<PAGE>
As filed with the Securities and Exchange Commission on October 1, 1996.
Registration No. 333-________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
____________
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
_____________
CORPORATE EXPRESS, INC.
(Exact Name of Registrant as Specified in Its Charter)
Colorado 5112 84-0978360
(State or Other Jurisdiction (Primary Standard (I.R.S. Employer
Incorporation or Organization Industrial Classification Identification Number)
Code Number)
325 Interlocken Parkway
Broomfield, Colorado 80021
(303) 373-2800
(Address, Including Zip Code, and Telephone Number, Including
Area Code, of Registrant's Principal Executive Offices)
JIRKA RYSAVY
Chief Executive Officer
Corporate Express, Inc.
325 Interlocken Parkway
Broomfield, Colorado 80021
(303) 373-2800
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
_________________
Copies to:
JUSTIN P. KLEIN, ESQ. MARTHA J. GORDON, ESQ.
GERALD J. GUARCINI, ESQ. Sullivan & Worcestor LLP
Ballard Spahr Andrews & Ingersoll One Post Office Square
1735 Market Street, 51st Floor Boston, Massachusetts 02109-2106
Philadelphia, Pennsylvania 19103-7599 (617) 338-2800
(215) 665-8500
________________
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effectiveness of this Registration Statement and the
effective time of the merger (the "Merger") of Bevo Acquisition Corp., Inc. into
United TransNet, Inc. as described in the Agreement and Plan of Merger, dated as
of September 10, 1996 (the "Merger Agreement"), attached as Appendix I to the
Proxy Statement and Prospectus forming a part 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. [_]
______________________________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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Title of Each Class of Proposed Maximum Proposed Maximum
Securities to Be Amount to Offering Price Aggregate Amount of
Registered Be Registered(1) Per Share Offering Price(2) Registration Fee(2)
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<S> <C> <C> <C> <C>
Common Stock ($.0002 par value) 4,221,425 shares N/A $153,026,681.60 $52,767.82
===================================================================================================================
</TABLE>
(1) Represents the maximum number of shares of Corporate Express, Inc. Common
Stock, par value $.0002 per share, to be issued pursuant to the Merger
Agreement in exchange for all of the issued and outstanding shares of
Common Stock of United TransNet, Inc.
(2) Pursuant to Rule 457(f), the registration fee was computed on the basis of
the market value of the Common Stock of United TransNet, Inc. to be
exchanged in the Merger, computed in accordance with Rule 457(c) on the
basis of the average of high and low prices per share of such stock on the
New York Stock Exchange Composite Tape on September 24, 1996.
_________________________________________
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>
United TransNet, Inc.
1080 Holcomb Bridge Road
Building 200, Suite 140
Roswell, Georgia 30076
October__, 1996
Dear Stockholder:
It is a pleasure to invite you to the Special Meeting of Stockholders
of United TransNet, Inc. ("United TransNet") in Atlanta, Georgia on
November 7, 1996 at 10:00 a.m. local time, at ___________________________,
Atlanta, Georgia (the "Special Meeting"). The sole purpose of the Special
Meeting will be to consider and vote upon a proposal to approve and adopt
the Agreement and Plan of Merger, dated as of September 10, 1996 (the
"Merger Agreement"), by and among Corporate Express, Inc. ("Corporate
Express"), Bevo Acquisition Corp., Inc. ("Acquisition Sub"), a wholly owned
subsidiary of Corporate Express, and United TransNet.
The Merger Agreement provides, among other things, for the merger of
Acquisition Sub with and into United TransNet (the "Merger") pursuant to
which United TransNet will become a wholly owned subsidiary of Corporate
Express and each outstanding share of United TransNet Common Stock will be
converted into .45 shares of Corporate Express Common Stock. Based upon the
approximately 9,380,946 shares of United TransNet Common Stock outstanding
as of October 3, 1996, United TransNet's stockholders will be issued
approximately 4,221,425 shares of Corporate Express Common Stock in the
Merger, representing approximately 5.6% of the total issued and outstanding
shares of Corporate Express Common Stock after the Merger.
The Merger Agreement contains a number of conditions and other terms,
all of which are summarized, along with certain financial and other
information, in the accompanying Proxy Statement and Prospectus. Please
read and consider the Proxy Statement and Prospectus carefully.
The vote of every stockholder is important. Mailing your completed
proxy will not prevent you from voting in person at the meeting if you wish
to do so.
Please sign, date and promptly mail your proxy. Your cooperation will
be greatly appreciated.
Your Board of Directors and management look forward to greeting those
stockholders who are able to attend.
Sincerely,
Philip A. Belyew
<PAGE>
UNITED TRANSNET, INC.
1080 Holcomb Bridge Road, Building 200, Suite 140
Roswell, Georgia 30076
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 7, 1996
To the Stockholders
of United TransNet:
A Special Meeting of Stockholders of United TransNet, Inc., a Delaware
corporation ("United TransNet"), will be held at
___________________________________________________, Atlanta, Georgia, on
November 7, 1996 at 10:00 a.m., local time, for the following purpose:
To consider and act upon a proposal to approve and adopt the
Agreement and Plan of Merger dated as of September 10, 1996 among
Corporate Express, Inc., Bevo Acquisition Corp., Inc. and United
TransNet, and the conversion of each outstanding share of United TransNet
Common Stock, par value $.001 per share, into .45 shares of Corporate
Express Common Stock, par value $.0002 per share, all as more fully
described in the accompanying Proxy Statement and Prospectus.
Stockholders of record at the close of business on October 3, 1996 are
entitled to notice of, and to vote at, the Special Meeting and any
adjournments thereof. The United TransNet stock transfer books will remain
open for the purchase and sale of United TransNet's Common Stock. For a
period of ten days prior to the Special Meeting, a complete list of the
stockholders entitled to vote at the Special Meeting will be available at
the offices of United TransNet for inspection by any stockholder of record
for any purpose germane to the Special Meeting.
All stockholders are cordially invited to attend the meeting.
By order of the Board of Directors,
Philip A. Belyew, Chairman of the Board
Roswell, Georgia
October __, 1996
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE,
DATE AND SIGN THE ENCLOSED PROXY CARD AND PROMPTLY MAIL THE PROXY CARD IN
THE ENCLOSED ENVELOPE IN ORDER TO ASSURE REPRESENTATION OF YOUR SHARES AT
THE SPECIAL MEETING. NO POSTAGE NEED BE AFFIXED IF THE PROXY CARD IS MAILED
WITHIN THE UNITED STATES.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+Information contained herein is subject to completion or amendment. A +
+registration statement relating to these securities has been filed with the +
+Securities and Exchange Commission. These securities may not be sold nor may+
+offers to buy be accepted prior to the time the registration statement +
+becomes effective. This proxy statement and prospectus shall not constitute +
+an offer to sell or the solicitation of an offer to buy nor shall there be +
+any sale of these securities in any jurisdiction in which such offer, +
+solicitation or sale would be unlawful prior to registration or +
+qualification under the securities laws of any such jurisdiction. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
CORPORATE EXPRESS INC.
UNITED TRANSNET, INC.
PROXY STATEMENT AND PROSPECTUS
This Proxy Statement and Prospectus ("Proxy Statement and Prospectus")
relates to the proposed merger (the "Merger") of Bevo Acquisition Corp.,
Inc. ("Acquisition Sub"), a wholly owned subsidiary of Corporate Express,
Inc. ("Corporate Express") into United TransNet, Inc. ("United TransNet")
pursuant to an Agreement and Plan of Merger dated September 10, 1996, among
Corporate Express, Acquisition Sub and United TransNet (the "Merger
Agreement"). As a result of the Merger, United TransNet will become a
wholly owned subsidiary of Corporate Express and the stockholders of United
TransNet will receive in the aggregate up to 4,221,425 shares of Corporate
Express common stock, $.0002 par value ("Corporate Express Common Stock"),
in exchange for all of the issued and outstanding shares of United TransNet
common stock, $.001 par value ("United TransNet Common Stock"). Pursuant to
the Merger, each outstanding share of United TransNet Common Stock will be
converted into forty-five one hundredths (.45) of one share of Corporate
Express Common Stock (the "Exchange Ratio"). The Exchange Ratio is subject
to adjustment if prior to Closing, Corporate Express (i) pays a dividend or
makes a distribution in Corporate Express Common Stock, (ii) subdivides its
outstanding shares of Corporate Express Common Stock, (iii) combines its
outstanding shares of Corporate Express Common Stock into a smaller number
of shares, (iv) pays a dividend or makes a distribution on Corporate
Express Common Stock in shares other than Corporate Express Common Stock,
(v) issues by reclassification of any class of Corporate Express Common
Stock any shares of its capital stock, or (vi) takes any other corporate
action which changes the number of shares of Corporate Express Common Stock
outstanding. See "The Merger - Adjustments to Merger Consideration."
This Proxy Statement and Prospectus serves as the proxy statement for
United TransNet for its special meeting of stockholders to be held
November 7, 1996. See "The Special Meeting."
This Proxy Statement and Prospectus also constitutes a prospectus of
Corporate Express with respect to up to 4,221,425 shares of Corporate
Express Common Stock to be issued to stockholders of United TransNet
pursuant to the Merger Agreement. This Proxy Statement and Prospectus and
the accompanying forms of proxy are first being mailed to stockholders of
United TransNet on or about October __, 1996.
See "Risk Factors" beginning on page 18 for a discussion of certain
considerations in evaluating the Merger.
No persons have been authorized to give any information or to make any
representation other than those contained in this Proxy Statement and
Prospectus in connection with the solicitation of proxies or the offering
of securities made hereby and, if given or made, such information or
representation should not be relied upon as having been authorized by
Corporate Express or United TransNet. This Proxy Statement and Prospectus
does not constitute an offer to sell, or a solicitation of an offer to
purchase, any securities, or the solicitation of a proxy, in any
jurisdiction in which, or to any person to whom, it is unlawful to make
such offer or solicitation of an offer or proxy solicitation. Neither the
delivery of this Proxy Statement and Prospectus nor any distribution of the
securities offered hereby shall, under any circumstances, create any
implication that there has been no change in the affairs of Corporate
Express or United TransNet since the date hereof or that the information
set forth or incorporated by reference herein is correct as of any time
subsequent to its date. All information herein with respect to Corporate
Express and Acquisition Sub has been furnished by Corporate Express, and
all information herein with respect to United TransNet has been furnished
by United TransNet.
THE SECURITIES TO WHICH THIS PROXY STATEMENT AND PROSPECTUS
RELATES 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 PROXY STATEMENT AND PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement and Prospectus is October , 1996.
<PAGE>
FORWARD-LOOKING STATEMENTS
This Proxy Statement and Prospectus includes and incorporates by
reference forward-looking statements based on current plans and
expectations of Corporate Express, United TransNet and Acquisition Sub,
relating to, among other matters, analyses, including an opinion from
independent financial advisors to United TransNet's Board of Directors as
to the fairness from a financial point of view of the Exchange Ratio to be
offered to United TransNet's stockholders in the Merger, based upon
forecasts of future results, and estimates of amounts that are not yet
determinable. Such forward-looking statements are contained in the
sections entitled "Summary," "Risk Factors," "The Merger," "The Companies"
and other sections of this Proxy Statement and Prospectus. Such statements
involve risks and uncertainties which may cause actual future activities
and results of operations to be materially different from that suggested in
this Proxy Statement and Prospectus, including among others, risks
associated with the integration of acquisitions by Corporate Express,
fluctuations in Corporate Express' operating results because of the
acquisitions and seasonal influences and variations in stock prices, as
well as other factors described elsewhere in this Proxy Statement and
Prospectus.
