receivables Subsidiary may incur Indebtedness in a Qualified
Receivables Transaction that is without recourse to CEX or CEI or to any
Subsidiary of CEX or of CEI or any of their assets (other than Standard
Securitization Undertakings and other than such Receivables Subsidiary and
its assets), and is not guaranteed by any such Person and is not otherwise
any such other Person's legal liability; and
(e) CEX and the Subsidiary Guarantors and the Foreign Subsidiaries may
incur Interest Swap and Hedging Obligations, so long as not for purposes of
speculation, for the purpose of fixing or hedging (i) interest rate risk
with respect to any floating Indebtedness that is permitted by the terms of
the Indenture to be outstanding or (ii) the value of foreign currencies
purchased or received by CEX or its Subsidiaries in the ordinary course.
"Permitted Investment" means any Investment in (a) any of the Notes; (b)
Cash Equivalents; (c) intercompany notes to the extent permitted under clause
(b) of the definition of "Permitted Indebtedness; (d) Investments by CEX or any
Subsidiary Guarantor in any Person that is or immediately after such Investment
becomes a Subsidiary Guarantor, or immediately after such Investment merges or
consolidates into CEX or any Subsidiary Guarantor in compliance with the terms
of the Indenture, provided that such Person is engaged in all material respects
in Related Business; (e) Investments by CEX or any Subsidiary Guarantor in any
Person that is or immediately after such Investment becomes a Wholly Owned
Foreign Subsidiary, provided that such Person is engaged in all material
respects in a Related Business (other than
89
<PAGE> 98
Investments consisting of or from the contribution, sale, disposition or other
transfer of Existing Assets of CEX or a Subsidiary Guarantor or the direct or
indirect proceeds of any such Existing Assets, in each case outside the ordinary
course of business); (f) Investments in CEX by any Subsidiary Guarantor,
provided that in the case of Indebtedness constituting any such Investment, such
Indebtedness shall be unsecured and subordinated in all respects to CEX's
obligations under the Notes; (g) Investments in securities of trade creditors or
customers received in settlement of obligations that arose in the ordinary
course of business or pursuant to any plan of reorganization or similar
arrangement upon the bankruptcy or insolvency of such trade creditors or
customers; (h) Investments by CEX outstanding on the Issue Date; (i)
transactions or arrangements with officers or directors of CEX or any Subsidiary
Guarantor entered into in the ordinary course of business (including
compensation or employee benefit arrangements with any officer or director of
CEX or any Subsidiary Guarantor permitted under the covenant "Limitation on
Transactions with Affiliates"); (j) the acquisition by a Receivables Subsidiary
in connection with a Qualified Receivables Transaction of Equity Interests of a
trust or other Person established by such Receivables Subsidiary to effect such
Qualified Receivables Transaction; (k) any Investment by CEX or any Guarantor in
a Receivables Subsidiary or any Investment by a Receivables Subsidiary in any
other person, in each case in connection with a Qualified Receivables
Transaction; provided, that the foregoing Investment is in the form of a note
that the Receivables Subsidiary or other Person is required to repay as soon as
practicable from available cash collections less amounts required to be
established as reserves pursuant to contractual arrangements with entities that
are not Affiliates entered into as part of a Qualified Receivables Transaction;
(l) Investments made as a result of the receipt of non-cash consideration from a
sale of assets that does not constitute an Asset Sale by reason of the de
minimus thresholds set forth in the definition thereof and from an Asset Sale
that was made pursuant to and in compliance with the covenant entitled
"Limitations on Sales of Assets and Subsidiary Stock"; and (m) any acquisition
of assets in exchange for the Qualified Capital Stock of CEX.
"Permitted Lien" means (a) Liens existing on the Issue Date; (b) Liens
imposed by governmental authorities for taxes, assessments or other charges not
yet subject to penalty or which are being contested in good faith and by
appropriate proceedings, if adequate reserves with respect thereto are
maintained on the books of CEX in accordance with GAAP; (c) statutory liens of
carriers, warehousemen, mechanics, materialmen, landlords, repairmen or other
like Liens arising by operation of law in the ordinary course of business,
provided that (i) the underlying obligations are not overdue for a period of
more than 30 days, or (ii) such Liens are being contested in good faith and by
appropriate proceedings and adequate reserves with respect thereto are
maintained on the books of CEX in accordance with GAAP; (d) Liens securing the
performance of bids, trade contracts (other than borrowed money), leases,
statutory obligations, surety and appeal bonds, performance bonds and other
obligations of a like nature incurred in the ordinary course of business; (e)
easements, rights-of-way, zoning, similar restrictions and other similar
encumbrances or title defects which, singly or in the aggregate, do not in any
case materially detract from the value of the property subject thereto (as such
property is used by CEX or any of its Subsidiaries) or interfere with the
ordinary conduct of the business of CEX or any of its Subsidiaries; (f) Liens
arising by operation of law in connection with judgments, only to the extent,
for an amount and for a period not resulting in an Event of Default with respect
thereto; (g) pledges or deposits made in the ordinary course of business in
connection with workers' compensation, unemployment insurance and other types of
social security legislation; (h) Liens securing the Notes; (i) Liens securing
Indebtedness of a Person existing at the time such Person becomes a Subsidiary
of CEX or is merged with or into CEX or a Subsidiary of CEX, or Liens securing
Indebtedness incurred in connection with an Acquisition, provided that such
Liens were in existence prior to the date of such acquisition, merger or
consolidation, were not incurred in anticipation thereof, and do not extend to
any other assets; (j) Liens arising from Purchase Money Indebtedness permitted
to be incurred under paragraph (c) of the covenant "Limitation on Incurrence of
Additional Indebtedness and Disqualified Capital Stock," provided such Liens
relate solely to the property which is subject to such Purchase Money
Indebtedness; (k) leases or subleases granted to other Persons in the ordinary
course of business not materially interfering with the conduct of the business
of CEX or any of its Subsidiaries or materially detracting from the value of the
relative assets of CEX or any Subsidiary; (l) Liens arising from precautionary
Uniform Commercial Code financing statement filings regarding operating leases
entered into by CEX or any of its Subsidiaries in the ordinary course of
business; (m) Liens securing Refinancing Indebtedness incurred to refinance any
Indebtedness that
90
<PAGE> 99
was previously so secured in a manner no more adverse to the Holders of the
Notes than the terms of the Liens securing such refinanced Indebtedness,
provided that the Indebtedness secured is not increased and the Liens are not
extended to any additional assets or property that would not have been security
for the Indebtedness refinanced; (n) Liens securing Senior Debt, including
Indebtedness incurred under the New Credit Facility in accordance with the terms
of the Indenture; (o) Liens on assets of a Receivables Subsidiary incurred in
connection with a Qualified Receivables Transaction; and (p) Liens securing
Indebtedness of any Foreign Subsidiary incurred in accordance with the
provisions of the covenant "Limitation on Incurrence of Additional Indebtedness
and Disqualified Capital Stock," provided such Liens relate solely to the
property of one or more Foreign Subsidiaries; (q) Liens of landlords or of
mortgages of landlords arising by operation of law, provided that the rental
payments secured thereby are not yet due and payable; (r) Liens incurred in the
ordinary course of business of CEX or any Subsidiary of CEX with respect to
obligations that do not exceed $5.0 million at any one time outstanding and that
(i) are not incurred in connection with the borrowing of money or the obtaining
of advances or credit (other than trade credit in the ordinary course of
business) and (ii) do not in the aggregate materially detract from the value of
the property or materially impair the use thereof; (s) Liens securing
reimbursement obligations with respect to letters of credit which encumber only
documents and other property relating to such letters of credit and the products
and proceeds thereof; (t) Liens arising out of consignment or similar
arrangements for the sale of goods; and (u) Liens securing Interest Swap and
Hedging Obligations permitted to be incurred by the Indenture.
"Permitted Payments to CEI" means, without duplication, (a) payments to CEI
in an aggregate amount not to exceed $1.0 million in any fiscal year in an
amount necessary and sufficient to permit CEI to pay reasonable and necessary
operating expenses and other general corporate expenses to the extent such
expenses relate or are fairly allocable to CEX and its Subsidiaries (including
any reasonable professional fees and expenses, but excluding all expenses
payable to or to be paid to or on behalf of an Excluded Person except in a
transaction constituting an Exempted Affiliate Transaction, and (b) payments to
CEI to enable CEI to pay foreign, Federal, state or local tax liabilities ("Tax
Payments"), not to exceed the amount of any tax liabilities that would be
otherwise payable by CEX and its Subsidiaries to the appropriate taxing
authorities if CEX and its Subsidiaries were to file separate tax returns to the
extent that CEI has an obligation to pay such tax liabilities relating to the
operations, assets or capital of CEX or its Subsidiaries; provided, however,
that (i) notwithstanding the foregoing, in the case of determining the amount of
a Tax Payment that is permitted to be paid by CEX and any of its United States
Subsidiaries in respect of their Federal income tax liability, such payment
shall be determined on the basis of assuming that CEX is the parent company of
an affiliated group (the "Issuer Affiliated Group") filing a Federal income tax
return and that CEI and each such United States Subsidiary is a member of the
Issuer Affiliated Group and (ii) any Tax Payments shall either be used by CEI to
pay such tax liabilities within 90 days of CEI's receipt of such payment or
refunded to the payee.
"Public Equity Offering" means an underwritten offering of common stock of
CEX or CEI for cash pursuant to an effective registration statement under the
Securities Act, provided, at the time or upon consummation of such offering,
such common stock of CEX or CEI is listed on a national securities exchange or
quoted on the national market system of the Nasdaq Stock Market.
"Purchase Money Indebtedness" of any Person means any Indebtedness of such
Person to any seller or other Person incurred to finance solely the acquisition
(including in the case of a Capitalized Lease Obligation, the lease) of any real
or personal tangible property which is incurred within 180 days of such
acquisition and is secured only by the assets so financed.
"Qualified Capital Stock" means any Equity Interests of CEX or such other
specified person that is not Disqualified Capital Stock.
"Qualified Exchange" means any defeasance, redemption, retirement,
repurchase or other acquisition of Equity Interests or Indebtedness of CEX
issued on or after the Issue Date with the Net Cash Proceeds received by CEX
from the substantially concurrent sale of Qualified Capital Stock of CEX or any
exchange of Qualified Capital Stock of CEX for any Equity Interests or
Indebtedness of CEX issued on or after the Issue Date.
91
<PAGE> 100
"Qualified Receivables Transaction" means any transaction or series of
transactions that may be entered into by CEX, any Guarantor or any Receivables
Subsidiary pursuant to which CEX, any Guarantor or any Receivables Subsidiary
may sell, convey or otherwise transfer to, or grant a security interest in for
the benefit of, (a) a Receivables Subsidiary (in the case of a transfer or
encumbrancing by CEX or any Guarantor) and (b) any other Person (solely in the
case of a transfer or encumbrancing by a Receivables Subsidiary), solely
accounts receivable (whether now existing or arising in the future) of CEX or
any Guarantor which arose in the ordinary course of business of CEX or any
Guarantor, and any assets related thereto, including, without limitation, all
collateral securing such accounts receivable, all contracts and all guarantees
or other obligations in respect of such accounts receivable, proceeds of such
accounts receivable and other assets which are customarily transferred or in
respect of which security interests are customarily granted in connection with
asset securitization transactions involving accounts receivable.
"Receivables Subsidiary" means a Wholly Owned Subsidiary of CEX which
engages in no activities other than in connection with the financing of accounts
receivable and which is designated by the Board of Directors of CEX (as provided
below) as a Receivables Subsidiary (a) no portion of any Indebtedness or any
other obligations (contingent or otherwise) of which, directly or indirectly,
contingently or otherwise, (i) is guaranteed by CEX or CEI or any other
Subsidiary of CEX or CEI (excluding Standard Securities Undertakings), (ii) is
recourse to or obligates CEX or CEI or any other Subsidiary of CEX or CEI in any
way other than pursuant to Standard Securitization Undertakings, or (iii)
subjects any property or asset of CEX or CEI or any other Subsidiary of CEX or
CEI to the satisfaction thereof, other than Standard Securitization
Undertakings, (b) with which neither CEX or CEI nor any other Subsidiary of CEX
or CEI has any material contract, agreement, arrangement or understanding other
than those customarily entered into in connection with Qualified Receivables
Transactions, and (c) with which neither CEX or CEI nor any other Subsidiaries
of CEX or CEI has any obligation, directly or indirectly, contingently or
otherwise, to maintain or preserve such Subsidiary's financial condition or
cause such Subsidiary to achieve certain levels of operating results. Any such
designation by the Board of Directors of the Issuer shall be evidenced to the
Trustee by the filing with the Trustee a certified copy of the resolution of the
Board of Directors of CEX giving effect to such designation and an Officer's
Certificate certifying that such designation complied with the foregoing
conditions.
"Reference Period" with regard to any Person means the four full fiscal
quarters (or such lesser period during which such Person has been in existence)
ended immediately preceding any date upon which any determination is to be made
pursuant to the terms of the Notes or the Indenture.