AVAILABLE INFORMATION
Each of Corporate Express and United TransNet are subject to the
informational requirements of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and, in accordance therewith, files reports,
proxy statements, and other information with the Securities and Exchange
Commission (the "Commission"). Such reports, proxy statements and other
information may be inspected and copied at the public reference facilities
maintained by the Commission at its principal office, Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and the Regional Offices of the
Commission: Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60611 and 7 World Trade Center, Suite 1300, New York, New York
10048. Copies of such materials may be obtained from the Public Reference
Section of the Commission, 450 Fifth Street, N.W., Washington, D.C. 20549
at prescribed rates or through the World Wide Web (http://www.sec.gov).
The Corporate Express Common Stock is quoted on the NASDAQ National Market
and reports, proxy statements and other information concerning Corporate
Express are available for inspection and copying at the Public Reference
Section of the NASDAQ National Market, 1735 K Street, N.W., Washington, DC
20006. The United TransNet Common Stock is listed on the New York Stock
Exchange (the "NYSE") and reports, proxy statements, and other information
concerning United TransNet may also be inspected at the NYSE at 20 Broad
Street, New York, New York 10005.
Corporate Express has filed with the Commission a registration statement
(the "Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), on Form S-4 with respect to the Corporate Express
Common Stock to be issued in the Merger. This Proxy Statement and
Prospectus also constitutes the Prospectus of Corporate Express filed as
part of the Registration Statement and does not contain all of the
information set forth in the Registration Statement and the exhibits
thereto, certain parts of which are omitted in accordance with the rules of
the Commission. Statements made in this Proxy Statement and Prospectus as
to the contents of any contract, agreement, or other document referred to
are not necessarily complete; with respect to each such contract, agreement
or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the
matter involved, and each such statement shall be qualified in its entirety
by such reference. The Registration Statement and any amendments thereto,
including exhibits filed as part thereof, are available for inspection and
copying at the Commission's offices as described above.
________________________
Corporate Express is a registered service mark of Corporate Express, Inc.
2
<PAGE>
------------------------
As used in this Proxy Statement and Prospectus, "fiscal 1991," "fiscal
1992," "fiscal 1993," "fiscal 1994", "fiscal 1995" and "fiscal 1996" refer
to Corporate Express, Inc.'s fiscal years ended or ending February 28,
1991, February 29, 1992, February 28, 1993, February 28, 1994, February 25,
1995, March 2, 1996 and March 1, 1997, respectively.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by Corporate Express with the Commission
pursuant to the Exchange Act (File No. 0-24642) are hereby incorporated by
reference in the Proxy Statement and Prospectus:
1. The description of the Corporate Express Common Stock contained
in Corporate Express' Registration Statement on Form 8A filed under the
Exchange Act, including any amendment or report filed for the purpose of
updating such description;
2. Corporate Express' Annual Report on Form 10-K for the fiscal
year ended March 2, 1996;
3. Corporate Express' Quarterly Report on Form 10-Q for the quarter
ended June 1, 1996; and
4. Corporate Express' current reports on form 8-K/A filed on June
19, 1996, and Corporate Express' current reports on Form 8-K filed on
September 14, 1996 and September 20, 1996, respectively.
All reports and other documents filed with the Commission by Corporate
Express pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act
after the date of this Proxy Statement and Prospectus and prior to the
Special Meeting shall be deemed to be incorporated by reference herein and
to be a part hereof from the respective dates of filing of such reports and
other documents. Any statement contained herein or in a document
incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for all purposes to the extent that a
statement contained herein or in any other subsequently filed document that
is also incorporated or deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Proxy Statement and Prospectus.
This Proxy Statement and Prospectus incorporates documents by reference
with respect to Corporate Express that are not presented herein or
delivered herewith. Copies of these documents (not including exhibits to
such documents unless such exhibits are specifically incorporated by
reference in such documents or herein) are available without charge to any
person to whom this Proxy Statement and Prospectus is delivered upon
written or oral request to Corporate Express, Inc., 325 Interlocken
Parkway, Broomfield, Colorado 80021, Attn: Secretary.
In order to ensure timely delivery, any request for documents should be
made by October 31, 1996.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
FORWARD-LOOKING STATEMENTS.................................................. 2
AVAILABLE INFORMATION....................................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............................. 3
SUMMARY..................................................................... 6
Corporate Express, Inc.................................................... 6
United TransNet, Inc...................................................... 7
Strategic Reasons for the Merger.......................................... 9
The Special Meeting....................................................... 9
The Merger................................................................ 11
Summary Combined Financial Statements..................................... 15
Comparative Historical and Pro Forma Per Share Data....................... 16
Comparative Market Data................................................... 17
Dividend Policy........................................................... 18
RISK FACTORS................................................................ 19
Risks Relating to Corporate Express....................................... 19
Risks Relating to United TransNet......................................... 21
Risks Relating to the Merger.............................................. 23
THE SPECIAL MEETING......................................................... 24
Special Meeting of United TransNet Stockholders........................... 24
Quorum.................................................................... 24
Vote Required............................................................. 24
Record Date; Stock Entitled to Vote....................................... 24
Voting of Proxies......................................................... 24
Revocation of Proxies..................................................... 25
Solicitation of Proxies................................................... 25
THE MERGER.................................................................. 26
Merger Consideration...................................................... 26
Adjustments to Merger Consideration....................................... 26
Conversion of Shares; Procedures for Exchange of Certificates; Fractional
Shares................................................................... 26
NASDAQ Listing............................................................ 27
Background of the Merger.................................................. 27
Recommendation of the United TransNet Board of Directors.................. 32
Reasons for the Merger.................................................... 32
Opinion of United TransNet's Financial Advisor............................ 33
Effective Time of the Merger.............................................. 37
Interests of Certain Persons in the Merger................................ 38
Certain Federal Income Tax Consequences................................... 38
Anticipated Accounting Treatment.......................................... 39
Resale of Corporate Express Common Stock by Affiliates.................... 39
</TABLE>
4
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<TABLE>
<S> <C>
Certain Regulatory Matters................................................ 40
Rights of Dissenting Stockholders......................................... 40
Comparison of Stockholder Rights.......................................... 40
THE MERGER AGREEMENT........................................................ 48
Conditions to the Merger.................................................. 48
Representations and Warranties............................................ 50
Certain Covenants......................................................... 51
No Solicitation........................................................... 53
Additional Agreements..................................................... 54
SELECTED CONSOLIDATED FINANCIAL DATA........................................ 58
Corporate Express.......................................................... 58
SELECTED FINANCIAL DATA
UNITED TRANSNET............................................................ 60
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - UNITED TRANSNET............ 66
THE COMPANIES............................................................... 73
Corporate Express, Inc.................................................... 73
United TransNet, Inc...................................................... 74
PRINCIPAL STOCKHOLDERS OF UNITED TRANSNET................................... 85
LEGAL MATTERS............................................................... 87
EXPERTS..................................................................... 87
</TABLE>
APPENDIX I - AGREEMENT AND PLAN OF MERGER DATED AS OF SEPTEMBER 10, 1996
AMONG CORPORATE EXPRESS, UNITED TRANSNET AND ACQUISITION SUB
APPENDIX II - OPINION OF SMITH BARNEY INC.
5
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement and Prospectus. The information contained in 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 this Proxy Statement and Prospectus
and the documents incorporated herein by reference.
Corporate Express, Inc.
Corporate Express is a leading provider of office products and services
to large corporations. Since 1991, Corporate Express has expanded through
acquisitions from a regional operation in Colorado to operations throughout
the United States, Canada, the United Kingdom, Australia, Germany and New
Zealand. Corporate Express believes it has developed a substantially
different business model from traditional contract stationers, defining
itself as a "Corporate Supplier" which provides a broad array of
non-production goods and services to its customers while reducing overall
procurement costs and providing a high level of customer service. The
Company's current offering includes office supplies, computer and imaging
supplies, computer software, office furniture, forms management, printing,
same-day local delivery service and distribution logistics management.
Corporate Express markets to its existing and prospective customers through
a direct sales force and fulfills its products and services through over
500 locations and a fleet of approximately 7,000 owned or contracted
vehicles.
Corporate Express' target customers are large corporations with over 100
employees. Corporate Express believes that these large corporations
increasingly are seeking to reduce the cost of procuring nonproduction
goods and services and decrease the time and effort spent managing
functions that are not considered core competencies. To that end,
corporations are seeking to reduce the number of their suppliers in order
to eliminate the internal costs associated with fragmented ordering
systems, multiple invoices, deliveries, ordering procedures, uneven service
levels and inconsistent product availability. Many large corporations
operate from multiple locations and can benefit from selecting a single
supplier who can service them nationally or internationally.
In many non-production goods and services sectors, including office
products and same-day local delivery, competition is often highly
fragmented and consists primarily of smaller local or regional providers.
Corporate Express believes that the desire of large corporations to reduce
their number of suppliers to a small group of reliable and cost-effective
partners will lead to a further consolidation of currently fragmented
sectors, as well as initiate consolidations between sectors where the
ultimate requirement will be the ability to meet customers' needs rather
than to supply a particular product or service.
Corporate Express' Corporate Supplier strategy is designed to reduce its
customers' total costs and the internal effort necessary to manage the
procurement of non-production goods and services. Corporate Express
believes that its target customers value a high level of service including
account relationship managers, delivery services and customized pricing,
electronic interfaces, reporting formats and product catalogs. Corporate
Express' broad product and service offering permits it to reduce the
procurement costs its customers incur in dealing with multiple vendors
while servicing customers' broad geographical service and delivery
requirements.
Corporate Express also seeks to continually reduce its merchandise and
operating costs which should permit it to offer its customers lower prices.
By purchasing most of its products directly from manufacturers in large
volumes and limiting the number of manufacturers represented in its In-
Stock Catalog and other specialty catalogs, Corporate Express is
increasingly able to earn volume discounts and other allowances from
its vendors.
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6
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Corporate Express believes its computer systems represent a key strategic
advantage which differentiates the Company from its competitors and permits
it to achieve cost savings, provide superior customer service and centrally
manage its operations.
Corporate Express historically has grown and intends to continue to grow
in the future through a combination of acquisitions and internal growth.
Corporate Express plans to increase sales to existing customers by cross-
selling its expanded product and service offering and developing existing
customers into international, national or multi-regional accounts.
Corporate Express seeks to gain new customers, including national and
international accounts, through the marketing efforts of its direct sales
force and through acquisitions of other suppliers and companies offering
complimentary products and services. Further, the merger with U.S.
Delivery Systems, Inc. ("Delivery") has expanded Corporate Express'
delivery capabilities and geographic coverage in the United States and
Corporate Express started to develop sales efforts in these new geographic
areas. In addition, Corporate Express may open additional satellite sales
offices and distribution breakpoints to serve new accounts and to continue
to add new product and service capabilities.
In order to better service its multi-national customers and to take
advantage of the fragmented nature of many international markets, Corporate
Express has devoted substantial resources to expanding outside of the
United States, principally through acquisitions. Corporate Express has
acquired or made investments in companies in Canada and Australia in
calendar 1995, and the United Kingdom, Germany and New Zealand in calendar
1996. In addition, Corporate Express has recently entered into agreements
to acquire two office products suppliers in Italy. The Company plans to
enter additional international markets in the future. Over time, the
Company plans 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 and
focusing on larger customers and national and international accounts.
Corporate Express was incorporated under the laws of Colorado in 1985.
Corporate Express operates its business through various subsidiaries.
Corporate Express' executive offices are located at 325 Interlocken
Parkway, Broomfield, Colorado 80021, and its telephone number is (303) 373-
2800.
Recent Developments
Corporate Reorganization. As of June 18, 1996, Corporate Express
consummated a reorganization pursuant to which Corporate Express formed CEX
Holdings, Inc., a wholly-owned subsidiary organized under the laws of
Colorado ("CEX Holdings"), and contributed substantially all of its assets,
including the capital stock of most of its operating subsidiaries, and
assigned substantially all of its liabilities, to CEX Holdings. Corporate
Express believes that the reorganization will enable it to achieve certain
tax advantages, provide it more flexibility to engage in certain financing
transactions and allow it to better manage its operating subsidiaries.
Acquisition Activity. Since the beginning of fiscal 1996, the Company has
completed 56 acquisitions, including 46 office products companies and ten
delivery companies. Of these acquisitions, 35 were in the United States,
five were in Canada, seven were in the United Kingdom, six were in
Australia, two were in New Zealand and one was in Germany.
Recent Financial Results. During the three months ended August 31, 1996,
the Company's net sales were $602.4 million, net income was $11.2 million
and earnings per share were $.15. For the prior year's three month period
ended August 26, 1995, the Company's net sales were $371.1 million, net
income was $5.8 million and earnings per share were $.09.
United TransNet, Inc.
United TransNet offers a variety of customized distribution services for
corporate customers with time-sensitive pickup and delivery requirements.
Management believes that United TransNet is the second largest same-day
delivery service provider in the United States. Through both its ground and
air divisions, United TransNet
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7
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provides scheduled and unscheduled time sensitive delivery service
primarily for local and regional shipments. United TransNet's ground
delivery business serves 47 states and all major metropolitan markets in
the United States. United TransNet's fleet of approximately 4,300 ground
transportation vehicles facilitates United TransNet's broad geographic
coverage.
United TransNet provides a variety of ground distribution services to a
broad range of customers requiring reliable, expedited delivery, including
(i) customized routed service, such as same-day delivery of documents, data
and other paper instruments, primarily for financial institutions; (ii)
small package and parcel service, such as just-in-time delivery of various
products; (iii) same-day and overnight pouch delivery service for items
such as interoffice mail; and (iv) other valued-added services such as on-
call deliveries, mailroom management, expedited mail delivery, warehousing
and transportation network consulting services.
United TransNet offers air expedited delivery service through commercial
airlines and third party aircraft to transport time-sensitive documents and
packages as well as time sensitive door-to-door air service, emergency and
next-flight-out service throughout the United States.
The principal components of United TransNet's operating strategy are to
continue to focus primarily on customized, time sensitive scheduled
delivery service, to maintain internal growth, to capitalize on favorable
industry trends and to pursue an aggressive acquisition program to
consolidate United TransNet's position and broaden its geographic reach.
United TransNet seeks to acquire companies in markets where it already has
a presence, in order to recognize substantial operating advantages and cost
savings, and it also seeks to expand into new markets.
United TransNet is a Delaware corporation, its offices are located at
1080 Holcomb Bridge Road, Building 200, Suite 140, Roswell, Georgia 30076
and its telephone number is (770) 518-1180.
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8
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Strategic Reasons for the Merger
The Corporate Express Board of Directors and management continually
review strategic alternatives available to Corporate Express, including
acquisitions, product extensions and geographic expansion. The Corporate
Express Board of Directors believes that the merger with United TransNet
will (i) allow Corporate Express to offer various additional services which
are complementary to its business; (ii) allow Corporate Express to expand
the geographic reach of its distribution network by utilizing United
TransNet facilities as additional delivery breakpoints; (iii) enhance
Corporate Express' current same-day delivery capabilities; (iv) allow
Corporate Express and United TransNet to cross-sell services to each
other's customers; (v) create economies of scale by allowing the combined
entity to consolidate operating facilities, reduce duplicative
administrative functions and combine national marketing programs; (vi)
decrease Corporate Express' cost of delivery of its office products; and
(vii) create a combined entity positioned to compete more effectively on
both a strategic and financial basis.
The United TransNet Board of Directors believes that the Merger with
Corporate Express will (i) enhance the opportunities for internal growth of
United TransNet's business through its combination with the complementary
business and capabilities of Corporate Express, (ii) allow United TransNet
to pursue its acquisition strategy with an experienced acquisition team and
greater resources, and (iii) enhance stockholder value through
consolidations of operations and administrative functions and reductions in
costs and (iv) enhance the ability to capture national account business.
The Special Meeting
Meeting of Stockholders.............. The Special Meeting of stockholders
of United TransNet (the "Special
Meeting") will be held on Thursday,
November 7, 1996 at 10:00 a.m. (local
time) at ____________ __________,
________.
Matters to be Considered
at the Special Meeting...... At the Special Meeting, stockholders
will be asked to approve and adopt
the Merger Agreement. Pursuant to
the terms of the Merger Agreement,
each share of United TransNet Common
Stock will be converted into
forty-five one hundredths (.45) of
one share of Corporate Express Common
Stock. The Exchange Ratio is subject
to certain adjustments. See "The
Merger - Merger Consideration" and
"-Adjustments to Merger Consideration."
For additional information relating
to the Special Meeting, see "The
Special Meeting."
Quorum; Vote Required............... The presence, in person or by proxy,
of the holders of a majority of the
outstanding shares of United TransNet
Common Stock at the Special Meeting
is necessary to constitute a quorum
at the meeting. Approval of the
Merger Agreement requires the
affirmative vote of the holders of
a
- --------------------------------------------------------------------------------
9
<PAGE>
- --------------------------------------------------------------------------------
majority of the outstanding shares of
United TransNet Common Stock.
See "The Special Meeting - Vote
Required" and "The Merger Agreement -
Conditions to the Merger."
Record Date......................... Only stockholders of record of United
TransNet Common Stock at the close of
business on October 3, 1996 are
entitled to notice of and to vote at
the Special Meeting. On that date,
there were 9,380,946 shares of
United TransNet Common Stock
outstanding, with each share of
United TransNet Common Stock entitled
to cast one vote with respect to the
Merger Agreement at the Special
Meeting.
Security Ownership
of Management.................. As of the record date, the directors
and executive officers of United
TransNet as a group had the power to
vote approximately 32% of the
outstanding shares of United TransNet
Common Stock entitled to vote at the
Special Meeting and have indicated
that they intend to vote their shares
in favor of the Merger Agreement.
See "Principal Stockholders of United
TransNet."
The Merger
Effect of the Merger................ Pursuant to the Merger Agreement,
Acquisition Sub would merge into
United TransNet, United TransNet
would continue as the surviving
corporation (sometimes referred to as
the "Surviving Corporation") and
United TransNet would become a wholly
owned subsidiary of Corporate
Express. All of the shares of United
TransNet Common Stock issued and
outstanding immediately prior to the
consummation of the Merger would be
automatically converted at the
Effective Time (as defined below)
into the right to receive in the
aggregate approximately 4,221,425
shares of Corporate Express Common
Stock, representing approximately
5.6% of the Corporate Express Common
Stock outstanding after the Merger.
Pursuant to the Merger, each share of
United TransNet Common Stock would be
converted into forty-five one
hundredths (.45) of one share of
Corporate Express Common Stock (the
"Exchange Ratio"). The Exchange
Ratio is subject to adjustment if
Corporate Express takes certain
actions with respect to the Corporate
Express Common Stock. See "The
Merger - Merger Consideration" and "-
Adjustments to Merger Consideration."
Assumption of Options................. Each unexpired option to acquire
shares of United TransNet Common
Stock will be automatically converted
at the Effective Time (as defined
below) into an option to purchase
shares of Corporate Express Common
Stock. The number of
- --------------------------------------------------------------------------------
10
<PAGE>
- -------------------------------------------------------------------------------
shares which each option holder shall
have the right to purchase, and the
exercise price of such options, will
be adjusted to reflect the Exchange
Ratio. See "The Merger Agreement -
Additional Agreements."
Recommendation of the Board of
Directors and Reasons for the Merger.. The United TransNet Board of
Directors believes that the terms of
the Merger are fair to and in the
best interests of the United TransNet
stockholders and has unanimously
approved the Merger Agreement and the
related transactions. The United
TransNet Board of Directors
unanimously recommends that United
TransNet stockholders approve the
Merger Agreement. See "The Merger -
Recommendations of the Board of
Directors," "- Background of the
Merger" and " - Reasons for the
Merger."
Opinion of United TransNet's
Financial Advisor................. Smith Barney Inc. ("Smith Barney") has
delivered to the Board of Directors of
United TransNet a written opinion dated
September 10, 1996 to the effect that,
as of the date of such opinion and based
upon and subject to certain matters
stated therein, the Exchange Ratio was
fair, from a financial point of view, to
the holders of United TransNet Common
Stock. The full text of the written
opinion of Smith Barney dated September
10, 1996, which sets forth the
assumptions made, matters considered and
limitations on the review undertaken, is
attached as Appendix II to this Proxy
Statement and Prospectus and should be
read carefully in its entirety. Smith
Barney's opinion is directed only to the
fairness of the Exchange Ratio from a
financial point of view, does not
address any other aspect of the Merger
or related transactions and does not
constitute a recommendation to any
stockholder as to how such stockholder
should vote at the Special Meeting. See
"The Merger -Opinion of United
TransNet's Financial Advisor."
Effective Time of
the Merger..................... The Merger will become effective at
the time provided in a certificate of
merger (the "Certificate of Merger")
to be filed with the Secretary of
State of Delaware (the "Effective
Time"). The filing will be made
simultaneously with or as soon as
practicable after the closing of the
Merger. The closing of the Merger
(the "Closing") will occur on the
fifth business day after all of the
conditions to the Merger contained in
the Merger Agreement have been
satisfied or waived. See "The Merger
Agreement - Conditions to the Merger."
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11
<PAGE>
- --------------------------------------------------------------------------------
Conditions to the
Merger......................... The obligations of Corporate Express
and United TransNet to consummate the
Merger are subject to certain
conditions including: (i) obtaining
the approval of the stockholders of
United TransNet; (ii) obtaining
authorization for listing on the
NASDAQ National Market (the
"NASDAQ"), subject to official notice
of issuance, of the Corporate Express
Common Stock to be issued in
connection with the Merger; (iii) the
expiration or termination of the
relevant waiting period under the
Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended
(the "HSR Act"); (iv) the
effectiveness of the Registration
Statement of which this Proxy
Statement and Prospectus is a part;
(v) no order being entered in any
action or proceeding or other legal
restraint or prohibition preventing
the consummation of the Merger; (vi)
the receipt by each party of various
legal, financial and accounting
opinions, comfort letters and other
certificates, consents, reports and
approvals from the other parties to
the Merger and from third parties;
(vii) the accuracy in all material
respects of the representations and
warranties of each party and
performance in all material respects
by each party; and (viii) the absence
of any material adverse change in the
business or financial condition of
Corporate Express or United TransNet.
See "The Merger - Certain Regulatory
Matters" and "The Merger Agreement -
Conditions to the Merger."
No Solicitation....................... United TransNet has agreed that,
prior to the Effective Time, it will
not initiate or solicit any proposal
or offer to acquire all or any
substantial part of the business and
properties of United TransNet and its
subsidiaries or any capital stock of
United TransNet and its subsidiaries,
whether by merger, purchase of
assets, tender offer or otherwise.
See "The Merger - No Solicitation."
Termination, Amendment and Waiver... The Merger Agreement may be
terminated at any time prior to the
Effective Time by mutual consent of
Corporate Express and United
TransNet, or, generally, by either
party if (i) the Merger shall not
have been completed by December 31,
1996, (ii) the Merger is enjoined by
court order, (iii) either party fails
to perform in any material respect
any of its covenants under the Merger
Agreement or (iv) United TransNet's
stockholders fail to approve the
Merger. In addition, either
Corporate Express or United TransNet
may extend the time for performance
of any of the obligations of the
other party or may waive conditions
with respect to those obligations.