"Refinanced Parent Convertible Note" means Refinancing Indebtedness
incurred to refinance the Parent Convertible Notes.
"Refinancing Indebtedness" means Indebtedness or Disqualified Capital Stock
(a) issued in exchange for, or the proceeds from the issuance and sale of which
are used substantially concurrently to repay, redeem, defease, refund,
refinance, discharge or otherwise retire for value, in whole or in part, or (b)
constituting an amendment, modification or supplement to, or a deferral or
renewal of ((a) and (b) above are, collectively, a "Refinancing"), any
Indebtedness or Disqualified Capital Stock in a principal amount or, in the case
of Disqualified Capital Stock, liquidation preference, not to exceed (after
deduction of reasonable and customary fees and expenses incurred in connection
with the Refinancing) the lesser of (i) the principal amount or, in the case of
Disqualified Capital Stock, liquidation preference, of the Indebtedness or
Disqualified Capital Stock so Refinanced and (ii) if such Indebtedness being
Refinanced was issued with an original issue discount, the accreted value
thereof (as determined in accordance with GAAP) at the time of such Refinancing;
provided, that (A) such Refinancing Indebtedness shall only be issued to
Refinance outstanding Indebtedness or Disqualified Capital Stock of such person
issuing such Refinancing Indebtedness, (B) such Refinancing Indebtedness shall
(x) not have an Average Life shorter than the Indebtedness or Disqualified
Capital Stock to be so refinanced at the time of such Refinancing and (y) in all
respects, be no less subordinated, if applicable, to the rights of Holders of
the Notes than was the Indebtedness or Disqualified Capital Stock to be
refinanced, and (C) such Refinancing Indebtedness shall have a final stated
maturity or redemption date, as applicable, no earlier than the final stated
maturity or redemption date, as applicable, of the Indebtedness or Disqualified
Capital Stock to be so refinanced.
92
<PAGE> 101
"Related Business" means the business conducted (or proposed to be
conducted) by CEX and its Subsidiaries as of the Issue Date and any and all
businesses that in the good faith judgment of the Board of Directors of CEX are
materially related businesses. Without limiting the generality of the foregoing,
Related Business shall include sales (including by mail) of office products,
computer systems and equipment and office furniture, computer systems consulting
and forms management.
"Related Person" means any Person who controls, is controlled by or is
under common control with an Excluded Person; provided that for purposes of this
definition "control" means the beneficial ownership of more than 50% of the
total voting power of a Person normally entitled to vote in the election of
directors, managers or trustees, as applicable, of a Person.
"Restricted Investment" means, in one or a series of related transactions,
any Investment, other than investments in Cash Equivalents and other Permitted
Investments.
"Restricted Payment" means, with respect to any Person, (a) the declaration
or payment of any dividend or other distribution in respect of Equity Interests
of such Person or CEI or Subsidiary of such person, (b) any payment on account
of the purchase, redemption or other acquisition or retirement for value of
Equity Interests of such Person or any Subsidiary or CEI of such Person, (c)
other than with the proceeds from the substantially concurrent sale of, or in
exchange for, Refinancing Indebtedness, any purchase, redemption, or other
acquisition or retirement for value of, any payment in respect of any amendment
of the terms of or any defeasance of, any Subordinated Indebtedness, directly or
indirectly, by such Person or CEI or Subsidiary of such Person prior to the
scheduled maturity, any scheduled repayment of principal, or scheduled sinking
fund payment, as the case may be, of such Indebtedness and (d) any Restricted
Investment by such person; provided, however, that the term "Restricted Payment"
does not include (i) any dividend, distribution or other payment on or with
respect to Equity Interests of an issuer to the extent payable solely in shares
of Qualified Capital Stock of such issuer; (ii) any dividend, distribution or
other payment to CEX or to any of its Subsidiary Guarantors, by CEX or any of
its Subsidiaries, or to a Foreign Subsidiary which is a direct or indirect
parent of another Foreign Subsidiary, by such Foreign Subsidiary; (iii) loans or
advances to any Subsidiary Guarantor the proceeds of which are used by such
Subsidiary Guarantor in a Related Business activity of such Subsidiary
Guarantor; or (iv) Permitted Investments.
"Senior Debt" of CEX or any Guarantor means Indebtedness (including,
without limitation, all monetary obligations in respect of the New Credit
Facility, and interest, whether or not allowable, accruing on Indebtedness
incurred pursuant to the New Credit Facility at the relevant contractual rate
provided in the New Credit Facility both before and after the filing of a
petition initiating any proceeding under any bankruptcy, insolvency or similar
law) of CEX or such Guarantor arising under the New Credit Facility or that, by
the terms of the instrument creating or evidencing such Indebtedness, is
expressly designated Senior Debt and made senior in right of payment to the
Notes or the applicable Guarantee; provided, that in no event shall Senior Debt
include (a) Indebtedness to any Subsidiary of CEX or any officer, director or
employee of CEX or any Subsidiary of CEX, (b) Indebtedness to the extent the
same is incurred in violation of the covenant "Limitation on Incurrence of
Additional Indebtedness and Disqualified Capital Stock," (c) Indebtedness to
trade creditors, (d) Disqualified Capital Stock, (e) Capitalized Lease
Obligations, (f) any liability for taxes owed or owing by CEX or such Guarantor
or (g) the Parent Convertible Notes or the 9 1/8% Senior Subordinated Notes.
"Significant Subsidiary" shall have the meaning provided under Regulation
S-X of the Securities Act, as in effect on the Issue Date.
"Standard Securitization Undertakings" mean representations, warranties,
covenants and indemnities entered into by CEX or any Subsidiary Guarantor which
are reasonably customary in an accounts receivables transaction.
"Stated Maturity" when used with respect to any Note, means June 1, 2008.
"Subordinated Indebtedness" means Indebtedness of CEX or a Subsidiary
Guarantor that is subordinated in right of payment by its terms or the terms of
any document or instrument relating thereto to the Notes or such Subsidiary
Guarantee, as applicable, in any respect or has a final stated maturity after
the Stated Maturity.
93
<PAGE> 102
"Subsidiary" with respect to any Person, means (i) a corporation a majority
of whose Equity Interests with voting power, under ordinary circumstances, to
elect directors is at the time, directly or indirectly, owned by such Person, by
such Person and one or more Subsidiaries of such Person or by one or more
Subsidiaries of such Person, or (ii) any other Person (other than a corporation)
in which such person, one or more Subsidiaries of such Person, or such Person
and one or more Subsidiaries of such Person, directly or indirectly, at the date
of determination thereof has a majority ownership interest. Notwithstanding the
foregoing, an Unrestricted Subsidiary shall not be a Subsidiary of CEX or of any
Subsidiary of CEX. Unless the context requires otherwise, Subsidiary means each
direct and indirect Subsidiary of CEX.
"Unrestricted Subsidiary" means any Subsidiary that is designated by the
Board of Directors as an Unrestricted Subsidiary pursuant to a Board Resolution;
but only to the extent that such Subsidiary: (a) has no Indebtedness other than
Non-Recourse Indebtedness; (b) is not party to any agreement, contract,
arrangement or understanding with CEX or any Subsidiary of CEX unless the terms
of any such agreement, contract, arrangement or understanding are no less
favorable to CEX or such Subsidiary than those that might be obtained at the
time from Persons who are not Affiliates of Corporate Express; (c) is a Person
with respect to which neither CEX nor any of its Subsidiaries has any direct or
indirect obligation (x) to subscribe for additional Equity Interests or (y) to
maintain or preserve such Person's financial condition or to cause such Person
to achieve any specified levels of operating results; and (d) has not guaranteed
or otherwise directly or indirectly provided credit support for any Indebtedness
of CEX or any of its Subsidiaries. Any such designation by the Board of
Directors will be evidenced to the Trustee by filing with the Trustee a
certified copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing conditions and was permitted by the covenant entitled "Restricted
Payments" hereof. If, at any time, any Unrestricted Subsidiary would fail to
meet the foregoing requirements as an Unrestricted Subsidiary, it will
thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture
and any Indebtedness of such Subsidiary will be deemed to be incurred by a
Subsidiary of CEX as of such date (and, if such Indebtedness is not permitted to
be incurred as of such date under the covenant entitled "Limitation on
Incurrence of Additional Indebtedness and Disqualified Capital Stock" hereof,
CEX will be in default of such covenant). The Board of Directors of CEX may
designate any Unrestricted Subsidiary to be a Subsidiary, provided, that (i) no
Default or Event of Default is existing or will occur as a consequence thereof
and (ii) immediately after giving effect to such designation, on a pro forma
basis, the Issuer could incur at least $1.00 of Indebtedness pursuant to the
Debt Incurrence Ratio in paragraph (a) of the covenant "Limitation on Incurrence
of Additional Indebtedness and Disqualified Capital Stock." Each such
designation shall be evidenced by filing with the Trustee a certified copy of
the resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions.
"U.S. Government Obligations" means direct non-callable obligations of, or
noncallable obligations guaranteed by, the United States of America for the
payment of which obligation or guarantee the full faith and credit of the United
States of America is pledged.
"U.S. Legal Tender Equivalents" means securities issued or directly and
fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof with a maturity of 90 days or less (provided that the
full faith and credit of the United States of America is pledged in support
thereof).
"Wholly Owned Foreign Subsidiary" of any Person means a Foreign Subsidiary
of such Person all of the outstanding Capital Stock or other ownership interests
of which (other than directors' qualifying shares) shall at the time be owned by
such Person or by one or more Wholly Owned Foreign Subsidiaries of such Person
or by such Person and one or more Subsidiary Guarantors of such Person.
"Wholly Owned Subsidiary" of any Person means a Subsidiary of such Person
all of the outstanding Capital Stock or other ownership interests of which
(other than directors' qualifying shares) shall at the time be owned by such
Person or by one or more Wholly Owned Subsidiaries of such Person and one or
more Wholly Owned Subsidiary Guarantors of such Person.
94
<PAGE> 103
BOOK-ENTRY; DELIVERY; FORM AND TRANSFER
The Old Notes sold to Qualified Institutional Buyers initially were in the
form of one or more registered global notes without interest coupons
(collectively, the "U.S. Global Notes"). Upon issuance, the U.S. Global Notes
were deposited with the Trustee, as custodian for DTC in New York, New York, and
registered in the name of DTC or its nominee for credit to the accounts of DTC's
Direct and Indirect Participants. The Old Notes sold in offshore transactions in
reliance on Regulation S, initially were in the form of one or more temporary,
registered, global book-entry notes without interest coupons (the "Reg S
Temporary Global Notes"). The Reg S Temporary Global Notes were deposited with
the Trustee, as custodian for DTC, in New York, New York, and registered in the
name of a nominee of DTC (a "Nominee") for credit to the accounts of Indirect
Participants participating in DTC through the Euroclear System ("Euroclear") and
Cedel Bank, societe anonyme ("CEDEL"). During the 40-day period commencing on
the day after the later of the offering date and the original Issue Date of the
Old Notes (the "40-Day Restricted Period"), beneficial interests in the Reg S
Temporary Global Note may be held only through Euroclear or CEDEL, and, pursuant
to DTC's procedures, Indirect Participants that hold a beneficial interest in
the Reg S Temporary Global Note will not be able to transfer such interest to a
person that takes delivery thereof in the form of an interest in the U.S. Global
Notes. Within a reasonable time after the expiration of the 40-Day Restricted
Period, the Reg S Temporary Global Notes will be exchanged for one or more
permanent global notes (the "Reg S Permanent Global Notes", collectively with
the Reg S Temporary Global Notes, the "Reg S Global Notes") upon delivery to DTC
of certification of compliance with the transfer restrictions applicable to the
Notes and pursuant to Regulation S as provided in the Indenture. After the
40-Day Restricted Period, (i) beneficial interests in the Reg S Permanent Global
Notes may be transferred to a person that takes delivery in the form of an
interest in the U.S. Global Notes and (ii) beneficial interests in the U.S.
Global Notes may be transferred to a person that takes delivery in the form of
an interest in the Reg S Permanent Global Notes, provided, in each case, that
the certification requirements described below are complied with. See "Transfers
of Interests in One Global Note for Interests in Another Global Note." All
registered global notes are referred to herein collectively as "Global Notes."
Beneficial interests in all Global Notes and all Certificated Notes, if
any, will be subject to certain restrictions on transfer and will bear a
restrictive legend as described under "Notice to Investors." In addition,
transfer of beneficial interests in any Global Notes will be subject to the
applicable rules and procedures of DTC and its Direct or Indirect Participants
(including, if applicable, those of Euroclear and CEDEL), which may change from
time to time.
The Global Notes may be transferred, in whole and not in part, only to
another nominee of DTC or to a successor of DTC or its nominee in certain
limited circumstances. Beneficial interests in the Global Notes may be exchanged
for Notes in certificated form in certain limited circumstances. See "Transfer
of Interests in Global Notes for Certificated Notes."
Initially, the Trustee will act as Paying Agent and Registrar. The Notes
may be presented for registration of transfer and exchange at the offices of the
Registrar.
DEPOSITARY PROCEDURES
DTC has advised CEX that DTC is a limited-purpose trust company created to
hold securities for its participating organizations (collectively, the "Direct
Participants") and to facilitate the clearance and settlement of transactions in
those securities between Direct Participants through electronic book-entry
changes in accounts of Participants. The Direct Participants include securities
brokers and dealers (including the Initial Purchasers), banks, trust companies,
clearing corporations and certain other organizations, including Euroclear and
CEDEL. Access to DTC's system is also available to other entities that clear
through or maintain a direct or indirect, custodial relationship with a Direct
Participant (collectively, the "Indirect Participants").
DTC has also advised CEX that, pursuant to DTC's procedures, (i) upon
deposit of the Global Notes, DTC will credit the accounts of the Direct
Participants designated by the Initial Purchasers with portions of the principal
amount of the Global Notes that have been allocated to them by the Initial
Purchasers, and
95
<PAGE> 104
(ii) DTC will maintain records of the ownership interests of such Direct
Participants in the Global Notes and the transfer of ownership interests by and
between Direct Participants. DTC will not maintain records of the ownership
interests of, or the transfer of ownership interests by and between, Indirect
Participants or other owners of beneficial interests in the Global Notes. Direct
Participants and Indirect Participants must maintain their own records of the
ownership interests of, and the transfer of ownership interests by and between,
Indirect Participants and other owners of beneficial interests in the Global
Notes.
Investors in the U.S. Global Notes may hold their interests therein
directly through DTC if they are Direct Participants in DTC or indirectly
through organizations that are Direct Participants in DTC. Investors in the Reg
S Temporary Global Notes may hold their interests therein directly through
Euroclear or CEDEL or indirectly through organizations that are participants in
Euroclear or CEDEL. After the expiration of the 40-Day Restricted Period (but
not earlier), investors may hold interests in the Reg S Global Notes through
organizations other than Euroclear and CEDEL that are Direct Participants in the
DTC system. Morgan Guaranty Trust Company of New York, Brussels office, is the
operator and depository of Euroclear and Citibank, N.A. is the operator and
depository of CEDEL (each a "Nominee" of Euroclear and CEDEL, respectively).
Therefore, they will each be recorded on DTC's records as the holders of all
ownership interests held by them on behalf of Euroclear and CEDEL, respectively.
Euroclear and CEDEL must maintain on their own records the ownership interests,
and transfers of ownership interests of, by and between their own customers'
securities accounts. DTC will not maintain such records. All ownership interests
in any Global Notes, including those of customers' securities accounts held
through Euroclear or CEDEL, may be subject to the procedures and requirements of
DTC.
The laws of some states in the United States require that certain persons
take physical delivery in definitive, certificated form, of securities that they
own. This may limit or curtail the ability to transfer beneficial interests in a
Global Note to such persons. Because DTC can act only on behalf of Direct
Participants, which in turn act on behalf of Indirect Participants and others,
the ability of a person having a beneficial interest in a Global Note to pledge
such interest to persons or entities that are not Direct Participants in DTC, or
to otherwise take actions in respect of such interests, may be affected by the
lack of physical certificates evidencing such interests. For certain other
restrictions on the transferability of the Notes, see "Reg S Temporary and Reg S
Permanent Global Notes" and "-- Transfers of Interests in Global Notes for
Certificated Notes."
EXCEPT AS DESCRIBED IN "TRANSFERS OF INTERESTS IN GLOBAL NOTES FOR
CERTIFICATED NOTES", OWNERS OF BENEFICIAL INTERESTS IN THE GLOBAL NOTES WILL NOT
HAVE NOTES REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTES IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
HOLDERS THEREOF UNDER THE INDENTURE FOR ANY PURPOSE.
Under the terms of the Indenture, CEX, the Guarantors and the Trustee will
treat the persons in whose names the Notes are registered (including Notes
represented by Global Notes) as the owners thereof for the purpose of receiving
payments and for any and all other purposes whatsoever. Payments in respect of
the principal, premium, Liquidated Damages, if any, and interest on Global Notes
registered in the name of DTC or its nominee will be payable by the Trustee to
DTC or its nominee as the registered holder under the Indenture. Consequently,
neither CEX, the Trustee nor any agent of CEX or the Trustee has or will have
any responsibility or liability for (i) any aspect of DTC's records or any
Direct Participant's or Indirect Participant's records relating to or payments
made on account of beneficial ownership interests in the Global Notes or for
maintaining, supervising or reviewing any of DTC's records or any Direct
Participant's or Indirect Participant's records relating to the beneficial
ownership interests in any Global Note or (ii) any other matter relating to the
actions and practices of DTC or any of its Direct Participants or Indirect
Participants.
DTC has advised CEX that its current payment practice (for payments of
principal, interest and the like) with respect to securities such as the Notes
is to credit the accounts of the relevant Direct Participants with such payment
on the payment date in amounts proportionate to such Direct Participant's
respective ownership interests in the Global Notes as shown on DTC's records.
Payments by Direct Participants and Indirect Participants to the beneficial
owners of the Notes will be governed by standing instructions and customary
practices between them and will not be the responsibility of DTC, the Trustee,
CEX or the Guarantors.
96
<PAGE> 105
Neither CEX, the Guarantors nor the Trustee will be liable for any delay by DTC
or its Direct Participants or Indirect Participants in identifying the
beneficial owners of the Notes, and CEX and the Trustee may conclusively rely on
and will be protected in relying on instructions from DTC or its nominee as the
registered owner of the Notes for all purposes.
The Global Notes trade in DTC's Same-Day Funds Settlement System and,
therefore, transfers between Direct Participants in DTC will be effected in
accordance with DTC's procedures, and will be settled in immediately available
funds. Transfers between Indirect Participants (other than Indirect Participants
who hold an interest in the Notes through Euroclear or CEDEL) who hold an
interest through a Direct Participant will be effected in accordance with the
procedures of such Direct Participant but generally will settle in immediately
available funds. Transfers between and among Indirect Participants who hold
interests in the Notes through Euroclear and CEDEL will be effected in the
ordinary way in accordance with their respective rules and operating procedures.
Subject to compliance with the transfer restrictions applicable to the
Notes described herein, cross-market transfers between Direct Participants in
DTC, on the one hand, and Indirect Participants who hold interests in the Notes
through Euroclear or CEDEL, on the other hand, will be effected by Euroclear's
or CEDEL's respective Nominee through DTC in accordance with DTC's rules on
behalf of Euroclear or CEDEL; however, delivery of instructions relating to
crossmarket transactions must be made directly to Euroclear or CEDEL, as the
case may be, by the counterparty in accordance with the rules and procedures of
Euroclear or CEDEL and within their established deadlines (Brussels time for
Euroclear and UK time for CEDEL). Indirect Participants who hold interest in the
Notes through Euroclear and CEDEL may not deliver instructions directly to
Euroclear's or CEDEL's Nominee. Euroclear or CEDEL will, if the transaction
meets its settlement requirements, deliver instructions to its respective
Nominee to deliver or receive interests on Euroclear's or CEDEL's behalf in the
relevant Global Note in DTC, and make or receive payment in accordance with
normal procedures for same-day fund settlement applicable to DTC.
Because of time zone differences, the securities accounts of an Indirect
Participant who holds an interest in the Notes through Euroclear or CEDEL
purchasing an interest in a Global Note from a Direct Participant in DTC will be
credited, and any such crediting will be reported to Euroclear or CEDEL during
the European business day immediately following the settlement date of DTC in
New York. Although recorded in DTC's accounting records as of DTC's settlement
date in New York, Euroclear and CEDEL customers will not have access to the cash
amount credited to their accounts as a result of a sale of an interest in Reg S
Permanent Global Note to a DTC Participant until the European business day for
Euroclear or CEDEL immediately following DTC's settlement date.
DTC has advised CEX that it will take any action permitted to be taken by a
holder of Notes only at the direction of one or more Direct Participants to
whose account interests in the Global Notes are credited and only in respect of
such portion of the aggregate principal amount of the Notes as to which such
Direct Participant or Direct Participants has or have given direction. However,
if there is an Event of Default under the Notes, DTC reserves the right to
exchange Global Notes (without the direction of one or more of its Direct
Participants) for legended Notes in certificated form, and to distribute such
certificated forms of Notes to its Direct Participants. See "Transfers of
Interests in Global Notes for Certificated Notes."
Although DTC, Euroclear and CEDEL have agreed to the foregoing procedures
to facilitate transfers of interests in the Reg S Global Notes and in the U.S.
Global Notes among Direct Participants, including Euroclear and CEDEL, they are
under no obligation to perform or to continue to perform such procedures, and
such procedures may be discontinued at any time. None of CEX, the Guarantors,
the Initial Purchasers or the Trustee shall have any responsibility for the
performance by DTC, Euroclear or CEDEL or their respective Direct and Indirect
Participants of their respective obligations under the rules and procedures
governing any of their operations.
The information in this section concerning DTC, Euroclear and CEDEL and
their book-entry systems has been obtained from sources that CEX believes to be
reliable, but CEX takes no responsibility for the accuracy thereof.
97
<PAGE> 106
REG S TEMPORARY AND REG S PERMANENT GLOBAL NOTES
An Indirect Participant who holds an interest in the Reg S Temporary Global
Notes through Euroclear or CEDEL must provide Euroclear or CEDEL, as the case
may be, with a certificate in the form required by the Indenture certifying that
such Indirect Participant is either not a U.S. Person or has purchased such
interests in a transaction that is exempt from the registration requirements
under the Securities Act, and Euroclear or CEDEL, as the case may be, must
provide to the Trustee (or the Paying Agent, if other than the Trustee) a
certificate in the form required by the Indenture prior to any exchange of such
beneficial interests for beneficial interests in Reg S Permanent Global Notes.
"U.S. Person" means (i) any individual resident in the United States, (ii)
any partnership or corporation organized or incorporated under the laws of the
United States, (iii) any estate of which an executor or administrator is a U.S.
Person (other than an estate governed by foreign law and of which at least one
executor or administrator is a non-U.S. Person who has sole or shared investment
discretion with respect to its assets), (iv) any trust of which any trustee is a
U.S. Person (other than a trust of which at least one trustee is a non-U.S.
Person who has sole or shared investment discretion with respect to its assets
and no beneficiary of the trust (and no settler, if the trust is revocable) is a
U.S. Person), (v) any agency or branch of a foreign entity located in the United
States, (vi) any non-discretionary or similar account (other than an estate or
trust) held by a dealer or other fiduciary for the benefit or account of a U.S.
person, (vii) any discretionary or similar account (other than an estate or
trust) held by a dealer or other fiduciary organized, incorporated or (if an
individual) resident in the United States (other than such an account held for
the benefit or account of a non-U.S. Person), (viii) any partnership or
corporation organized or incorporated under the laws of a foreign jurisdiction
and formed by a U.S. Person principally for the purpose of investing in
securities not registered under the Securities Act (unless it is organized or
incorporated and owned by "accredited investors" within the meaning of Rule
501(a) under the Securities Act who are not natural persons, estates or trusts);
provided, however, that a "U.S. Person" shall not include (A) a branch or agency
of a U.S. Person that is located and operating outside the United States for
valid business purposes as a locally regulated branch or agency engaged in the
banking or insurance business, (B) any employee benefit plan established and
administered in accordance with the law, customary practices and documentation
of a foreign country and (C) the international organizations set forth in
Section 902(o)(7) of Regulation S under the Securities Act and any other similar
international organizations, and their agencies, affiliates and pension plans.
TRANSFERS OF INTERESTS IN ONE GLOBAL NOTE FOR INTERESTS IN ANOTHER GLOBAL NOTE
Prior to the expiration of the 40-Day Restricted Period, an Indirect
Participant who holds an interest in the Reg S Temporary Global Note through
Euroclear or CEDEL will not be permitted to transfer its interest to a U.S.
Person who takes delivery in the form of an interest in U.S. Global Notes. After
the expiration of the 40-Day Restricted Period, an Indirect Participant who
holds an interest in Reg S Global Notes will be permitted to transfer its
interest to a U.S. Person who takes delivery in the form of an interest in U.S.
Global Notes only upon receipt by the Trustee of a written certification from
the transferor to the effect that such transfer is being made in accordance with
the restrictions on transfer set forth under "Notice to Investors" and set forth
in the legend printed on the Reg S Permanent Global Notes.
Prior to the expiration of the 40-Day Restricted Period, a Direct or
Indirect Participant who holds an interest in the U.S. Global Note will not be
permitted to transfer its interests to any person that takes delivery thereof in
the form of an interest in the Reg S Temporary Global Notes. After the
expiration of the 40-Day Restricted Period, a Direct or Indirect Participant who
holds an interest in U.S. Global Notes may transfer its interests to a person
who takes delivery in the form of an interest in Reg S Permanent Global Notes
only upon receipt by the Trustee of a written certification from the transferor
to the effect that such transfer is being made in accordance with Rule 904 of
Regulation S.