United TransNet may terminate the
Merger Agreement in connection with
consummating an alternative
Acquisition
- --------------------------------------------------------------------------------
12
<PAGE>
- --------------------------------------------------------------------------------
Transaction (as hereinafter defined).
See "The Merger Agreement -
Termination, Amendment and Waiver."
Appraisal Rights.................... United TransNet stockholders will not
be entitled to any appraisal or
dissenters' rights under the Delaware
General Corporation Law in connection
with the Merger. See "The Merger -
Rights of Dissenting Stockholders."
Certain Regulatory Matters.......... Consummation of the Merger is subject
to certain regulatory approvals.
Although no assurance can be given,
Corporate Express and United TransNet
believe that the Merger can be
effected in compliance with all
federal and state regulations. See
"The Merger - Certain Regulatory
Matters."
Certain Federal Income
Tax Consequences................... The Merger is intended to qualify as
a tax-free reorganization for federal
income tax purposes so that no gain
or loss would be recognized by
Corporate Express or United TransNet,
and no gain or loss would be
recognized by United TransNet
stockholders, except in respect of
cash received for fractional shares.
Consummation of the Merger is
conditioned upon there being
delivered to United TransNet an
opinion of counsel prior to the
Closing to the effect that the United
TransNet stockholders will recognize
no gain or loss for federal income
tax purposes as a result of the
consummation of the Merger, except to
the extent cash is received in lieu
of fractional shares. See "The
Merger - Certain Federal Income Tax
Consequences."
Anticipated Accounting
Treatment.......................... The Merger is expected to qualify as
a "pooling of interests" transaction for
accounting and financial reporting
purposes. Consummation of the Merger
is conditioned upon there being
delivered prior to the Closing a
letter from Coopers & Lybrand L.L.P.,
certified public accountants, stating
that the Merger will qualify as a
pooling-of-interests transaction for
financial accounting purposes. See
"The Merger - Anticipated Accounting
Treatment."
Interests of Certain
Persons in the Merger.............. In considering the recommendation of
the United TransNet Board of
Directors with respect to the Merger,
United TransNet stockholders should
be aware that certain members of the
United TransNet Board of Directors,
as senior management of United
TransNet, have interests in the
Merger and will receive certain
payments for services provided in
connection therewith. See "The
Merger - Interests of Certain Persons
in the Merger" for a description of
such arrangements.
- --------------------------------------------------------------------------------
13
<PAGE>
- --------------------------------------------------------------------------------
Summary Combined Financial Statements
The following unaudited combined financial data of Corporate
Express and United TransNet give effect to the Merger by combining the
results of operations of Corporate Express and United TransNet on a
"pooling of interests" basis as if Corporate Express and United TransNet
had been combined since inception. For other information regarding the
combined financial data, see "Corporate Express, Inc. and United TransNet,
Inc. Unaudited Combined and Pro Forma Financial Information." Estimated
direct costs of the Merger and other costs of consolidation have not been
determined and are not included in the following financial data.
<TABLE>
<CAPTION>
Three Months
Year Ended Year Ended Ended
February 25, 1995(1) March 2, 1996(1) June 1, 1996
-------------------- ---------------- ------------
(In thousands except per share data)
<S> <C> <C> <C>
Unaudited Combined Statement of
Operations Data:
Revenue $927,918 $1,590,104 $ 570,249
Operating profit 33,640 29,804 22,257
Net income 12,735 2,744 10,232
Net income per common share $.25 $ .04 $ .13
Weighted average common shares outstanding 49,195 72,017 79,346
Unaudited Combined Balance Sheet Data:
<CAPTION>
As of
June 1, 1996
------------
<S> <C>
Working capital $ 209,628
Total assets 1,203,574
Long-term debt and capital lease obligations
(including current portion) 292,534
Shareholders' equity 540,826
</TABLE>
(1) United TransNet's merger and offering were completed as of
December 19, 1995, and as a result, there were no results of
operations for United TransNet for the year ended February 25, 1995.
The unaudited combined financial data for the year ended March 2, 1996
excludes the results of operations of United TransNet during the
period from December 20 through December 31, 1995 due to
immaterialality
- --------------------------------------------------------------------------------
14
<PAGE>
- --------------------------------------------------------------------------------
Comparative Historical and Pro Forma Per Share Data
The following summary presents selected comparative per share information
for (i) Corporate Express on an historical basis in comparison with pro
forma information giving effect to the Merger on a pooling of interests
basis, and (ii) United TransNet on an historical basis in comparison with
its pro forma equivalent information after giving effect to the Merger,
including the receipt of the Corporate Express Common Stock for the United
TransNet Common Stock in accordance with the Merger. The pro forma
financial information should be read in conjunction with the historical
financial statements of Corporate Express and United TransNet and the
related notes thereto contained elsewhere herein or incorporated herein by
reference, and in conjunction with the unaudited pro forma financial
information appearing elsewhere in this Proxy Statement and Prospectus.
The following information is not necessarily indicative of the combined
results of operations or combined financial position that would have
resulted had the Merger been consummated at the beginning of the periods
indicated, nor is it necessarily indicative of the combined results of
operations in future periods or future combined financial position.
<TABLE>
<CAPTION>
Year Ended Three Months
March 2, Ended
1996 June 1, 1996
----------------- ------------------
<S> <C> <C>
Net income (loss) per common and common
equivalent share from continuing operations:
Corporate Express Historical.................. $ .04 $ .13
Corporate Express and United
TransNet Combined............................ .04 .13
Period Ended Three Months Ended
December 31, 1995 March 30, 1996
----------------- ------------------
United TransNet Historical.................... $ .31 $ .18
United TransNet Pro forma equivalent(1)....... .02 .06
March 2,
1996 June 1, 1996
----------------- ------------------
Stockholders' equity per common share:
Corporate Express Historical............................ $7.19 $7.38
Corporate Express and United TransNet Combined.......... 7.03 7.36
December 31,
1995 March 30, 1996
----------------- ------------------
United TransNet Historical.............................. $1.88 $2.64
United TransNet Pro forma equivalent(2)................. 3.16 3.31
</TABLE>
- --------------------------------------------------------------------------------
(1) Represents the Corporate Express and United TransNet Combined net income per
common and common equivalent share from continuing operations multiplied by
the Exchange Ratio of .45.
(2) Represents the Corporate Express and United TransNet Combined stockholders'
Equity per common share multiplied by the Exchange Ratio of .45.
15
<PAGE>
- --------------------------------------------------------------------------------
Comparative Market Data
Corporate Express Common Stock has been traded on the NASDAQ under the
symbol "CEXP" since September 23, 1994. The following table sets forth,
for the fiscal quarters indicated, the high and low closing sale prices for
the Corporate Express Common Stock, as reported by the NASDAQ:
<TABLE>
<CAPTION>
High Low
------ ------
<S> <C> <C>
Fiscal 1994
Third Quarter (from September 23)..... $15.83 $12.83
Fourth Quarter........................ 17.50 11.00
Fiscal 1995
First Quarter......................... 20.00 15.33
Second Quarter........................ 25.75 19.00
Third Quarter......................... 29.88 20.00
Fourth Quarter........................ 31.63 23.13
Fiscal 1996
First Quarter......................... 42.25 28.88
Second Quarter........................ 45.81 32.75
Third Quarter (through September 24).. 38.00 32.63
</TABLE>
As of September 24, 1996, Corporate Express Common Stock was held
by approximately 569 holders of record.
United TransNet Common Stock has been traded on the NYSE under the
symbol "UT" since December 15, 1995. The initial public offering price of
the Common Stock was $14.50 per share. The following table sets forth the
range of high and low sale prices for the United TransNet Common Stock for
the period from December 15, 1995, the date trading commenced with regard
to United TransNet Common Stock, through September 24, 1996, as reported in
the Wall Street Journal:
<TABLE>
<CAPTION>
High Low
------- ---------
<S> <C> <C>
Fiscal 1995
Fourth Quarter (from December 15)............ $ 15.25 $14.50(1)
Fiscal 1996
First Quarter................................. 23.375 14.50
Second Quarter................................ 29.00 20.125
Third Quarter (through September 24).......... 24.825 10.25
</TABLE>
__________________________
(1) Represents the initial public offering price.
As of October 3, 1996, United TransNet Common Stock was held by
approximately [75] holders of record.
- --------------------------------------------------------------------------------
16
<PAGE>
- --------------------------------------------------------------------------------
The following table sets forth the closing price per share of Corporate
Express Common Stock and United TransNet Common Stock on the NASDAQ and the
NYSE, respectively, and the equivalent per share price (as explained below) of
United TransNet Common Stock on September 10, 1996, the business day preceding
public announcement of the Merger:
<TABLE>
<CAPTION>
Market Price Corporate Express United TransNet Equivalent
Per Share At: Common Stock Common Stock Per Share Price(1)
------------- ------------ ------------ ------------------
<S> <C> <C> <C>
September 10, 1996 $32.75 $15.50 $14.7375
</TABLE>
- -----------------------------
(1) The equivalent per share price of a share of United TransNet Common
Stock represents the closing price of a share of Corporate Express
Common Stock on such date multiplied by the Exchange Ratio of .45
shares of Corporate Express Common Stock for each share of United
TransNet Common Stock. The Exchange Ratio is subject to adjustment
under certain circumstances. See "The Merger - Merger Consideration"
and " - Adjustments to Merger Consideration."
United TransNet stockholders are advised to obtain current market
quotations for Corporate Express Common Stock and United TransNet Common Stock.
No assurance can be given as to the market price of Corporate Express Common
Stock or United TransNet Common Stock at, or in the case of Corporate Express
Common Stock, after the Effective Time.
Dividend Policy
Corporate Express has not paid cash dividends since inception. It is
anticipated that Corporate Express will retain all earnings for use in the
expansion of the business and therefore does not anticipate paying any cash
dividends in the foreseeable future. Corporate Express intends to retain its
earnings to finance the expansion of its business and for general corporate
purposes. Any future payment of dividends will be at the discretion of the
Corporate Express Board of Directors and will depend upon, among other things,
earnings, financial condition, capital requirements, level of indebtedness,
contractual restrictions with respect to the payment of dividends and other
relevant factors. Corporate Express' senior credit facility prohibits the
distribution of dividends without the prior written consent of the lenders.
Additionally, the indenture (the "Indenture") governing Corporate Express' 9%
Senior Subordinated Notes prohibits any dividend which would cause a default
under the Indenture or which would cause the failure to comply with certain
financial covenants.
United TransNet does not anticipate paying any dividends on its Common
Stock in the foreseeable future and intends to retain future earnings, if any,
for its business. Any future payment of dividends on the United TransNet Common
Stock is within the discretion of the Board of Directors of United TransNet and
will depend on varying factors, including the capital requirements, operating
results and financial condition of United TransNet from time to time. United
TransNet's credit agreement limits United TransNet's ability to pay cash
dividends on its Common Stock. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources."
- --------------------------------------------------------------------------------
17
<PAGE>
RISK FACTORS
In addition to other information in this Proxy Statement and
Prospectus, the following factors should be considered carefully in
evaluating the proposals to be voted on at the Special Meeting and in
evaluating an investment in Corporate Express Common Stock.