Transfers involving an exchange of a beneficial interest in Reg S Global
Notes for a beneficial interest in U.S. Global Notes or vice versa will be
effected by DTC by means of an instruction originated by the Trustee through
DTC/Deposit Withdraw at Custodian (DWAC) system. Accordingly, in connection with
such transfer, appropriate adjustments will be made to reflect a decrease in the
principal amount of the one Global
98
<PAGE> 107
Note and a corresponding increase in the principal amount of the other Global
Note, as applicable. Any beneficial interest in the one Global Note that is
transferred to a person who takes delivery in the form of the other Global Note
will, upon transfer, cease to be an interest in such first Global Note and
become an interest in such other Global Note and, accordingly, will thereafter
be subject to all transfer restrictions and other procedures applicable to
beneficial interests in such other Global Note for as long as it remains such an
interest.
TRANSFERS OF INTERESTS IN GLOBAL NOTES FOR CERTIFICATED NOTES
An entire Global Note may be exchanged for definitive Notes in registered,
certificated form without interest coupons ("Certificated Notes") if (i) DTC (x)
notifies CEX that it is unwilling or unable to continue as depositary for the
Global Notes and CEX thereupon fails to appoint a successor depositary within 90
days or (y) has ceased to be a clearing agency registered under the Exchange
Act, (ii) CEX, at its option, notifies the Trustee in writing that it elects to
cause the issuance of Certificated Notes or (iii) there shall have occurred and
be continuing a Default or an Event of Default with respect to the Notes. In any
such case, CEX will notify the Trustee in writing that, upon surrender by the
Direct and Indirect Participants of their interest in such Global Note,
Certificated Notes will be issued to each person that such Direct and Indirect
Participants and the DTC identify as being the beneficial owner of the related
Notes.
Beneficial interests in Global Notes held by any Direct or Indirect
Participant may be exchanged for Certificated Notes upon request to DTC, by such
Direct Participant (for itself or on behalf of an Indirect Participant), to the
Trustee in accordance with customary DTC procedures. Certificated Notes
delivered in exchange for any beneficial interest in any Global Notes will be
registered in the names, and issued in any approved denominations, requested by
DTC on behalf of such Direct or Indirect Participants (in accordance with DTC's
customary procedures).
In all cases described herein, such Certificated Notes will bear the
restrictive legend referred to in "Notice to Investors," unless CEX determines
otherwise in compliance with applicable law.
Neither CEX, the Guarantors nor the Trustee will be liable for any delay by
the holder of the Global Notes or the DTC in identifying the beneficial owners
of Notes, and CEX and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the holder of the Global Note or the
DTC for all purposes.
TRANSFERS OF CERTIFICATED NOTES FOR INTERESTS IN GLOBAL NOTES
Certificated Notes may be transferred only if the transferor first delivers
to the Trustee a written certificate (and, in certain circumstances, an opinion
of counsel) confirming that, in connection with such transfer, it has complied
with the restrictions on transfer described under "Notice to Investors."
SAME DAY SETTLEMENT AND PAYMENT
The Indenture requires that payments in respect of the Notes represented by
the Global Notes (including principal, premium, if any, interest and Liquidated
Damages, if any) be made by wire transfer of immediately available same day
funds to the accounts specified by the holder of interests in such Global Note.
With respect to Certificated Notes, CEX will make all payments of principal,
premium, if any, interest and Liquidated Damages, if any, by wire transfer of
immediately available same day funds to the accounts specified by the holders
thereof or, if no such account is specified, by mailing a check to each such
holder's registered address. CEX expects that secondary trading in the
Certificated Notes will also be settled in immediately available funds.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
CEX, the Guarantors and Donaldson, Lufkin & Jenrette Securities
Corporation, BT Alex. Brown Incorporated, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, NationsBanc Montgomery Securities LLC, First Chicago Capital
Markets, Inc. and BNY Capital Markets, Inc. (the "Initial Purchasers") entered
99
<PAGE> 108
into the Registration Rights Agreement pursuant to which CEX and the Guarantors
agreed to file a registration statement with the Commission with respect to the
New Notes, of which this Prospectus forms a part (the "Exchange Offer
Registration Statement") within 60 days of the closing of the issuance of the
Old Notes (the "Closing Date"), and use their respective best efforts to have it
declared effective within 120 days of the Closing Date. CEX and the Guarantors
also agreed to use their respective best efforts to cause the Exchange Offer
Registration Statement to be effective continuously, to keep the Exchange Offer
open for a period of not less than 20 business days and cause the Exchange Offer
to be consummated no later than the 30th business day after it is declared
effective by the Commission. Pursuant to the Exchange Offer, certain holders of
the Notes which constitute Transfer Restricted Securities may exchange their
Transfer Restricted Securities for registered New Notes. To participate in the
Exchange Offer, each holder must represent that it is not an affiliate of CEX,
it is not engaged in, and does not intend to engage in, and has no arrangement
or understanding with any person to participate in, a distribution of the New
Notes and it is acquiring the New Notes in its ordinary course of business.
If (i) the Exchange Offer is not permitted by applicable law or Commission
policy or (ii) any holder of the Notes which are Transfer Restricted Securities
notifies CEX prior to the 20th business day following the consummation of the
Exchange Offer that (a) it is prohibited by law or Commission policy from
participating in the Exchange Offer, (b) it may not resell the New Notes
acquired by it in the Exchange Offer to the public without delivering a
prospectus, and the prospectus contained in the Exchange Offer Registration
Statement is not appropriate or available for such resales by it, or (c) it is a
broker-dealer and holds the Notes acquired directly from CEX or any of CEX's
affiliates, CEX and the Guarantors will file with the Commission a Shelf
Registration Statement to register for public resale the Transfer Restricted
Securities held by any such holder who provides CEX with certain information for
inclusion in the Shelf Registration Statement.
For the purposes of the Registration Rights Agreement, "Transfer Restricted
Securities" means each Note until the earliest on the date of which (i) such
Note is exchanged in the Exchange Offer and entitled to be resold to the public
by the holder thereof without complying with the prospectus delivery
requirements of the Securities Act, (ii) such Note has been disposed of in
accordance with the Shelf Registration Statement, (iii) such Note is disposed of
by a Broker-Dealer pursuant to the "Plan of Distribution" contemplated by the
Exchange Offer Registration Statement (including delivery of the Prospectus
contained therein) or (iv) such Note is distributed to the public pursuant to
Rule 144 under the Securities Act.
The Registration Rights Agreement provides that (i) if CEX and the
Guarantors fail to file an Exchange Offer Registration Statement with the
Commission on or prior to the 60th day after the Closing Date, (ii) if the
Exchange Offer Registration Statement is not declared effective by the
Commission on or prior to the 120th day after the Closing Date, (iii) if the
Exchange Offer is not consummated on or before the 30th business day after the
Exchange Offer Registration Statement is declared effective, (iv) if obligated
to file the Shelf Registration Statement and CEX and the Guarantors fail to file
the Shelf Registration Statement with the Commission on or prior to the 30th
business day after such filing obligation arises, (v) if obligated to file a
Shelf Registration Statement and the Shelf Registration Statement is not
declared effective on or prior to the 90th day after the obligation to file a
Shelf Registration Statement arises, or (vi) if the Exchange Offer Registration
Statement or the Shelf Registration Statement, as the case may be, is declared
effective but thereafter ceases to be effective or useable in connection with
resales of the Transfer Restricted Securities, for such time of
non-effectiveness or non-usability (each, a "Registration Default"), CEX and the
Guarantors agree to pay to each holder of Transfer Restricted Securities
affected thereby liquidated damages ("Liquidated Damages") in an amount equal to
$0.05 per week per $1,000 in principal amount of Transfer Restricted Securities
held by such holder for each week or portion thereof that the Registration
Default continues for the first 90 day period immediately following the
occurrence of such Registration Default. The amount of the Liquidated Damages
shall increase by an additional $0.05 per week per $1,000 in principal amount of
Transfer Restricted Securities at the beginning of and for each subsequent 90
day period until all Registration Defaults have been cured, up to a maximum
amount of Liquidated Damages of $0.50 per week, per $1,000 in principal amount
of Transfer Restricted Securities. CEX and the Guarantors shall not be required
to pay Liquidated Damages for more than one Registration Default at any given
time. Following the cure of all Registration Defaults, the accrual of Liquidated
Damages will cease.
100
<PAGE> 109
All accrued Liquidated Damages shall be paid by CEX or the Guarantors to
holders entitled thereto in the same manner as interest payments on the Notes on
semi-annual damages payment dates which correspond to interest payment dates for
the Notes.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account in
connection with the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. This Prospectus, as
it may be amended or supplemented from time to time, may be used by
Participating Broker-Dealers during the period referred to below in connection
with resales of New Notes received in exchange for Old Notes if such Old Notes
were acquired by such Participating Broker-Dealers for their own accounts as a
result of market-making activities or other trading activities. CEX has agreed
that this Prospectus, as it may be amended or supplemented from time to time,
may be used by a Participating Broker-Dealer in connection with resales of such
New Notes for a period ending one year after the Expiration Date (subject to
extension under certain limited circumstances described herein) or, if earlier,
when all such New Notes have been disposed of by such Participating
Broker-Dealer. However, a Participating Broker-Dealer who intends to use this
Prospectus in connection with the resale of New Notes received in exchange for
Old Notes pursuant to the Exchange Offer must notify CEX, or cause CEX to be
notified, on or prior to the Expiration Date, that it is a Participating
Broker-Dealer. Such notice may be given in the space provided for that purpose
in the Letter of Transmittal or may be delivered to the Exchange Agent at one of
the addresses set forth herein under "The Exchange Offer -- Exchange Agent." See
"The Exchange Offer -- Resales of New Notes."
CEX will not receive any cash proceeds from the issuance of the New Notes
offered hereby. New Notes received by broker-dealers for their own accounts in
connection with the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes.
Any broker-dealer that resells New Notes that were received by it for its
own account in connection with the Exchange Offer and any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act, and any profit on any
such resale of New Notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
LEGAL MATTERS
The validity of the Notes offered hereby will be passed upon on behalf of
Corporate Express by Ballard Spahr Andrews & Ingersoll, LLP, Philadelphia,
Pennsylvania.
INDEPENDENT ACCOUNTANTS
The consolidated financial statements of Corporate Express as of January
31, 1998, March 1, 1997 and March 2, 1996 and for the eleven month period ended
January 31, 1998, and the three years in the period ended March 1, 1997 have
been audited by PricewaterhouseCoopers LLP, independent accountants, as stated
in their report appearing in Corporate Express' Annual Report on Form 10-K/A as
filed on October 23, 1998.
101
<PAGE> 110
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents have been filed with the Commission and are
incorporated in this Prospectus by reference and made a part hereof:
1. Corporate Express' Annual Report on Form 10-K for the fiscal year
ended January 31, 1998, as amended by the Form 10-K/A filed on October 23,
1998.
2. Corporate Express' Quarterly Reports on Form 10-Q for the fiscal
quarters ended May 2, 1998 and August 1, 1998.
3. Corporate Express' Current Reports on Form 8-K filed on May 7, 1998
and July 29, 1998, respectively, as amended by the Form 8-K/A filed on
October 23, 1998.
All documents filed by CEI pursuant to Sections 13(a), 13(c), 14 or 15(d)
of the Exchange Act subsequent to the date of this Statement shall be deemed to
be incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such documents. Any statement contained herein or in any
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for the purposes of this Prospectus to the
extent that a statement contained herein or in any other subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed to constitute a part of this Prospectus, except
as so modified or superseded. Corporate Express will provide without charge upon
written request, a copy of any or all of the information that has been
incorporated by reference in this Prospectus (excluding exhibits to such
information which are not specifically incorporated by reference into such
information). Any such request should be directed to the Secretary of CEI at 1
Environmental Way, Broomfield, Colorado 80021.
AVAILABLE INFORMATION
CEX and the Subsidiary Guarantors are not subject to the periodic reporting
and other informational requirements of the Exchange Act. However, CEI is
subject to such requirements and, in accordance therewith, files reports, proxy
statements and other information with the Commission. The reports, proxy
statements and other information filed by CEI with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and
should be available at the Commission's regional offices at 7 World Trade
Center, 13th Floor, New York, New York 10048 and 500 West Madison Street, Suite
1400, Chicago, Illinois 60621. Copies of such material can also be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, the Commission
maintains a Web site (www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission.
The Indenture provides that CEI will, at certain times, deliver certain
reports to the Trustee under the Indenture and to each holder of the Notes,
including certain of the reports referred to above. See "Description of
Notes -- Reports."
CEI's Common Stock is traded on the Nasdaq National Market under the symbol
"CEXP." Reports, proxy statements and other information concerning CEI may be
inspected at the offices of the Nasdaq National Market.
102
<PAGE> 111
GLOSSARY
"Acceleration Notice" means the written notice to CEX by either the Trustee
or the Holders of at least 25% in aggregate principal amount of the Notes then
outstanding, declaring all principal and accrued interest thereon to be due and
payable immediately.
"Acquired Indebtedness" -- See "Description of the Notes -- Certain
Definitions."
"Acquisition" -- See "Description of the Notes -- Certain Definitions."
"Additional Notes" means the issuance of additional notes having identical
terms and conditions to the Old Notes, as provided in the Indenture.
"Affiliate" -- See "Description of the Notes -- Certain Definitions."
"Affiliate Transaction" means any CEX or Subsidiary of CEX contract,
agreement, arrangement or transaction with any Affiliate.
"Agent's Message" means a message transmitted by DTC to and received by the
Exchange Agent and forming a part of a book-entry confirmation, which states
that DTC has received an express acknowledgment from the tendering participant,
which acknowledgment states that such participant has received and agrees to be
bound by the Letter of Transmittal and that CEX may enforce such Letter of
Transmittal against such participant.
"ASAP" means ASAP Software Express, Inc.
"Asset Sale" means any conveyance, sale, transfer, assignment or other
disposition of, directly or indirectly, any of CEX's or a Subsidiary's property,
business or assets, including by merger or consolidation (in the case of a
Subsidiary of CEX), and including any sale or other transfer or issuance of any
Equity Interests of any Subsidiary of CEX, whether by CEX or a Subsidiary of
either or through the issuance, sale or transfer of any Equity Interest by a
Subsidiary of CEX.
"Asset Sale Offer" means the offer to (i) purchase or redeem Indebtedness
with the proceeds from an Asset Sale, within 330 days after the date of an Asset
Sale, or (ii) repurchase Notes, and, at CEX's option, other Indebtedness of CEX
ranking on a parity with the Notes, within 360 days after the date of each Asset
Sale.
"Asset Sale Offer Amount" means the Net Cash Proceeds from an Asset Sale.
"Asset Sale Offer Period" means the 20 business days for which the Asset
Sale Offer shall remain open.
"Asset Sale Offer Price" means the purchase price of 100% of principal
amount (or accreted value in the case of Indebtedness issued with an original
issue discount) of an Asset Sale Offer.
"Assets to Be Disposed of" -- See "Description of the Notes -- Certain
Definitions."
"ATOP" means DTC's Automated Tender Offer Program.
"Average Life" See "Description of the Notes -- Certain Definitions."
"Banks" means the First National Bank of Chicago, as syndication agent; The
Bank of New York, as co-documentation agent; DLJ Capital Funding, Inc., as
co-documentation agent; and Bankers Trust Company, as administrative agent under
the Parent's New Credit Facility.
"Beneficial Owner" or "beneficial owner" -- See "Description of the
Notes -- Certain Definitions."
"Board of Directors" -- See "Description of the Notes -- Certain
Definitions."
"BR" means base rate of interest.
"Business Day" -- See "Description of the Notes -- Certain Definitions."
"Capital Contribution" -- See "Description of the Notes -- Certain
Definitions."
103
<PAGE> 112
"Capitalized Lease Obligation" -- See "Description of the Notes -- Certain
Definitions."
"Capital Stock" -- See "Description of the Notes -- Certain Definitions."
"Cash Equivalent" -- See "Description of the Notes -- Certain Definitions."
"CEDEL" means Cedel Bank, societe anonyme.
"Certificate of Foreign Status" means an Internal Revenue Service Form W-8
or other documentary evidence, certifying that a holder is an exempt foreign
person.
"Certificated Notes" means a Note in registered, certificated form without
interest coupons.
"CEI" means Corporate Express, Inc.
"CEX" means CEX Holdings, Inc., a wholly-owned subsidiary of Corporate
Express, Inc.
"Change of Control" means (i) any merger or consolidation of CEX or CEI
with or into any Person or any sale, transfer or other conveyance, whether
direct or indirect, of all or substantially all of the assets of CEX or CEI, on
a consolidated basis, in one transaction or a series of related transactions,
if, immediately after giving effect to such transaction(s), any "person" or
"group" (as such terms are used for purposes of Sections 13(d) and 14(d) of the
Exchange Act, whether or not applicable) is or becomes the "beneficial owner,"
directly or indirectly, of more than 50% of the total voting power in the
aggregate normally entitled to vote in the election of directors, managers, or
trustees, as applicable, of the transferee(s) or surviving entity or entities,
(ii) any "person" or "group" (as such terms are used for purposes of Sections
13(d) and 14(d) of the Exchange Act, whether or not applicable) is or becomes
the "beneficial owner," directly or indirectly, of more than 50% of the total
voting power in the aggregate of all classes of Capital Stock of CEX (other than
CEI so long as CEI owns 100% of such voting power) or CEI then outstanding
normally entitled to vote in elections of directors, (iii) during any period of
12 consecutive months after the Issue Date, individuals who at the beginning of
any such 12-month period constituted the Board of Directors of either CEX or CEI
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the shareholders of CEX or CEI, as applicable,
was approved by a vote of a majority of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved, including new directors
designated in or provided for in an agreement regarding the merger,
consolidation or sale, transfer or other conveyance, of all or substantially all
of the assets of CEX or CEI, if such agreement was approved by a vote of such
majority of directors) cease for any reason to constitute a majority of the
Board of Directors of CEX or CEI then in office, as applicable, or (iv) CEI
ceases to own 100% of the Equity Interests of CEX.
"Change in Control Offer" means that, in the event that a Change of Control
has occurred, subject to certain optional redemption provisions, each Holder of
Notes will have the right, at such Holder's option, pursuant to an offer
(subject only to conditions required by applicable law, if any) by CEX, to
require CEX to repurchase all or any part of such Holder's Notes (provided, that
the principal amount of such Notes must be $1,000 or an integral multiple
thereof).
"Change in Control Offer Period" means the 20 business days for which the
Change in Control Offer shall remain open.
"Change in Control Purchase Date" means the date, that shall be no later
than 40 business days after the occurrence of a Change of Control.
"Change in Control Purchase Price" means the cash price equal to 101% of
the principal amount of a Holder's Notes, together with accrued and unpaid
interest and liquidated damage if any, to the Change in Control Purchase Date.
"Claim" -- See "Description of the Notes -- Certain Definitions."
"Closing Date" means the date within 60 days of the closing of the issuance
of the Old Notes.
"Commission" means the Securities and Exchange Commission
104
<PAGE> 113
"Consent Solicitation" means CEX's solicitation of consents to certain
indenture amendments, which expired on May 13, 1998.
"Consolidated Coverage Ratio" -- See "Description of the Notes -- Certain
Definitions."
"Consolidated EBITDA" -- See "Description of the Notes -- Certain
Definitions."
"Consolidated Fixed Charges" -- See "Description of the Notes -- Certain
Definitions."
"Consolidated Leverage Ratio" -- See "Description of the Notes -- Certain
Definitions."
"Consolidated Net Income" -- See "Description of the Notes -- Certain
Definitions."
"Consolidated Subsidiary" -- See "Description of the Notes -- Certain
Definitions."
"Convertible Notes" means CEI's 4 1/2% Convertible Notes due July 2000.
"Core Operating Software" means the internally developed product
distribution software used by CEX and its Subsidiaries.
"Corporate Express" means CEI, CEX and all their respective domestic and
foreign subsidiaries.
"Covenant Defeasance" means the election by CEX, at its option and at any
time, to have the obligations of CEX and Guarantors released with respect to
certain covenants that are described in the Indenture.
"DDI" means Data Documents Incorporated.
"Debt Incurrence Ratio" means a Consolidated Coverage Ratio of CEX for the
Reference Period immediately preceding the Incurrence Date of 2.0 to 1.0.
"Delivery" means U.S. Delivery Systems, Inc.
"Designated Senior Debt" -- See "Description of the Notes -- Certain
Definitions."
"Direct Participants" means participating organizations in DTC's book-entry
transfer facility system.
"Disqualified Capital Stock" -- See "Description of the Notes -- Certain
Definitions."
"Disqualified Preferred Stock" -- See "Description of the Notes -- Certain
Definitions."
"DTC" means the Depository Trust Company.
"Eligible Institution" includes (i) a bank; (ii) a broker, dealer,
municipal securities broker or dealer or government securities broker or dealer,
(iii) a credit union; (iv) a national securities exchange, registered securities
association or clearing agency; or (v) a savings association that is a
participant in a Securities Transfer Association.
"Equity Interest" -- See "Description of the Notes -- Certain Definitions."
"Euroclear" means the Euroclear System.
"Excess Proceeds" means the accumulated Net Cash Proceeds from Asset Sales
not applied as set forth in "Description of the Notes -- Certain
Covenants -- Limitation on Sale of Assets and Subsidiary Stock."
"Exchange Act" means the Securities Exchange Act of 1934, as amended .
"Exchange Agent" means the exchange agent with respect to the Exchange
Offer which is The Bank of New York.
"Exchange Offer" means the offer, upon the terms and subject to the
conditions set forth in this Prospectus and in the accompanying Letter of
Transmittal, to exchange the New Notes for a like principal amount of
outstanding Old Notes.
"Exchange Offer Registration Statement" means the registrations statement
filed with the Commission with respect to the New Notes, of which the Prospectus
forms a part.
105
<PAGE> 114
"Excluded Subsidiary" -- See "Description of the Notes -- Certain
Definitions."
"Exempted Affiliate Transaction" -- See "Description of the
Notes -- Certain Definitions."
"Existing Assets" -- See "Description of the Notes -- Certain Definitions."
"Existing Indebtedness" -- See "Description of the Notes -- Certain
Definitions."
"Existing Restricted Investments" means investments that, but for the fact
that such Investments were made prior to the Issue Date, would be Restricted
Investments.
"Expiration Date" means 5:00 P.M., New York time, on , 1998,
unless the Exchange Offer is extended by CEX, in which case the term "Expiration
Date" shall mean the latest date and time to which the Exchange Offer is
Extended.
"Finance Subsidiary" -- See "Description of the Notes -- Certain
Definitions."
"Finance Subsidiary Indebtedness" -- See "Description of the
Notes -- Certain Definitions."
"Foreign Subsidiary" -- See "Description of the Notes -- Certain
Definitions."
"40-Day Restricted Period" means the 40-day period commencing on the date
after the later of the offering date and the original Issue Date of the Old
Notes.
"GAAP" -- See "Description of the Notes -- Certain Definitions."
"Global Notes" means all registered global notes.
"Guarantees" means the guarantees by CEI and the Subsidiary Guarantors on a
senior subordinated basis.
"Guarantors" means CEI and CEX's Subsidiaries and any future Subsidiaries,
other than Receivables Subsidiaries, Finance Subsidiaries, Excluded
Subsidiaries, Foreign Subsidiaries and Unrestricted Subsidiaries
"HMI" means Hermann Marketing, Inc.
"Incurrence Date" means the date of incurrence of any Indebtedness by CEX,
any Subsidiary Guarantor or any Subsidiary.
"Indebtedness" -- See "Description of the Notes -- Certain Definitions."
"Indenture" means the indenture governing the Notes, dated May 29, 1998, by
and among CEX, CEI, the subsidiary Guarantors and the Trustee.
"Indirect Participants" means the entities, other than Direct Participants,
that clear through or maintain a direct or indirect, custodial relationship with
a Direct Participant.
"Initial Purchasers" means Donaldson, Lufkin & Jenrette Securities
Corporation, BT Alex. Brown Incorporated, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, NationsBanc Montgomery Securities LLC, First Chicago Capital
Markets, Inc. and BNY Capital Markets, Inc.
"Interest Swap and Hedging Obligation" -- See "Description of the
Notes -- Certain Definitions."
"Investment" -- See "Description of the Notes -- Certain Definitions."
"Issue Date" -- See "Description of the Notes -- Certain Definitions."
"Joyce" means Joyce International, Inc.'s office products division.
"Junior Securities" -- See "Description of the Notes -- Certain
Definitions."
"Legal Defeasance" means the election by CEX, at its option, to have its
obligations and the obligations of the Guarantors discharged with respect to the
outstanding Notes.
"Letter of Transmittal" means the Letter of Transmittal and instructions
thereto accompanying the Prospectus.
106
<PAGE> 115
"Lien" -- See "Description of the Notes -- Certain Definitions."
"Liquidated Damages" means the liquidated damages under the Registration
Rights Agreement.
"Lucas" means Lucas Bros., Inc.
"9 1/8% Notes" means CEX's 9 1/8% Senior Subordinated Notes due 2004.
"Net Cash Proceeds" -- See "Description of the Notes -- Certain
Definitions."
"New Credit Facility" -- See "Description of the Notes -- Certain
Definitions."
"New Notes" means $350,000,000 aggregate principal amount of CEX's 9 5/8%
Series B Senior Subordinated Notes due 2008.
"Nimsa" means Nimsa S.A.
"Non-Recourse Indebtedness" -- See "Description of the Notes -- Certain
Definitions."
"NOLs" means net operating losses.
"Nominee" means a nominee of DTC.
"Notes" means the Old Notes and the New Notes.
"Obligation" -- See "Description of the Notes -- Certain Definitions."
"Old Credit Facility" means Corporate Express' previous credit facility.
"Old Notes" means $350,000,000 aggregate principal amount of CEX's 9 5/8%
Series A Senior Subordinated Notes due 2008.