Risks Relating to Corporate Express
Rapid Expansion; Integration of Acquisitions; Dependence on
Acquisitions for Future Growth. 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, Germany and New
Zealand. The majority of these acquisitions have occurred within the past
two years. To date in fiscal 1996, Corporate Express has completed 56
acquisitions. In fiscal 1995, Corporate Express completed 51 acquisitions.
In fiscal 1994, Corporate Express completed 26 acquisitions. 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 and implement the
Corporate Express business model. Corporate Express has not fully
implemented the Corporate Express business model in many of its North
American regions, which regions generally are not performing as favorably
as the regions in which the Corporate Express business model has been
implemented. 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. In
addition, there can be no assurance that Corporate Express will be able to
implement key aspects of the Corporate Express business model in a timely
manner without substantial costs, delays or other problems. 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.
A major element of Corporate Express' business strategy is to continue
to pursue acquisitions that either expand or complement its business in new
or existing regions. Acquisitions have constituted, and Corporate Express
expects that acquisitions will continue to constitute in the future, 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.
The failure to complete acquisitions and continue its expansion could have
a material adverse effect on Corporate Express' financial performance. As
Corporate Express proceeds with its acquisition strategy, it will continue
to encounter the risks associated with the integration of acquisitions
described above.
International Expansion. Corporate Express acquired or made
investments in companies in Canada and Australia in calendar 1995 and the
United Kingdom, Germany and New Zealand in calendar 1996. In addition,
Corporate Express recently entered into definitive agreements to purchase
two office products companies in Italy
18
<PAGE>
and plans to enter additional international markets in the future. Over
time, Corporate Express plans 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 and focusing on larger customers and national and
international accounts. Expansion into international markets may involve
additional risks relating to implementing key aspects of the Corporate
Express business model, as well as risks relating to currency exchange
rates, new and different legal, tax, accounting and regulatory
requirements, difficulties in staffing and managing foreign operations,
operating difficulties and other factors. Due to a review of competition
in the Australian office products market by the Australian Competition and
Consumer Commission, future acquisitions of office products suppliers by
Corporate Express' majority-owned subsidiary, Corporate Express Australia,
may be subject to heightened regulatory scrutiny.
Expanded Product and Service Offering. In recent months, Corporate
Express has significantly expanded its product and service offering through
the acquisition of Richard Young Journal, Inc. ("Young"), a computer
products distributor, Delivery, a same-day local delivery company, and ASAP
Software Express, Inc. ("ASAP"), a direct reseller of computer software and
provider of related services. Certain complementary products now offered
by Corporate Express, such as computer software, have lower gross profit
margins than the products traditionally sold by Corporate Express.
Corporate Express intends to continue to make additions to its product and
service offering in the future. Moreover, the addition by Corporate
Express to its product and service offering 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.
Dependence on Systems. During April 1996, Corporate Express began the
implementation of a new 3.0 release of its "ISIS" computer software which
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 offering, operating
procedures and customer services. This is expected to provide Corporate
Express with 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. 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. Corporate Express has taken precautions to protect itself from
events that could interrupt its operations, including back-up power
supplies that allow its computer system to function in the event of a power
outage, off-site storage of back-up data, fire protection, physical
security systems and an early warning detection and fire extinguishing
system. Notwithstanding these precautions, there can be no assurance that
a fire, flood or other natural disaster affecting Corporate Express' system
or its dedicated communication line would not disable the system or prevent
the system from communicating with the regional warehouses. The occurrence
of any of these events could have a material adverse effect on Corporate
Express' operations and financial performance.
19
<PAGE>
Substantial Competition. Corporate Express 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 the delivery services sector Corporate
Express has numerous competitors, certain of which may have service
capabilities which are equal to or greater than 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.
Fluctuations in Quarterly Operating Results. Corporate Express'
product distribution business is subject to seasonal influences. In
particular, net sales and profits in the United States and Canada are
typically lower in the three months ending in late August due to lower
levels of business activity during the summer months. 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 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 assimilation 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.
Dependence on Key Management. Corporate Express' success will continue
to depend to a significant extent on its executive officers and other key
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 certain management
personnel of the acquired companies. The loss of the services of key
managers could have a material adverse effect upon Corporate Express'
business.
Possible Volatility of Stock Price. The market price of Corporate
Express' Common Stock has been, and can be expected to continue to be,
subject to significant fluctuations caused by variations in quarterly
operating results, litigation involving Corporate Express, announcements by
Corporate Express or its competitors, general conditions in the office
products and services industry and other factors. Since the beginning of
fiscal 1996, the Common Stock has traded in the range of $28.88 to $46.75.
The stock market in recent years has experienced extreme price and volume
fluctuations that often have been unrelated or disproportionate to the
operating performance of publicly traded companies. These broad
fluctuations may adversely affect the market price of Corporate Express
Common Stock.
Risks Relating to United TransNet
Absence of Combined Operating History. United TransNet was founded in
October 1995 to effect the merger of six ground and air courier companies
and prior to December 1995 conducted no operations. Prior to such mergers,
each of such ground and air courier companies operated as a separate
independent entity and there can be no assurance that United TransNet's
management will successfully integrate the combined entity and effectively
implement United TransNet's operating or growth strategies. See "The
Companies - Business of United TransNet."
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Acquisition Strategy; Possible Need for Additional Financing. One of
United TransNet's business strategies is to acquire additional scheduled
ground and air courier companies that will complement its existing
operations or provide it with an entry into regions it does not presently
serve. There can be no assurance that United TransNet will be able to
acquire or profitably manage additional companies or successfully integrate
such additional companies into United TransNet. In addition, there can be
no assurance that companies acquired in the future either will be
beneficial to the successful implementation of United TransNet's overall
strategy or will ultimately produce returns that justify the investment
therein, or that United TransNet will be successful in achieving meaningful
economies of scale through the acquisition thereof. See "The Companies -
Business of United TransNet -- Acquisition Strategy."
Highly Competitive Industry. The market for scheduled ground and air
courier services is highly competitive. Competition on pricing is often
intense in the courier industry, particularly for basic delivery services.
Additionally, other companies with significantly greater financial and
other resources than United TransNet that do not currently operate ground
and air courier businesses may enter the industry in the future. See "The
Companies -Business of United TransNet -- Competition."
Claims Exposure. As of June 29, 1996, United TransNet utilized the
services of approximately 5,800 drivers and from time to time such drivers
are involved in accidents. United TransNet carries liability insurance of
$15 million for each such accident (it may effectively self-insure for the
first $250,000 claimed), and independent owner/operators are required to
maintain liability insurance of at least the minimum amounts required by
applicable state law. Furthermore, all drivers and independent
owner/operators are covered by United TransNet's fidelity bond. There can
be no assurance that claims against United TransNet, whether under the
liability insurance or the fidelity bond, will not exceed the applicable
amount of coverage. In addition, United TransNet's increased visibility and
financial strength as a public company may create additional claims
exposure. If United TransNet were to experience a material increase in the
frequency or severity of accidents, liability claims, workers' compensation
claims, or unfavorable resolutions of claims, United TransNet's operating
results could be materially adversely affected. In addition, significant
increases in insurance costs could reduce United TransNet's profitability.
Reliance on Key Personnel. United TransNet's operations are dependent
on the continued efforts of its executive officers and senior management.
Furthermore, United TransNet may to some extent be dependent on the senior
management of companies that may be acquired in the future. If the
executive officers of United TransNet become unable or decide not to
continue in their present roles, or if a material number of such senior
management fail to continue with United TransNet and United TransNet is
unable to attract and retain other skilled employees, United TransNet's
business could be adversely affected.
Status of Independent Owner/Operators. From time to time, federal and
state authorities have sought to assert that independent owner/operators in
the transportation industry, including those utilized by United TransNet,
are employees, rather than independent contractors. United TransNet
believes that the independent owner/operators utilized by United TransNet
are not employees under existing interpretations of federal and state laws.
However, there can be no assurance that federal and state authorities will
not challenge this position, or that other laws or regulations, including
tax laws, or interpretations thereof, will not change. If, as a result of
any of the foregoing, United TransNet is required to pay for and administer
added benefits to independent owner/operators, United TransNet's operating
costs would increase. Additionally, if United TransNet is required to pay
backup withholding with respect to amounts paid to such persons, it may be
required to pay penalties which could have a material adverse effect on
operating results. See "The Companies - Business of United TransNet --
Ground Courier Operations -- Use of Independent Owner/ Operators."
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Technology. Some analysts have predicted that the increased use of
electronic funds transfers will cause the development of a "checkless
society", which could adversely affect demand for United TransNet's
services from the financial services industry. Similarly, technological
advances in the nature of "electronic mail" and "telefax" have affected the
demand for on-call delivery services by customers. While none of these
technological developments has had a significant adverse impact on United
TransNet's business to date, and although the number of checks written in
the United States has increased annually since 1990, there can be no
assurance that these or similar technologies will not have an adverse
effect on United TransNet in the future. See "The Companies -Business of
United TransNet -- Business Strategy" and "-- Ground Courier Operations."
Significant Influence of Directors and Executive Officers. As of the
date of this Proxy Statement and Prospectus, United TransNet's directors
and executive officers as a group beneficially owned approximately 32.0% of
the outstanding United TransNet Common Stock. Although the directors and
executive officers as a group do not hold a majority of the outstanding
United TransNet Common Stock, they are in a position, if they act together,
to exert significant influence over the election of directors and other
corporate actions requiring stockholder approval, such as the Merger. See
"Principal Stockholders of United TransNet."
Risks Relating to the Merger
No Assurance of Successful Integration of Certain Operations.
Corporate Express and United TransNet have entered into the Merger
Agreement with the expectation that the Merger will result in certain
benefits for the combined company. See "The Merger - Reasons for the
Merger." Achieving the anticipated benefits of the Merger will depend in
part upon whether the integration of the two companies' business is
achieved in an efficient and effective manner, and there can be no
assurance that this will occur. The combination of the two companies will
require, among other things, coordination of the companies' sales and
marketing and research and development efforts. There can be no assurance
that integration will be accomplished on a timely basis, or at all. The
difficulties of such integration may be increased by the necessity of
coordinating geographically separated organizations. The integration of
certain operations following the Merger will require the dedication of
management resources which may distract attention from the day-to-day
business of the combined company. Failure to effectively accomplish the
integration of the two companies' operations could have a material adverse
effect on Corporate Express' results of operations and financial condition.
Exchange Ratio May Not Fully Reflect Changes in Stock Prices. The
relative stock prices of Corporate Express Common Stock and United TransNet
Common Stock at the Effective Time may vary significantly from the prices
as of the date of execution of the Merger Agreement, the date hereof or the
date on which United TransNet stockholders vote on the Merger due to, among
other factors, changes in the business, operations and prospects of
Corporate Express or United TransNet, market assessments of the likelihood
that the Merger will be consummated and the timing thereof and general
market and economic conditions. The Exchange Ratio is fixed and may not
fully reflect the relative impact of a change in the value of Corporate
Express Common Stock. Additionally, the Exchange Ratio will not be adjusted
to reflect changes in the value of United TransNet Common Stock. See "The
Merger -Adjustments to Merger Consideration."
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THE SPECIAL MEETING
Special Meeting of United TransNet Stockholders
The Special Meeting will be held at _____________________________, on
November 7, 1996, at 10:00 a.m., local time, and at any adjournment or
postponement thereof.
At the Special Meeting, the stockholders of United TransNet will be
asked to consider and vote upon the adoption and approval of the Merger
Agreement under which, among other things, Acquisition Sub would be merged
into United TransNet with United TransNet surviving the Merger. United
TransNet would become a wholly owned subsidiary of Corporate Express, and
all of the issued and outstanding shares of United TransNet Common Stock
would be converted into the right to receive, subject to and in accordance
with the terms and conditions of the Merger Agreement, an aggregate of
approximately 4,221,425 shares of Corporate Express Common Stock, and each
unexpired and outstanding option or warrant to acquire United TransNet
Common Stock (a "United TransNet Option") would be converted into an
equivalent option or warrant to acquire Corporate Express Common Stock,
with quantity and exercise price adjusted to reflect the Exchange Ratio.