"Old Note Offering" means Corporate Express' sale of $350,000,000 principal
amount of the Old Notes consummated on May 29, 1998.
"Officer's Certificate" -- See "Description of the Notes -- Certain
Definitions."
"Parent Consolidated Leverage Ratio" -- See "Description of the
Notes -- Certain Definitions."
"Parent Convertible Notes" -- See "Description of the Notes -- Certain
Definitions."
"Participating Broker-Dealer" means Broker-Dealers who acquired Old Notes
for their own accounts, as a result of market-making activities or other trading
activities.
"Payment Blockage Period" means the 179 day period after the Payment Notice
is delivered.
"Payment Default" means an event of default in the payment of any principal
of, premium, if any, or interest on Senior Debt of CEX or a Guarantor (and, in
the case of Senior Debt under the New Credit Facility, any other monetary
obligation in respect thereof) when it becomes due and payable, whether at
maturity, a scheduled payment date, or at a dated fixed for prepayment or by
declaration or otherwise.
"Payment Notice" means written notice of an event of default (other than a
Payment Default) given to the Trustee by the holders (or a trustee, agent or
other representative of such holders) of Designated Senior Debt.
"Permitted Indebtedness" -- See "Description of the Notes -- Certain
Definitions."
"Permitted Investment" -- See "Description of the Notes -- Certain
Definitions."
"Permitted Lien" -- See "Description of the Notes -- Certain Definitions."
"Permitted Payments to CEI" -- See "Description of the Notes -- Certain
Definitions."
"Proceeding" means any threatened, pending, or completed action, suit or
proceeding whether civil, criminal, administrative or investigative and whether
formal or informal
"Prospectus" means this prospectus as the same may be amended or
supplemented from time to time.
107
<PAGE> 116
"Public Equity Offering" -- See "Description of the Notes -- Certain
Definitions."
"Purchase Money Indebtedness" -- See "Description of the Notes -- Certain
Definitions."
"Qualified Capital Stock" -- See "Description of the Notes -- Certain
Definitions."
"Qualified Exchange" -- See "Description of the Notes -- Certain
Definitions."
"Qualified Receivables Transaction" -- See "Description of the
Notes -- Certain Definitions."
"Receivables Subsidiary" -- See "Description of the Notes -- Certain
Definitions."
"Reference Period" -- See "Description of the Notes -- Certain
Definitions."
"Refinanced Parent Convertible Note" -- See "Description of the
Notes -- Certain Definitions."
"Refinancing Indebtedness" -- See "Description of the Notes -- Certain
Definitions."
"Reg S Global Notes" means the Reg S Permanent Global Notes and the Reg S
Temporary Global Notes.
"Reg S Permanent Global Notes" means the permanent global notes which will
be exchanged for the Reg S Temporary Global Notes within a reasonable time after
the expiration of the 40-Day Restricted Period.
"Reg S Temporary Global Notes" means the Old Notes sold in offshore
transactions in reliance on Regulation S, that were initially in the form of one
or more temporary, registered, global book-entry notes without interest coupons.
"Registration Default" means (i) if CEX and the Guarantors fail to file an
Exchange Offer Registration Statement with the Commission on or prior to the
60th day after the Closing Date, (ii) if the Exchange Offer Registration
Statement is not declared effective by the Commission on or prior to the 120th
day after the Closing Date, (iii) if the Exchange Offer is not consummated on or
before the 30th business day after the Exchange Offer Registration Statement is
declared effective, (iv) if obligated to file the Shelf Registration Statement
and CEX and the Guarantors fail to file the Shelf Registration Statement with
the Commission on or prior to the 30th business day after such filing obligation
arises, (v) if obligated to file a Shelf Registration Statement and the Shelf
Registration Statement is not declared effective on or prior to the 90th day
after the obligation to file a Shelf Registration Statement arises, or (vi) if
the Exchange Offer Registration Statement or the Shelf Registration Statement,
as the case may be, is declared effective but thereafter ceases to be effective
or useable in connection with resales of the Transfer Restricted Securities, for
such time of non-effectiveness or non-usability.
"Registration Rights Agreement" means if the Registration Rights Agreement,
dated as of May 29, 1998, among CEX, the Guarantors and the Initial Purchasers.
"Related Business" -- See "Description of the Notes -- Certain
Definitions."
"Related Person" -- See "Description of the Notes -- Certain Definitions."
"Restricted Investment" -- See "Description of the Notes -- Certain
Definitions."
"Restricted Payment" -- See "Description of the Notes -- Certain
Definitions."
"Revolving Loan Facility" means $750,000,000 of revolving loans under a
revolving credit facility provided for under the New Credit Facility.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Debt" -- See "Description of the Notes -- Certain Definitions."
"Share Repurchase" means CEI's purchase of 35,000,000 shares of its
outstanding common stock at a price of $10.75 per share pursuant to a Dutch
Auction tender offer during April, 1998.
"Shelf Registration Statement" means a registration statement filed with
the Commission to register for public resale the Transfer Restricted Securities.
108
<PAGE> 117
"Significant Subsidiary" -- See "Description of the Notes -- Certain
Definitions."
"Sofco" means Sofco-Mead, Inc.
"Standard Securitization Undertakings" -- See "Description of the
Notes -- Certain Definitions."
"Stated Maturity" -- See "Description of the Notes -- Certain Definitions."
"Subordinated Indebtedness" -- See "Description of the Notes - Certain
Definitions."
"Subsidiary" -- See "Description of the Notes - Certain Definitions."
"Subsidiary Guarantors" means all of CEX's present and future Subsidiaries
other than Receivables Subsidiaries, Finance Subsidiaries, Excluded
Subsidiaries, Foreign Subsidiaries and Unrestricted Subsidiaries.
"Term Loan Facility" means $250,000,000 term loan facility provided for
under the New Credit Facility.
"Tender Offer" means CEX's tender offer for all of its outstanding $90
million principal amount of 9 1/8% Notes due 2004, which expired on May 28,
1998.
"Transfer" means the sale (including by merger, consolidation or issuance),
transfer, assignment, license, sublicense or other disposal of any software,
trademark or other intellectual property.
"Transfer Restricted Securities" means each Note until the earliest on the
date of which (i) such Note is exchanged in the Exchange Offer and entitled to
be resold to the public by the holder thereof without complying with prospectus
delivery requirements of the Securities Act, (ii) such Note has been disposed of
in accordance with the Shelf Registration Statement, (iii) such Note is disposed
of by a Broker-Dealer pursuant to the "Plan of Distribution' contemplated by the
Exchange Offer Registration Statement (including delivery of the Prospectus
contained therein) or (iv) such Note is distributed to the public pursuant to
Rule 144 under the Securities Act.
"Trustee" means The Bank of New York.
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.
"United States holder" means an individual who is a citizen or resident of
the United States, a corporation or partnership created or organized under the
laws of the United States or any state or political subdivision thereof, or a
person or other entity who is otherwise subject to United States Federal income
taxation on a net income basis in respect of income derived from the New Notes.
"Unrestricted Subsidiary" -- See "Description of the Notes - Certain
Definitions."
"U.S. Global Notes" means the Old Notes sold to qualified institutional
buyers that were initially in the form of one or more registered global notes
without interest coupons.
"U.S. Government Obligations" -- See "Description of the Notes - Certain
Definitions."
"U.S. Legal Tender Equivalents" -- See "Description of the Notes - Certain
Definitions."
"U.S. Person" means (i) any individual resident in the United States, (ii)
any partnership or corporation organized or incorporated under the laws of the
United States, (iii) any estate of which an executor or administrator is a U.S.
Person (other than an estate governed by foreign law and of which at least one
executor or administrator is a non-U.S. Person who has sole or shared investment
discretion with respect to its assets), (iv) any trust of which any trustee is a
U.S. Person (other than a trust of which at least one trustee is a non-U.S.
Person who has sole or shared investment discretion with respect to its assets
and no beneficiary of the trust (and no settler, if the trust is revocable) is a
U.S. Person), (v) any agency or branch of a foreign entity located in the United
States, (vi) any non-discretionary or similar account (other than an estate or
trust) held by a dealer or other fiduciary for the benefit or account of a U.S.
person, (vii) any discretionary or similar account (other than an estate or
trust) held by a dealer or other fiduciary organized, incorporated or (if any
individual) resident in the United States (other than such an account held for
the benefit or account of a non-U.S. Person), (viii) any partnership or
corporation organized or incorporated under the laws of a foreign jurisdiction
and formed by a U.S. Person principally for the purpose of investing in
securities not registered under the Securities Act (unless it is organized or
incorporated and owned by "accredited investors" within the meaning of Rule
501(a) under the Securities Act who are not natural persons, estates or trusts),
provided,
109
<PAGE> 118
however, that a "U.S. Person" shall not include (A) a branch or agency of a U.S.
Person that is located and operating outside the United States for valid
business purposes as a locally regulated branch or agency engaged in the banking
or insurance business, (B) any employee benefit plan established and
administered in accordance with the law, customary practices and documentation
of a foreign country and (C) the international organizations set forth in
Section 902(o)(7) of Regulation S under the Securities Act and any other similar
international organizations, and their agencies, affiliates and pension plans.
"UT" means United TransNet, Inc.
"Wholly Owned Foreign Subsidiary" -- See "Description of the
Notes - Certain Definitions."
"Wholly Owned Subsidiary" -- See "Description of the Notes - Certain
Definitions."
"Young" means Richard Young Journal, Inc.
110
<PAGE> 119
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY CORPORATE EXPRESS. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY
SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES, NOR DOES IT CONSTITUTE
AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, IN WHICH THE
PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS OR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF CORPORATE EXPRESS SINCE THE DATE HEREOF OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................... 1
Risk Factors.......................... 13
The Exchange Offer.................... 20
Certain Federal Income Tax
Consequences........................ 29
Use of Proceeds....................... 30
Capitalization........................ 31
Unaudited Pro Forma Consolidated
Financial Data...................... 32
Selected Consolidated Financial
Data................................ 35
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 37
Business.............................. 51
Management............................ 61
Description of the New Credit
Facility............................ 63
Description of the Notes.............. 65
Plan of Distribution.................. 101
Legal Matters......................... 101
Independent Accountants............... 101
Incorporation of Certain Documents by
Reference........................... 102
Available Information................. 102
Glossary.............................. 103
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$350,000,000
CEX HOLDINGS, INC.
9 5/8% SERIES B SENIOR SUBORDINATED
NOTES DUE 2008
---------------------
PROSPECTUS
---------------------
, 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 120
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 7-109-101, et seq., of the Colorado Business Corporation Act
generally provides that a corporation may indemnify its directors, officers,
employees, fiduciaries and agents against liabilities and reasonable expenses
incurred in connection with any threatened, pending, or completed action, suit
or proceeding whether civil, criminal, administrative or investigative and
whether formal or informal (a "Proceeding"), by reason of being or having been a
director, officer, employee, fiduciary or agent of the corporation, if such
person acted in good faith and reasonably believed that his conduct, in his
official capacity, was in the best interests of the corporation (or, with
respect to employee benefit plans, was in the best interests of the participants
of the plan), and in all other cases his conduct was at least not opposed to the
corporation's best interests. In the case of a criminal proceeding, the
director, officer, employee, fiduciary or agent must have had no reasonable
cause to believe his conduct was unlawful. Under Colorado law, the corporation
may not indemnify a director, officer, employee, fiduciary or agent in
connection with a Proceeding by or in the right of the corporation if the
director is adjudged liable to the corporation, or in a proceeding in which the
director, officer, employee or agent is adjudged liable for an improper personal
benefit.
Corporate Express, Inc.'s Articles of Amendment and Restatement and By-Laws
provide that Corporate Express, Inc. shall indemnify its officers and directors
to the full extent permitted by the law. The indemnification provisions in
Corporate Express, Inc.'s By-Laws are substantially similar to the provisions of
Section 7-109-101, et seq. Corporate Express, Inc. has entered into agreements
to provide indemnification for its directors and certain officers consistent
with its Articles of Amendment and Restatement and By-Laws.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
The following exhibits are incorporated in this Registration Statement by
reference or included and submitted with this Registration Statement, as
indicated. Except as otherwise noted, the exhibit has previously been filed or
incorporated by reference as an exhibit to Corporate Express, Inc.'s Annual
Report on Form 10-K for the transition period ended January 31, 1998, and is
incorporated herein by reference.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 -- Articles of Amendment and Restatement of the Articles of
Incorporation of Corporate Express, Inc., a Colorado
corporation ("Corporate Express"), filed on September 30,
1994.
3.2 -- Articles of Amendment and Restatement of Corporate
Express, filed on August 22, 1996.
3.3 -- Amended and Restated By-Laws of Corporate Express.
*3.4 -- Articles of Incorporation of CEX Holdings, Inc.
*3.5 -- By-laws of CEX Holdings, Inc.
4.1 -- Specimen Common Stock Certificate of Corporate Express.
4.2 -- Form of Warrant Agreement.