The Exchange Ratio is subject to adjustment in certain circumstances
described herein. A copy of the Merger Agreement is attached hereto as
Appendix I. See "The Merger - Adjustments to the Merger Consideration."
The United TransNet Board of Directors has unanimously approved the
Merger Agreement and recommends a vote FOR approval of the Merger
Agreement.
Quorum
The presence, in person or by proxy, of the holders of a majority of
the outstanding shares of United TransNet Common Stock at the Special
Meeting is necessary to constitute a quorum.
Vote Required
The affirmative vote of the holders of a majority of the outstanding
shares of United TransNet Common Stock is required to approve the Merger
Agreement.
Record Date; Stock Entitled to Vote
The United TransNet Board of Directors has established October 3, 1996
as the date to determine those record holders of United TransNet Common
Stock entitled to notice of and to vote at the Special Meeting. On that
date, there were 9,380,946 shares of United TransNet Common Stock
outstanding, with each share entitled to one vote with respect to the
Merger Agreement.
Voting of Proxies
Shares represented by all properly executed proxies received in time
for the Special Meeting will be voted at such meetings in the manner
specified by the holders thereof. Properly executed proxies that do not
contain voting instructions will be voted FOR approval of the Merger
Agreement at the Special Meeting. It is not expected that any matter other
than that referred to herein will be brought before the Special Meeting.
If a holder of United TransNet Common Stock does not return a signed
proxy card, his or her shares will not be voted and thus will have the
effect of a vote against the Merger Agreement at the Special Meeting.
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Abstentions and broker non-votes will have the effect of a vote against the
Merger Agreement at the Special Meeting.
United TransNet has agreed to use its best efforts to cause its
officers and employee directors to deliver to Corporate Express irrevocable
proxies authorizing Corporate Express to vote all shares of United TransNet
Common Stock held by such officer or employee director in favor of the
Merger. It is expected that such irrevocable proxies will contain
provisions for termination upon the occurrence of certain events, including
(i) the termination of the Merger Agreement in accordance with its terms
and (ii) the withdrawal by United TransNet of its approval of the Merger
Agreement. Additionally, irrevocable proxies have been granted by
BancBoston Ventures Inc., Fleet Venture Resources, Inc. and Fleet Venture
Partners III, major stockholders of United TransNet with representation on
its Board of Directors, which proxies terminate in the event that during
the ten (10) trading days ending five (5) full days prior to the date of
the Special Meeting, the average closing sales price of Corporate Express
Common Stock is less than thirty dollars ($30.00) per share.
Revocation of Proxies
Any holder of United TransNet Common Stock has the unconditional right
to revoke his or her proxy at any time prior to the voting thereof at the
Special Meeting by (i) filing a written revocation with the Secretary of
United TransNet prior to the voting of such proxy, (ii) giving a duly
executed proxy bearing a later date, or (iii) attending the Special Meeting
and voting in person. Attendance by a stockholder at the Special Meeting
will not itself revoke his or her proxy.
Solicitation of Proxies
Solicitation of proxies for use at the Special Meeting may be made in
person or by mail, telephone, telecopy or telegram. United TransNet will
bear the cost of the solicitation of proxies from its stockholders, and
Corporate Express and United TransNet will bear equally the cost of
printing and mailing this Proxy Statement and Prospectus. In addition to
solicitation by mail, the directors, officers and employees of United
TransNet and its subsidiaries may solicit proxies from stockholders of
United TransNet by telephone, telecopy, telegram or in person. United
TransNet has requested banking institutions, brokerage firms, custodians,
trustees, nominees and fiduciaries to forward solicitation materials to the
beneficial owners of United TransNet Common Stock held of record by such
entities, and United TransNet will, upon the request of such record
holders, reimburse reasonable forwarding expenses. Corporate
Communications, Inc., United TransNet's regularly retained adviser with
respect to investor relations, will participate in the proxy solicitation
process, but will receive no additional remuneration for these services.
UNITED TRANSNET STOCKHOLDERS SHOULD NOT SEND STOCK CERTIFICATES WITH
THEIR PROXY CARDS.
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THE MERGER
Merger Consideration
Pursuant to the Merger Agreement, at the Effective Time, Acquisition
Sub will merge into United TransNet. Upon consummation of the Merger, each
share of United TransNet Common Stock issued and outstanding immediately
prior to the Effective Time (other than shares of United TransNet Common
Stock owned by United TransNet as treasury stock and shares of United
TransNet Common Stock owned by Corporate Express, Acquisition Sub or any
wholly owned subsidiary of Corporate Express or United TransNet to be
canceled in accordance with the Merger Agreement) shall be converted into
.45 shares of Corporate Express Common Stock, and each unexpired United
TransNet Option and warrant to purchase United TransNet Common Stock which
is outstanding at the Effective Time shall automatically be converted into
an option or warrant to purchase .45 shares of Corporate Express Common
Stock, at an exercise price which is adjusted to reflect the Exchange
Ratio.
Immediately after the Effective Time, the stockholders of United
TransNet will hold approximately 5.6% of the outstanding Corporate Express
Common Stock.
The consideration to be issued to each United TransNet stockholder in
the Merger will be that number of shares of Corporate Express Common Stock
which is determined by multiplying the Exchange Ratio by the number of
shares of United TransNet Common Stock held by such United TransNet
stockholder on the Closing Date (as hereinafter defined). The Exchange
Ratio shall equal .45 shares of Corporate Express Common Stock for each
share of United TransNet Common Stock immediately prior to the Effective
Time (as hereinafter defined).
Adjustments to Merger Consideration
If, prior to Closing, Corporate Express: (i) pays a dividend or makes
a distribution on any class of Corporate Express Common Stock in shares of
any class of Corporate Express Common Stock; (ii) subdivides its
outstanding shares of any class of Corporate Express Common Stock into a
greater number of shares; (iii) combines its outstanding shares of any
class of Corporate Express Common Stock into a smaller number of shares;
(iv) pays a dividend or makes a distribution on any class of Corporate
Express Common Stock in shares of its capital stock other than Corporate
Express Common Stock; (v) issues by reclassification of any class of
Corporate Express Common Stock any shares of its capital stock; or (vi)
takes any other corporate action the effect of which is to change the
number of shares of Corporate Express Common Stock outstanding; then the
Exchange Ratio in effect immediately prior to such action shall be
proportionately adjusted so that the holder of any shares of United
TransNet Common Stock or any United TransNet Options thereafter shall
receive the aggregate number and kind of shares of Corporate Express Common
Stock (and other capital stock, as the case may be) which it would have
owned immediately following such action if such shares of United TransNet
Common Stock or such United TransNet Options had been converted to
Corporate Express Common Stock or Corporate Express Options, as the case
may be, immediately prior to such action. The adjustment in the Exchange
Ratio shall become effective immediately after the applicable record date
in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision, combination, reclassification
or other corporate action.
Conversion of Shares; Procedures for Exchange of Certificates; Fractional
Shares
The conversion of United TransNet Common Stock into Corporate Express
Common Stock will occur automatically at the Effective Time.
Promptly after the Special Meeting of United TransNet's stockholders
at which the Merger will be considered, Chemical Trust Company of
California, or another bank or trust company designated by Corporate
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Express and reasonably acceptable to United TransNet, in its capacity as
Exchange Agent (the "Exchange Agent"), will mail a transmittal form to each
United TransNet stockholder. The transmittal form will contain
instructions with respect to the surrender of certificates representing
United TransNet Common Stock to be exchanged for Corporate Express Common
Stock.
UNITED TRANSNET STOCKHOLDERS SHOULD NOT FORWARD UNITED TRANSNET STOCK
CERTIFICATES TO THE EXCHANGE AGENT UNTIL THEY HAVE RECEIVED TRANSMITTAL
FORMS. UNITED TRANSNET STOCKHOLDERS SHOULD NOT RETURN STOCK CERTIFICATES
WITH THE ENCLOSED PROXY.
No fractional shares of Corporate Express Common Stock will be issued
to any United TransNet stockholder upon consummation of the Merger. For
each fractional share that would otherwise be issued, the Exchange Agent
will pay by check an amount equal to a pro rata portion of the closing
price of Corporate Express Common Stock as reported on the NASDAQ on the
last trading day immediately preceding the Effective Time.
NASDAQ Listing
It is a condition to the Merger that the shares of Corporate Express
Common Stock to be issued in the Merger be authorized for listing on the
NASDAQ, subject to official notice of issuance.
Background of the Merger
In the ordinary course of Corporate Express' business, Corporate
Express routinely analyzes potential combinations and acquisitions of
companies which offer products or services complementary to those offered
by Corporate Express and consistent with its corporate supplier model. In
this regard, on March 1, 1996, Corporate Express merged with Delivery in
order to, among other things, allow Corporate Express to offer various
additional services complementary to its business, allow Corporate Express
to expand the geographic reach of its existing distribution facilities by
utilizing Delivery facilities as additional delivery breakpoints and create
a combined entity positioned to compete more effectively on both a
strategic and financial basis. Corporate Express' management believes that
United TransNet's concentration on certain geographical markets will
enhance Corporate Express' current capabilities for same-day delivery
services nationally.
At various times during 1994 and 1995, following Delivery's initial
public offering, representatives of Delivery contacted the principals of
five of the six companies which ultimately merged in December 1995 to form
United TransNet. Although several of the companies provided financial
information for review by Delivery representatives, none of the contacts or
ensuing discussions resulted in any verbal or written agreements or
understandings, and such discussions were not continued.
In mid-March, 1996, following the merger of Delivery with Corporate
Express, Mr. Clayton K. Trier, Chief Executive Officer of Delivery and a
director of Corporate Express, contacted Mr. Philip A. Belyew, President
and Chairman of United TransNet, by telephone. Mr. Trier expressed a desire
to merge United TransNet with Corporate Express. Mr. Belyew indicated his
receptiveness to considering such a proposal, and agreed to meet with Mr.
Trier.
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On April 19, 1996, Mr. Belyew and two other United TransNet directors,
Mr. Craig A. Deery and Mr. Habib Y. Gorgi, visited Corporate Express'
offices in Broomfield, Colorado. They attended presentations by Mr. Trier,
Mr. Jirka Rysavy, Corporate Express' Chairman and Chief Executive Officer,
and Mr. Robert L. King, Corporate Express' President and Chief Operating
Officer, and also toured Corporate Express' facilities. The parties
discussed the proposed structure and valuation of a merger of the two
companies, historical and projected earnings of United TransNet and the
proposed terms of a merger agreement. The parties did not reach mutually
agreeable understandings on the basis for a transaction at this meeting.
On May 7, 1996, at a meeting of the Board of Directors of United
TransNet held in Atlanta, Georgia, Mr. Belyew discussed his meetings and
contacts with Corporate Express and Delivery. The Board agreed to proceed
with the discussions.
On May 16, 1996, the Corporate Express Board of Directors met by
telephonic conference call. Therein the Board authorized members of
management of Corporate Express and Delivery to continue negotiations with
United TransNet. On May 17, 1996, Mr. Belyew and Mr. Trier met while
attending a conference in Orlando, Florida and engaged in further
discussions. On May 28, 1996, Mr. Belyew, Mr. Ronald J. Barowski, Executive
Vice President and Chief Financial Officer of United TransNet, and Mr. R.