4.3 -- Indenture dated as of February 28, 1994 by and among
Corporate Express, and the Guarantors named therein and
First Trust National Association for the $100,000,000
9 1/8% Senior Subordinated Notes.
*4.4 -- Supplemental Indenture dated as of June 18, 1996 by and
among Corporate Express, CEX Holdings, Inc. and First
Trust National Association.
</TABLE>
II-1
<PAGE> 121
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.5 -- Indenture dated as of June 24, 1996 by and among
Corporate Express and Bankers Trust Company, as trustee,
for the 4 1/2% Convertible Notes due July 1, 2000
(including Form of Notes).
4.6 -- First Supplemental Indenture dated as of October 15, 1996
relating to Corporate Express' 4 1/2% Convertible Notes.
4.7 -- Rights Agreement dated as of January 29, 1998 between
Corporate Express and Chasemellon Shareholder Services,
L.L.C. as Rights Agent.
4.8 -- Form of 4 1/2% Convertible Note.
*4.9 -- Indenture dated as of May 29, 1998 for the 9 5/8% Senior
Subordinated Notes due 2008 by and among CEX Holdings,
Inc., Corporate Express, Inc. and the other Guarantors
listed therein and The Bank of New York.
*4.10 -- Registration Rights Agreement dated as of May 29, 1998 by
and among CEX Holdings Inc., Corporate Express, Inc., the
Guarantors listed therein and Donaldson, Lufkin &
Jenrette Securities Corporation, BT Alex. Brown
Incorporated, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, NationsBanc Montgomery Securities LLC,
First Chicago Capital Markets, Inc. and BNY Capital
Markets, Inc.
4.11 -- Second Supplemental Indenture dated as of May 18, 1998 by
and among CEX Holdings, Inc., the Guarantors named
therein and U.S. Bank Trust National Association
(incorporated by reference from Corporate Express'
Quarterly Report on Form 10-Q for the fiscal quarter
ended May 2, 1998).
**4.12 -- Supplemental Indenture dated as of September 24, 1998
relating to CEX Holdings, Inc.'s 9 5/8% Senior
Subordinated Notes due 2008.
*5.1 -- Opinion of Ballard Spahr Andrews & Ingersoll, LLP.
10.1 -- Employment Agreement dated as of August 25, 1993, by and
between Corporate Express and Robert King, as amended
effective July 15, 1994.
10.2 -- Amended and Restated 1992 Stock Option Plan, Form of
Non-qualified Stock Option Agreement and Form of
Incentive Stock Option Agreement.
10.3 -- 1994 Executive Stock Option Plan.
10.4 -- Form of Indemnification Agreement between Corporate
Express and its officers and directors.
10.5 -- 1994 Stock Option and Incentive Plan.
10.6 -- 1994 Employee Stock Purchase Plan.
10.7 -- Employment Agreement dated as of July 31, 1995 by and
between Corporate Express and Sam Leno.
10.8 -- Corporate Express, Inc. Supplemental Stock Option Plan.
10.9 -- Agreement and Plan of Merger dated as of September 10,
1996 among Corporate Express, United TransNet, Inc. and
Bevo Acquisition Corp., Inc.
10.10 -- Agreement and Plan of Merger dated as of September 10,
1997 by and among Corporate Express, IDD Acquisition
Corp. and Data Documents Incorporated.
10.11 -- Credit Agreement dated as of April 17, 1998 among
Corporate Express, CEX Holdings, Inc., Various Banks, The
First National Bank of Chicago, as Syndication Agent, The
Bank of New York, as Co-Documentation Agent, DLJ Capital
Funding, Inc., as Co-Documentation Agent, DLJ Capital
Funding, Inc., as Co-Documentation Agent and Bankers
Trust Company as Administrative Agent.
10.12 -- Form of First Amendment to Credit Agreement dated as of
April 23, 1998.
</TABLE>
II-2
<PAGE> 122
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
**12.1 -- Ratio of Earnings to Fixed Charges.
21.1 -- List of Subsidiaries.
**23.1 -- Consent of PricewaterhouseCoopers LLP.
**23.2 -- Consent of Deloitte & Touche LLP
*23.3 -- Consent of Ballard Spahr Andrews & Ingersoll, LLP.
(Included in Exhibit 5.1)
25.1 -- Statement of Eligibility of Trustee on Form T-1.
27.1 -- Financial Data Schedule.
99.1 -- Form of Letter of Transmittal.
99.2 -- Form of Notice of Guaranteed Delivery.
99.3 -- Form of Tender Instructions.
*99.4 -- Supplemental letter to the Commission regarding reliance
on the Staff's position in certain no-action letters.
</TABLE>
- ---------------
* Previously filed.
** Filed herewith.
ITEM 22. UNDERTAKINGS
The undersigned Registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrants' 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.
The undersigned Registrants hereby undertake 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
person who may be deemed underwriters, in addition to the information called for
by the other Items of the applicable form.
The Registrants hereby undertake that every prospectus (i) that is filed
pursuant to the paragraph immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Securities Act, and is used in
connection with an offering of securities subject to Rule 415, 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, 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.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the foregoing provisions, or otherwise, the Registrants
have been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrants of expenses
incurred or paid by a director, officer or controlling person of the Registrants
in the successful defense of any action, suit or proceeding) is asserted against
the Registrants by such director, officer or controlling person in connection
with the securities being registered, the Registrants will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction
II-3
<PAGE> 123
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final resolution of
such issue.
The undersigned Registrants hereby undertake to respond to requests 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.
The undersigned Registrants hereby undertake 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.
II-4
<PAGE> 124
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Broomfield, State of
Colorado, on October 22, 1998.
CEX HOLDINGS, INC.
By: /s/ ROBERT L. KING
----------------------------------
Robert L. King
President and
Chief Operating Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on October 22, 1998 by the following
persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ ROBERT L. KING President, Chief Operating Officer and
- ----------------------------------------------------- Director (Principal Executive Officer)
Robert L. King
/s/ SAM R. LENO Executive Vice President and Chief Financial
- ----------------------------------------------------- Officer (Principal Financial and
Sam R. Leno Accounting Officer)
/s/ GARY M. JACOBS Executive Vice President, Secretary and
- ----------------------------------------------------- Director
Gary M. Jacobs
</TABLE>
II-5
<PAGE> 125
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Broomfield, State of
Colorado, on October 22, 1998.
CORPORATE EXPRESS, INC.
By: /s/ ROBERT L. KING
----------------------------------
Robert L. King
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on October 22, 1998 by the following
persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ JIRKA RYSAVY Chairman of the Board
- -----------------------------------------------------
Jirka Rysavy
/s/ ROBERT L. KING President, Chief Executive Officer and
- ----------------------------------------------------- Director (Principal Executive Officer)
Robert L. King
/s/ SAM R. LENO Executive Vice President and Chief Financial
- ----------------------------------------------------- Officer (Principal Financial Officer)
Sam R. Leno
Director
- -----------------------------------------------------
Janet A. Hickey
/s/ JAMES P. ARGYROPOULOS Director
- -----------------------------------------------------
James P. Argyropoulos
/s/ MO SIEGEL Director
- -----------------------------------------------------
Mo Siegel
</TABLE>
II-6
<PAGE> 126
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
following registrants have duly caused this Registration Statement to be signed
on their behalf by the undersigned, thereunto duly authorized, in the City of
Broomfield, State of Colorado on October 22, 1998.
ASAP SOFTWARE EXPRESS, INC.
CORPORATE EXPRESS CALLCENTER
SERVICES, INC.
SOFCO, INC.
SQP, INC.
SOFCO OF OHIO, INC.
S&O PROPERTY, INC.
EPCO PACKAGING SERVICES
HERMANN MARKETING, INC.
DISTRIBUTION RESOURCES CO.
CORPORATE EXPRESS REAL ESTATE, INC.
CORPORATE EXPRESS OFFICE
PRODUCTS, INC.
CORPORATE EXPRESS OF TEXAS, INC.
FEDERAL SALES SERVICES, INC.
VIRGINIA IMPRESSIONS PRODUCTS
CO., INC.
MICROMAGNETIC SYSTEMS, INC.
CORPORATE EXPRESS DELIVERY
SYSTEMS, INC.
AMERICAN DELIVERY SYSTEM, INC.
CORPORATE EXPRESS DISTRIBUTION
SERVICES, INC.
NEW DELAWARE DELIVERY, INC.
RED ARROW CORPORATION
RAC, INC.
RED ARROW SPOTTING SERVICES, INC.
RED ARROW TRUCKING CO.
RED ARROW WAREHOUSING, CO.
RUSH TRUCKING, INC.
CORPORATE EXPRESS DELIVERY
SYSTEMS -- INTERMOUNTAIN, INC.
CORPORATE EXPRESS DELIVERY
LEASING -- INTERMOUNTAIN, INC.
CORPORATE EXPRESS DELIVERY
SYSTEMS -- MID-ATLANTIC, INC.
CORPORATE EXPRESS DELIVERY
LEASING -- MID-ATLANTIC, INC.
CORPORATE EXPRESS DELIVERY
SYSTEMS -- MID-WEST, INC.
CORPORATE EXPRESS DELIVERY
LEASING -- MID-WEST, INC.
CORPORATE EXPRESS DELIVERY
SYSTEMS -- NEW ENGLAND, INC.
CORPORATE EXPRESS DELIVERY
LEASING -- NEW ENGLAND, INC.
CORPORATE EXPRESS DELIVERY
II-7
<PAGE> 127
SYSTEMS -- NORTHEAST, INC.
CORPORATE EXPRESS DELIVERY
LEASING -- NORTHEAST, INC.
CORPORATE EXPRESS DELIVERY
SYSTEMS -- SOUTHEAST, INC.
CORPORATE EXPRESS DELIVERY
LEASING -- SOUTHEAST, INC.
AIR COURIER DISPATCH OF
NEW JERSEY, INC.
SUNBELT COURIER, INC.
TRICOR AMERICA, INC.
MIDNITE EXPRESS INTERNATIONAL
COURIER, INC.
CORPORATE EXPRESS DELIVERY
SYSTEMS -- SOUTHWEST, INC.
CORPORATE EXPRESS DELIVERY
LEASING -- SOUTHWEST, INC.
CORPORATE EXPRESS DELIVERY
SYSTEMS -- WEST COAST, INC.
CORPORATE EXPRESS DELIVERY
LEASING -- WEST COAST, INC.
CORPORATE EXPRESS DELIVERY
SYSTEMS -- EXPEDITED, INC.
CORPORATE EXPRESS DELIVERY
LEASING -- EXPEDITED, INC.
CORPORATE EXPRESS DELIVERY
ADMINISTRATION, INC.
CORPORATE EXPRESS DELIVERY
MANAGEMENT BUSINESS TRUST
CORPORATE EXPRESS DELIVERY
SYSTEMS -- AIR DIVISION, INC.
By: /s/ ROBERT L. KING
----------------------------------
Robert L. King
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed on October 22, 1998 by the following
persons in the capacities indicated.
<TABLE>
<CAPTION>
NAME TITLE
---- -----
<C> <S>
/s/ ROBERT L. KING Chief Executive Officer and Sole Director of
- ----------------------------------------------------- each Registrant* (Principal Executive
Robert L. King Officer)
/s/ SAM R. LENO Vice President of each Registrant**
- ----------------------------------------------------- (Principal Financial and Accounting
Sam R. Leno Officer)
</TABLE>
* Except for New Delaware Delivery, Inc.
** Also signing as a director of New Delaware Delivery, Inc.
II-8
<PAGE> 128
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Omaha, State of Nebraska,
on October 23, 1998.
DATA DOCUMENTS INCORPORATED
DATA DOCUMENTS, INC.
MOORE LABELS, INC.
By: /s/ WALTER J. KEARNS
----------------------------------
Walter J. Kearns
President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on October 23, 1998 by the following
persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ WALTER J. KEARNS President, Chief Executive Officer and
- ----------------------------------------------------- Director (Principal Executive Officer)
Walter J. Kearns
/s/ A. ROBERT THOMAS Executive Vice President, Operations
- ----------------------------------------------------- (Principal Financial and Accounting
A. Robert Thomas Officer)
/s/ ROBERT L. KING Director
- -----------------------------------------------------
Robert L. King
</TABLE>
II-9
<PAGE> 129
INDEX TO EXHIBITS
The following exhibits are incorporated in this Registration Statement by
reference or included and submitted with this Registration Statement, as
indicated. Except as otherwise noted, the exhibit has previously been filed or
incorporated by reference as an exhibit to Corporate Express, Inc.'s Annual
Report on Form 10-K for the transition period ended January 31, 1998, and is
incorporated herein by reference.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
3.1 -- Articles of Amendment and Restatement of the Articles of
Incorporation of Corporate Express, Inc., a Colorado
corporation ("Corporate Express"), filed on September 30,
1994.
3.2 -- Articles of Amendment and Restatement of Corporate
Express, filed on August 22, 1996.
3.3 -- Amended and Restated By-Laws of Corporate Express.
*3.4 -- Articles of Incorporation of CEX Holdings, Inc.