David England, Jr., United TransNet's Executive Vice President, Ground,
made a presentation to Corporate Express and Delivery senior executives at
Corporate Express' offices in Broomfield. Further discussions were arranged
in order to consider United TransNet's financial information in more
detail.
From June 3 - 5, 1996, Delivery senior executives and their
accountants met with United TransNet senior executives and their
accountants at the corporate headquarters of United TransNet in Roswell,
Georgia. The parties reviewed United TransNet's historical financial
performance and earnings projections. The parties continued to discuss
terms of the transaction, but these discussions did not result in an
agreement on definitive terms of the proposed merger.
On June 8, 1996, the parties reached an agreement on the general terms
of a proposed merger, subject to negotiation of a definitive merger
agreement, receipt of fairness opinions from their respective financial
advisors, completion of due diligence by both parties and the approval of
their respective Boards of Directors.
On June 9, 1996, the United TransNet Board of Directors met by
telephone conference call. The Board approved the continuation of
discussions with Corporate Express leading to a definitive merger
agreement. In light of its preliminary determination that a merger with
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Corporate Express appeared to be in the best interests of United TransNet
and its stockholders, the Board authorized Mr. Belyew to commission
qualified consultants for the purpose of evaluating Corporate Express.
Subsequently, United TransNet retained Smith Barney to assist United
TransNet in evaluating from a financial point of view the fairness of the
proposed merger consideration to the holders of United TransNet Common
Stock, and engaged other professional advisors to assist in the conduct of
due diligence on behalf of United TransNet's Board of Directors.
From June 16 - 18, 1996, certain members of Delivery's management and
outside legal counsel conducted legal due diligence at the offices of
United TransNet's outside counsel in Boston, Massachusetts. On June 19 and
20, 1996, certain members of Delivery's senior management and United
TransNet's senior management and United TransNet's outside counsel
continued negotiations regarding the terms of the merger agreement. The
parties failed to reach an agreement on certain terms of the proposed
transaction.
On June 30, 1996, the United TransNet Board of Directors met in
Atlanta, Georgia to consider the merger with Corporate Express. At the
meeting, Mr. Belyew and Mr. Gorgi discussed the course of discussions since
the Board's last meeting. The Board then considered the proposed merger,
based upon an exchange ratio of .667 shares of Corporate Express Common
Stock for each share of United TransNet Common Stock, and in connection
therewith, considered at length the desirability of remaining independent
and proceeding with United TransNet's acquisition program. The Board
reviewed with Smith Barney the valuation methodologies to be utilized by
Smith Barney in connection with its financial analysis of the Exchange
Ratio. The Board also considered the results of due diligence presentations
with respect to Corporate Express and Delivery and an analysis of a draft
merger agreement and the principal terms and conditions remaining
unresolved. Thereupon the Board unanimously approved the proposed merger
and execution and delivery of a merger agreement based upon the
satisfactory resolution of such terms and conditions, and, subject to such
satisfactory resolution, to recommend the approval of the transaction to
the United TransNet stockholders.
On July 1, 1996, the Corporate Express Board of Directors held a
special meeting in Broomfield, Colorado to consider the proposed merger
with United TransNet. The Board reviewed the rationale for the proposed
merger, the current terms of the merger agreement, the status of the
preliminary due diligence reviews and the public documents of United
TransNet. The Board discussed the terms of the proposed merger and
concluded they needed additional information to make a decision regarding
the proposed merger. The Board requested certain members of Delivery's and
Corporate Express' senior management to complete the financial reporting,
operations, and information and communication systems due diligence review
and provide a report to the Board summarizing their findings.
From July 2 - 8, 1996, various members of Corporate Express' and Delivery's
senior management conducted the requested due diligence reviews and
reported their findings to Mr. Trier.
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On July 2 and 3, 1996, merger discussions continued at the United
TransNet offices in Roswell, Georgia between representatives of the two
companies and Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"),
advisors to Corporate Express. The representatives reviewed financial
projections for United TransNet and discussed certain other unresolved
issues, including closing conditions to be contained in a merger agreement.
These discussions continued by telephone among various of the
representatives on July 4 and 5, 1996, but were unsuccessful.
On July 9, 1996, the Corporate Express Board of Directors held a
special telephonic meeting to review the due diligence findings and discuss
the status of negotiations with United TransNet. The Board recommended
continuing discussions and further diligence with respect to the financial
projections and prospects of United TransNet but did not approve the
proposed terms of the merger.
On July 9 and 10, 1996, Messrs. Belyew, Barowski, England and Gorgi,
representatives of United TransNet's independent accountants, and Mr. Sam
R. Leno, Chief Financial Officer of Corporate Express, Mr. James Haddox,
Vice President-Finance of Delivery, Mr. Trier and representatives of
Corporate Express' independent accountants, met in Atlanta, Georgia in
order to continue the discussions relating to the proposed merger. The
parties discussed United TransNet's performance for its second fiscal
quarter, including its anticipated earnings shortfall, and management's
projections for the balance of the fiscal year. After the meeting, the
various issues in the proposed merger remained unresolved.
On July 11, 1996, the United TransNet Board of Directors met by
telephone. The Board determined that discussions with Corporate Express
should continue, and indicated the terms under which a proposed merger
would be acceptable.
From July 11 through 17, 1996, despite further telephonic discussions
among various representatives of United TransNet and Corporate Express, the
parties were unable to reach agreement. On July 17, 1996, the United
TransNet Board of Directors met by telephone in order to discuss the status
of the merger negotiations and the inability of the parties to agree on the
terms of a merger agreement. Another topic of the meeting was United
TransNet's intention to announce promptly an anticipated loss for the
second quarter of 1996, whatever the status of merger negotiations. On July
17, 1996, the Corporate Express Board of Directors held a special
telephonic meeting to decide on the potential transaction with United
TransNet. After discussion the Corporate Express Board voted unanimously to
reject the proposed transaction with United TransNet. On July 19, 1996, Mr.
Belyew and Mr. Gorgi spoke by telephone with Mr. Rysavy, and all merger
discussions were terminated.
On July 22, 1996, United TransNet issued a press release stating that
it anticipated reporting a loss for its second fiscal quarter. The trading
price of the United TransNet Common Stock on the NYSE fell sharply.
On August 15, 1996, Mr. Trier placed a telephone call to Mr. Chee B.
Louie, a director of United TransNet. Mr. Trier requested Mr. Louie to
explore with Mr. Belyew and others United TransNet's receptiveness to
reopening merger negotiations at a lower exchange rate.
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On August 26, 1996, the Corporate Express Board of Directors met at
Corporate Express' headquarters in Broomfield, Colorado. The Board had
previously been provided with the results of the due diligence review of
United TransNet's operations. The Board discussed the proposed transaction
and authorized management to continue discussions and indicated the
approximate exchange ratio range, based upon available revised earnings
projections for United TransNet, within which the Board would ultimately
approve the transaction.
On August 29, 1996, Mr. Rysavy called Mr. Gorgi. The two men
discussed the possibility of a merger, and determined to attempt to
complete negotiation of a definitive merger agreement before proceeding to
negotiate the valuation of United TransNet for purposes of the
merger.
From September 2 through September 9, 1996, negotiations were
conducted by telephone among representatives of the two companies, with the
agreement, other than an exchange ratio, being substantially finalized on
September 5.
On September 5, 1996, Mr. Gorgi and Mr. Rysavy spoke by telephone in
order to negotiate the exchange ratio for the United TransNet Common
Stock for purposes of the merger. After extensive discussion, the two men
tentatively agreed to an exchange ratio, subject to Corporate Express'
verification of assumptions concerning United TransNet's financial trends
and approval by their respective Boards of Directors.
On September 8, 1996, representatives of Corporate Express and DLJ met
with representatives of United TransNet at United TransNet's offices and
reviewed United TransNet's financial information and revised earnings
projections for United TransNet's third and fourth quarters of calendar
1996.
On September 8, 1996, the Board of Directors of United TransNet met by
telephone conference call and approved proceeding with the merger with
Corporate Express and the proposed exchange ratio of .48 shares of
United TransNet Common Stock for each share of Corporate Express Common
Stock.
On September 9, 1996, representatives for both parties continued to
negotiate the exchange ratio for the United TransNet Common Stock. In light
of the parties' assessment of the anticipated change in United TransNet's
financial prospects the Exchange Ratio was reduced to .45 shares of United
TransNet Common Stock for each share of Corporate Express Common Stock,
subject to approval by each company's Board of Directors.
Later, on September 9, 1996, the United TransNet Board of Directors
met by telephonic conference call and unanimously approved the Merger
Agreement and the Exchange Ratio.
On September 9, 1996, the Corporate Express Board of Directors met by
telephonic conference call to approve the final terms of the Merger
Agreement. Mr. Trier and Mr. Leno presented a review of the material terms
of the transaction, the results of the due diligence review, United
TransNet's current forecasts and analysts' expectations. The Board of
Directors reviewed and discussed the revenue and earnings trends for United
TransNet. After further discussion the Board unanimously approved the
Merger Agreement and Exchange Ratio.
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On September 10, 1996, the Merger Agreement was executed and delivered
on behalf of both companies.
Recommendation of the United TransNet Board of Directors
For the reasons described under "-- Reasons for the Merger," the
United TransNet Board of Directors has unanimously approved the Merger and
recommends that United TransNet stockholders vote FOR approval of the
Merger Agreement.
Reasons for the Merger
Corporate Express. The Corporate Express Board of Directors believes
that the Merger with United TransNet will (i) allow Corporate Express to
offer various additional services which are complementary to its business;
(ii) allow Corporate Express to expand the geographic reach of its
distribution network by utilizing United TransNet facilities as additional
delivery breakpoints; (iii) enhance Corporate Express' current same-day
delivery capabilities; (iv) allow Corporate Express and United TransNet to
cross-sell services to each other's customers; (v) create economies of
scale by allowing the combined entity to consolidate operating facilities,
reduce duplicative administrative functions and combine national marketing
programs; (vi) decrease Corporate Express' cost of delivery of its office
products; and (vii) create a combined entity positioned to compete more
effectively on both a strategic and financial basis.
In reaching the conclusions discussed above, the Corporate Express
Board of Directors considered, among other things: (i) the judgment,
advice and analyses of its management; (ii) the financial advice and
analyses provided by DLJ; (iii) the financial condition, results of
operations and cash flows of Corporate Express and United TransNet, both on
a historical and a prospective basis; (iv) the synergies, cost reductions
and operating efficiencies that should become available to the combined
enterprise as a result of the Merger; (v) the strategic benefits of the
Merger; (vi) the terms and conditions of the Merger Agreement, which were
viewed as providing an equitable basis for the Merger from the standpoint
of Corporate Express; (vii) the historical market prices and trading
information with respect to Corporate Express Common Stock and United
TransNet Common Stock; (viii) the tax effects of the Merger on Corporate
Express; (ix) the significant enhancement of the strategic and market
position of the combined enterprise; and (x) the ability to consummate the
Merger as a pooling of interests under generally accepted accounting
principles.
United TransNet. The Board of Directors of United TransNet has
concluded that the Merger is fair to and in the best interests of the
United TransNet stockholders after considering financial, business,
securities market and other information available to the Board concerning
Corporate Express and United TransNet, including the investigations of
Corporate Express by United TransNet management and consultation with
United TransNet's legal, financial, accounting and business advisors. The
principal reasons the Board reached this conclusion follow.
Management believes that United TransNet's two-prong growth strategy,
of pursuing national accounts for internal growth and acquisitions to
expand its revenue base, would be enhanced by the Merger, thereby creating
a more attractive investment opportunity for United TransNet stockholders.