*3.5 -- By-laws of CEX Holdings, Inc.
4.1 -- Specimen Common Stock Certificate of Corporate Express.
4.2 -- Form of Warrant Agreement.
4.3 -- Indenture dated as of February 28, 1994 by and among
Corporate Express, and the Guarantors named therein and
First Trust National Association for the $100,000,000
9 1/8% Senior Subordinated Notes.
*4.4 -- Supplemental Indenture dated as of June 18, 1996 by and
among Corporate Express, CEX Holdings, Inc. and First
Trust National Association.
4.5 -- Indenture dated as of June 24, 1996 by and among
Corporate Express and Bankers Trust Company, as trustee,
for the 4 1/2% Convertible Notes due July 1, 2000
(including Form of Notes).
4.6 -- First Supplemental Indenture dated as of October 15, 1996
relating to Corporate Express' 4 1/2% Convertible Notes.
4.7 -- Rights Agreement dated as of January 29, 1998 between
Corporate Express and Chasemellon Shareholder Services,
L.L.C. as Rights Agent.
4.8 -- Form of 4 1/2% Convertible Note.
*4.9 -- Indenture dated as of May 29, 1998 for the 9 5/8% Senior
Subordinated Notes due 2008 by and among CEX Holdings,
Inc., Corporate Express, Inc. and the other Guarantors
listed therein and The Bank of New York.
*4.10 -- Registration Rights Agreement dated as of May 29, 1998 by
and among CEX Holdings Inc., Corporate Express, Inc., the
Guarantors listed therein and Donaldson, Lufkin &
Jenrette Securities Corporation, BT Alex. Brown
Incorporated, Merrill Lynch, Pierce, Fenner & Smith
Incorporated, NationsBanc Montgomery Securities LLC,
First Chicago Capital Markets, Inc. and BNY Capital
Markets, Inc.
4.11 -- Second Supplemental Indenture dated as of May 18, 1998 by
and among CEX Holdings, Inc., the Guarantors named
therein and U.S. Bank Trust National Association
(incorporated by reference from Corporate Express'
Quarterly Report on Form 10-Q for the fiscal quarter
ended May 2, 1998).
**4.12 -- Supplemental Indenture dated as of September 24, 1998
relating to CEX Holdings, Inc.'s 9 5/8% Senior
Subordinated Notes due 2008.
*5.1 -- Opinion of Ballard Spahr Andrews & Ingersoll, LLP.
</TABLE>
<PAGE> 130
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
10.1 -- Employment Agreement dated as of August 25, 1993, by and
between Corporate Express and Robert King, as amended
effective July 15, 1994.
10.2 -- Amended and Restated 1992 Stock Option Plan, Form of
Non-qualified Stock Option Agreement and Form of
Incentive Stock Option Agreement.
10.3 -- 1994 Executive Stock Option Plan.
10.4 -- Form of Indemnification Agreement between Corporate
Express and its officers and directors.
10.5 -- 1994 Stock Option and Incentive Plan.
10.6 -- 1994 Employee Stock Purchase Plan.
10.7 -- Employment Agreement dated as of July 31, 1995 by and
between Corporate Express and Sam Leno.
10.8 -- Corporate Express, Inc. Supplemental Stock Option Plan.
10.9 -- Agreement and Plan of Merger dated as of September 10,
1996 among Corporate Express, United TransNet, Inc. and
Bevo Acquisition Corp., Inc.
10.10 -- Agreement and Plan of Merger dated as of September 10,
1997 by and among Corporate Express, IDD Acquisition
Corp. and Data Documents Incorporated.
10.11 -- Credit Agreement dated as of April 17, 1998 among
Corporate Express, CEX Holdings, Inc., Various Banks, The
First National Bank of Chicago, as Syndication Agent, The
Bank of New York, as Co-Documentation Agent, DLJ Capital
Funding, Inc., as Co-Documentation Agent, DLJ Capital
Funding, Inc., as Co-Documentation Agent and Bankers
Trust Company as Administrative Agent.
10.12 -- Form of First Amendment to Credit Agreement dated as of
April 23, 1998.
**12.1 -- Ratio of Earnings to Fixed Charges.
21.1 -- List of Subsidiaries.
**23.1 -- Consent of PricewaterhouseCoopers LLP.
**23.2 -- Consent of Deloitte & Touche LLP
*23.3 -- Consent of Ballard Spahr Andrews & Ingersoll, LLP.
(Included in Exhibit 5.1)
25.1 -- Statement of Eligibility of Trustee on Form T-1.
27.1 -- Financial Data Schedule.
99.1 -- Form of Letter of Transmittal.
99.2 -- Form of Notice of Guaranteed Delivery.
99.3 -- Form of Tender Instructions.
*99.4 -- Supplemental letter to the Commission regarding reliance
on the Staff's position in certain no-action letters.
</TABLE>
- ---------------
* Previously filed.
** Filed herewith.
<PAGE> 1
EXHIBIT 4.12
SUPPLEMENTAL INDENTURE
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated
as of September 24, 1998, among Data Documents Incorporated, a Delaware
corporation, Data Documents, Inc., a Nebraska corporation, and Moore Labels,
Inc., a Kansas corporation (each a "Guaranteeing Subsidiary" and, collectively,
the "Guaranteeing Subsidiaries"), each a direct or indirect wholly owned
subsidiary of CEX Holdings, Inc., a Delaware corporation (the "Company"), and
The Bank of New York, a New York banking corporation, as trustee, under the
Indenture referred to below (the "Trustee").
W I T N E S S E T H
WHEREAS, the Company, as Issuer, and certain of its other
subsidiaries, as Guarantors, have heretofore executed and delivered to the
Trustee an indenture (the "Indenture"), dated as of May 29, 1998 providing for
the issuance of an aggregate principal amount of up to $550,000,000 of 9-5/8%
Senior Subordinated Notes due 2008 (the "Notes");
WHEREAS, the Section 4.15 of the Indenture provides that
within 120 days of the Issue Date the Guaranteeing Subsidiaries shall execute
and deliver to the Trustee a supplemental indenture pursuant to which the
Guaranteeing Subsidiaries shall guaranty irrevocably and unconditionally all
principal, premium, if any, and interest (and Liquidated Damages, if any) on the
Notes, on a senior subordinated basis; and
WHEREAS, the Guaranteeing Subsidiaries desire to provide the
aforementioned guaranty in accordance with the terms set forth in Article 11 of
the Indenture (the "Guarantee"); and
WHEREAS, pursuant to Section 9.01 of the Indenture, the
Trustee is authorized to execute and deliver this Supplemental Indenture.
NOW THEREFORE, in consideration of the foregoing and for other
good and valuable consideration, the receipt of which is hereby acknowledged,
the Guaranteeing Subsidiaries and the Trustee mutually covenant and agree for
the equal and ratable benefit of the Holders of the Notes as follows:
1. CAPITALIZED TERMS. Capitalized terms used herein without
definition shall have the meanings assigned to them in the Indenture.
2. AGREEMENT TO GUARANTEE. Each Guaranteeing Subsidiary hereby
agrees to jointly and severally, along with all Guarantors named in the
Indenture, irrevocably and unconditionally guarantee (i) the due and punctual
payment of the principal of, premium, if any and interest (and Liquidated
Damages, if any) on the Notes, whether at stated maturity, by acceleration or
otherwise, the due and punctual payment of interest on the overdue principal,
and premium, if any, and to the extent permitted by law) interest on any
interest, if any, on the Notes and the due and punctual performance of all other
obligations of the Company, to the Holders or the Trustee, all in accordance
with the terms set forth in Article 11 of the Indenture, (ii) in the case of any
extension of time of payment or renewal of any Notes or such other obligations,
that the same will be promptly paid in full when due or performed in accordance
with the terms of the
<PAGE> 2
extension or renewal, whether at stated maturity, by acceleration or otherwise,
and (iii) the payment of any and all costs and expenses (including reasonable
attorneys' fees) incurred by the Trustee or any Holder in enforcing any rights
under this Guarantee.
The obligations of each Guaranteeing Subsidiary to the Holders
and to the Trustee pursuant to this Supplemental Indenture are expressly set
forth in Article 11 of the Indenture and reference is hereby made to such
Indenture for the precise terms of this Guarantee.
THE TERMS OF ARTICLE 11 OF THE INDENTURE ARE INCORPORATED
HEREIN BY REFERENCE.
3. NEW YORK LAW TO GOVERN. THE INTERNAL LAW OF THE STATE OF
NEW YORK SHALL GOVERN AND BE USED TO CONSTRUE THIS SUPPLEMENTAL INDENTURE.
4. COUNTERPARTS. The parties may sign any number of copies of
this Supplemental Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement.
5. EFFECT OF HEADINGS. The Section headings herein are for
convenience only and shall not affect the construction hereof.
6. THE TRUSTEE. The Trustee shall not be responsible in any
manner whatsoever for or in respect of the validity or sufficiency of this
Supplemental Indenture or for or in respect of the recitals contained herein,
all of which recitals are made solely by the Guaranteeing Subsidiaries.
2
<PAGE> 3
IN WITNESS WHEREOF, the parties hereto have caused this
Supplemental Indenture to be duly executed and attested, all as of the date
first above written.
DATA DOCUMENTS INCORPORATED
DATA DOCUMENTS, INC.
MOORE LABELS, INC.
By: /s/ John T. Skinner
---------------------------------
Name: John T. Skinner
Title: Vice President
THE BANK OF NEW YORK,
as Trustee
By: /s/ Remo J. Reale
---------------------------------
Authorized Signatory
Acknowledged and Agreed:
CEX HOLDINGS, INC.
By: /s/ Gary M. Jacobs
------------------------------
Gary M. Jacobs
Executive Vice President
3
<PAGE> 1
EXHIBIT 12.1
CORPORATE EXPRESS, INC.
RATIO OF EARNINGS TO FIXED CHARGES
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
AS AS
ADJUSTED ADJUSTED
SIX SIX TWELVE
MONTHS MONTHS MONTHS ELEVEN MONTHS
ENDED ENDED ENDED ENDED FISCAL YEARS
AUGUST 1, AUGUST 1, JANUARY 31, JANUARY 31, ----------------------------------------------
1998 1998 1998 1998 1996 1995 1994 1993 1992
--------- --------- ----------- ------------- -------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Pretax income from
continuing operations.... $ 41,232 $ 52,711 $ 59,372 $ 77,542 $ 73,785 $21,978 $24,600 $ 505 $ (913)
Add: Fixed charges......... 65,861 54,382 118,059 64,112 49,025 25,248 21,550 5,742 5,501
Deduct: Capitalized
interest................. 2,451 2,451 3,533 3,239 3,887 882 -- -- --
-------- -------- -------- -------- -------- ------- ------- ------ ------
Adjusted earnings.......... 104,642 104,642 173,898 138,415 118,923 46,344 46,150 6,247 4,588
Fixed charges:
Interest expense........... 46,915 35,436 89,699 38,115 26,949 17,968 16,915 5,014 4,972
Capitalized interest....... 2,451 2,451 3,533 3,239 3,887 882
Interest portion of rent
expense.................. 16,495 16,495 24,827 22,758 18,189 6,398 4,635 728 529
-------- -------- -------- -------- -------- ------- ------- ------ ------
Total fixed
charges.......... $ 65,861 $ 54,382 $118,059 $ 64,112 $ 49,025 $25,248 $21,550 $5,742 $5,501
Ratio of earnings to fixed
charges.................. 1.6 1.9 1.5 2.2 2.4 1.8 2.1 1.1 --(1)
</TABLE>
- ---------------
(1) The ratio of earnings to fixed charges is calculated by dividing earnings,
defined as income from continuing operations before income taxes and
minority interest plus fixed charges less capitalized interest, by fixed
charges, defined as interest expense plus capitalized interest and the
interest portion of rent expense. Fiscal 1992 earnings were lower than total
fixed charges resulting in a less than one-to-one ratio of earnings to fixed
charges, consequently, additional earnings of $913,000 would have been
required to attain a ratio of one-to-one.
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement of
Corporate Express, Inc. on Form S-4 (the "Registration Statement") of our
report dated April 6, 1998, except for Note 18, for which the date is April 22,
1998 and Note 19 for which the date is September 24, 1998 on our audits of the
consolidated financial statements of Corporate Express, Inc. as of January 31,
1998, March 1, 1997 and March 2, 1996, and for the eleven month period ended
January 31, 1998 and the years ended March 1, 1997, March 2, 1996 and February
25, 1995.
PricewaterhouseCoopers LLP
Denver, Colorado
October 23, 1998
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 2 to
Registration Statement No. 333-60155 of CEX Holdings, Inc. and Corporate
Express, Inc. on Form S-4 of our report dated February 6, 1997, (on the
consolidated financial statements of Data Documents Incorporated for the years
ended December 31, 1996, 1995 and 1994) appearing in the Current Report on Form
8-K/A, filed on October 23, 1998 by Corporate Express, Inc.
DELOITTE & TOUCHE LLP
Omaha, Nebraska
October 23, 1998