United TransNet's management believes that customers find the ability to
obtain multiple services from a single vendor attractive. Corporate
Express, United TransNet and Delivery each provide complementary types of
services, with Corporate Express providing technical
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information and support services, United TransNet providing scheduled
courier services, route consolidation expertise and emphasis on statewide
delivery service, and Delivery providing same-day delivery services and
established access to independent contractors, whose services would enhance
the ability of United TransNet to provide statewide delivery service as
efficiently as possible. If the Merger is consummated, United TransNet
management believes that United TransNet would have greater opportunities
to pursue internal growth both by marketing its increased services to new
customers and by cross-selling to its own customers, Corporate Express'
large corporate customers and Delivery's primarily same-day delivery
customers.
In United TransNet's pursuit of strategic acquisitions, United
TransNet management believes that, if the Merger is consummated, United
TransNet will have greater access to capital due to Corporate Express'
larger, more established presence. Additionally, United TransNet would have
access to an experienced acquisition team with an established history of
completing successful acquisitions. This would permit United TransNet's
management to identify and pursue strategic acquisitions with less of a
commitment of time and resources from those principally responsible for
day-to-day management.
Finally, United TransNet's management believes that the Merger, if
consummated, would create an opportunity to achieve economies of scale by
allowing the combined entity to consolidate operating facilities, reduce
duplicative administrative functions and create a combined entity
positioned to compete more effectively on both a strategic and financial
basis than United TransNet could were it to remain independent.
Opinion of United TransNet's Financial Advisor
Smith Barney was retained by United TransNet to evaluate the fairness,
from a financial point of view, to the holders of United TransNet Common
Stock of the consideration to be received by such holders in the Merger.
Smith Barney delivered a written opinion, dated September 10, 1996, to the
Board of Directors of United TransNet to the effect that, as of the date of
such opinion and based upon and subject to certain matters stated therein,
the Exchange Ratio was fair, from a financial point of view, to the holders
of United TransNet Common Stock.
In arriving at its opinion, Smith Barney reviewed the Merger Agreement
and held discussions with certain senior officers, directors and other
representatives and advisors of United TransNet and certain senior officers
of Corporate Express concerning the businesses, operations and prospects of
United TransNet and Corporate Express. Smith Barney examined certain
publicly available business and financial information relating to United
TransNet and Corporate Express as well as certain financial forecasts and
other information and data for United TransNet and Corporate Express which
were provided to or otherwise discussed with Smith Barney by the respective
managements of United TransNet and Corporate Express, including information
relating to certain strategic implications and operational benefits
anticipated to result from the Merger. Smith Barney reviewed the financial
terms of the Merger as set forth in the Merger Agreement in relation to,
among other things: current and historical market prices and trading
volumes of United TransNet Common Stock and Corporate Express Common Stock;
historical and projected earnings and operating data of United TransNet and
Corporate Express; and the capitalization and financial condition of United
TransNet and Corporate Express. Smith Barney also considered, to the
extent publicly available, the financial terms of certain other similar
transactions recently effected which Smith Barney considered relevant in
evaluating the Merger and analyzed certain financial, stock market and
other publicly available information relating to the businesses of other
companies whose operations Smith Barney considered relevant in evaluating
those of United TransNet and Corporate Express. Smith Barney also
evaluated the potential pro forma financial impact of the Merger on
Corporate Express. In addition to the foregoing, Smith Barney conducted
such other analyses and examinations and considered such other financial,
economic and market criteria as Smith Barney deemed appropriate in arriving
at its opinion. Smith Barney noted that its opinion was necessarily based
upon information available,
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and financial, stock market and other conditions and circumstances existing
and disclosed, to Smith Barney as of the date of its opinion.
In rendering its opinion, Smith Barney assumed and relied, without
independent verification, upon the accuracy and completeness of all
financial and other information and data publicly available or furnished to
or otherwise reviewed by or discussed with Smith Barney. With respect to
financial forecasts and other information and data furnished to or
otherwise reviewed by or discussed with Smith Barney, the managements of
United TransNet and Corporate Express advised Smith Barney that such
forecasts and other information and data were reasonably prepared on bases
reflecting the best then currently available estimates and judgments of the
managements of United TransNet and Corporate Express and the strategic
implications and operational benefits anticipated to result from the
Merger. Smith Barney assumed, with the consent of the Board of Directors
of United TransNet, that the Merger will be treated as a pooling of
interests in accordance with generally accepted accounting principles and
as a tax-free reorganization for federal income tax purposes. Smith
Barney's opinion, as set forth therein, relates to the relative values of
United TransNet and Corporate Express. Smith Barney did not express any
opinion as to what the value of the Corporate Express Common Stock actually
will be when issued to United TransNet stockholders pursuant to the Merger
or the price at which the Corporate Express Common Stock will trade
subsequent to the Merger. Smith Barney did not make and was not provided
with an independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of United TransNet or Corporate Express nor did
Smith Barney make any physical inspection of the properties or assets of
United TransNet or Corporate Express. In addition, Smith Barney was not
requested to, and did not, participate in the negotiation or structuring of
the Merger, nor was Smith Barney requested to, and Smith Barney did not,
approach or hold discussions with third parties to solicit indications of
interest in a possible acquisition of United TransNet. Although Smith
Barney evaluated the Exchange Ratio from a financial point of view, Smith
Barney was not asked to and did not recommend the specific consideration
payable in the Merger, which was determined through negotiation between
United TransNet and Corporate Express. No other limitations were imposed by
United TransNet on Smith Barney with respect to the investigations made or
procedures followed by Smith Barney in rendering its opinion.
The full text of the written opinion of Smith Barney dated September
10, 1996, which sets forth the assumptions made, matters considered and
limitations on the review undertaken, is attached hereto as Appendix II and
is incorporated herein by reference. Holders of United TransNet Common
Stock are urged to read this opinion carefully in its entirety. Smith
Barney's opinion is directed only to the fairness of the Exchange Ratio
from a financial point of view, does not address any other aspect of the
Merger or related transactions and does not constitute a recommendation to
any stockholder as to how such stockholder should vote at the Special
Meeting. The summary of the opinion of Smith Barney set forth in this Proxy
Statement and Prospectus is qualified in its entirety by reference to the
full text of such opinion.
In preparing its opinion, Smith Barney performed a variety of
financial and comparative analyses, including those described below. The
summary of such analyses does not purport to be a complete description of
the analyses underlying Smith Barney's opinion. The preparation of a
fairness opinion is a complex analytic process involving various
determinations as to the most appropriate and relevant methods of financial
analyses and the application of those methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. Accordingly, Smith Barney believes that its analyses
must be considered as a whole and that selecting portions of its analyses
and factors, without considering all analyses and factors, could create a
misleading or incomplete view of the processes underlying such analyses and
its opinion. In its analyses, Smith Barney made numerous assumptions with
respect to United TransNet, Corporate Express, industry performance,
general business, economic, market and financial conditions and other
matters, many of which are beyond the control of United TransNet and
Corporate Express. The estimates contained in such analyses and the
valuation ranges resulting from any particular analysis are not necessarily
indicative of actual values or predictive of future results or values,
which
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may be significantly more or less favorable than those suggested by such
analyses. In addition, analyses relating to the value of business or
securities do not purport to be appraisals or to reflect the prices at
which businesses or securities actually may be sold. Accordingly, such
analyses and estimates are inherently subject to substantial uncertainty.
Smith Barney's opinion and analyses were only one of many factors
considered by the Board of Directors of United TransNet in its evaluation
of the Merger and should not be viewed as determinative of the views of
United TransNet's Board of Directors or management with respect to the
Exchange Ratio or the proposed Merger.
Selected Company Analysis. Using publicly available information,
Smith Barney analyzed, among other things, the market values and trading
multiples of United TransNet and the following selected publicly traded
companies in the following segments of the courier industry: (i) Roll-ups
and Consolidators: American Medical Response, Inc., Coach USA, Inc.,
Consolidated Delivery & Logistics, Inc., FYI, Inc., Physicians Resource
Group, Inc., Sanifill, Inc., and U.S. Office Products Company; and (ii)
Freight Forwarding and Logistics: Air Express International Corporation,
Expeditors International of Washington, Inc., Fritz Companies, Inc., Eagle
USA Airfreight, Inc., Harper Group, Inc., Hub Group, Inc., and Mark VII,
Inc. (collectively, the "United TransNet Comparables"). Smith Barney
compared market values as multiples of, among other things, latest 12
months net income and estimated calendar 1996 and 1997 net income, and
adjusted market values (equity market value, plus total debt and the book
value of preferred stock, less cash and cash equivalents) as multiples of,
among other things, latest 12 months revenue, earnings before interest,
taxes, depreciation and amortization ("EBITDA") and earnings before
interest and taxes ("EBIT"). Net income projections for the United
TransNet Comparables were based on estimates of selected investment banking
firms and net income projections for United TransNet were based on internal
estimates of the management of United TransNet. All multiples were based
on closing stock prices on September 5, 1996. The multiples of latest 12
months net income, estimated calendar 1996 and 1997 net income and latest
12 months revenue, EBITDA and EBIT for the United TransNet Comparables were
27.3x, 23.8x, 18.0x, 2.2x, 11.9x and 17.0x, respectively. The multiples of
latest 12 months net income, estimated calendar 1996 and 1997 net income
and latest 12 months revenue, EBITDA and EBIT of United TransNet were
40.2x, 23.3x, 10.4x, 0.6x, 12.0x and 23.5x, respectively. The multiples of
latest 12 months net income, estimated calendar 1996 and 1997 net income
and latest 12 months revenue, EBITDA and EBIT for United TransNet implied
by the Exchange Ratio (based on a closing stock price of Corporate Express
Common Stock on September 6, 1996) were 52.1x, 34.5x, 17.2x, 0.6x, 16.2x
and 24.0x, respectively.
Using publicly available information, Smith Barney analyzed similar
market values and trading multiples of Corporate Express and the following
selected publicly traded companies in the following segments of the courier
industry: (i) Office Products: BT Office Products International, Inc., U.S.
Office Products Company, and Viking Office Products, Inc.; (ii) Retail
Office Products: Office Depot Inc., OfficeMax Inc., Staples Inc., and
United Stationers Inc.; (iii) Telemarketers: APAC Teleservices Inc., SITEL
Corporation, and Sykes Enterprises Inc.; and (iv) Outsourcing Companies:
Digital Solutions, Inc., Employee Solutions, Inc., Vincam Group, Inc., and
AccuStaff, Inc. (collectively, the "Corporate Express Comparables" and,
together with the United TransNet Comparables, the "Selected Companies").
Net income projections for the Corporate Express Comparables were based on
estimates of selected investment banking firms and net income projections
for Corporate Express were based on internal estimates of the management of
Corporate Express. All multiples were based on closing stock prices on
September 6, 1996. The average of the mean multiples of latest 12 months
net income, estimated calendar 1996 and 1997 net income and latest 12
months revenue, EBITDA and EBIT for the Corporate Express Comparables were
95.2x, 45.9x, 31.6x, 3.2x, 35.1x and 49.7x, respectively. The multiples of
latest 12 months net income, estimated calendar 1996 and 1997 net income
and latest 12 months revenue, EBITDA and EBIT of Corporate Express were
88.5x, 44.4x, 28.1x, 1.6x, 33.2x and 39.0x, respectively.
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Selected Merger and Acquisition Transactions Analysis. Using publicly
available information, Smith Barney analyzed the purchase price and implied
transaction multiples paid in the following selected transactions in the
courier industry (acquiror/target): Fritz Companies, Inc./Intertrans
Corporation (the "Intertrans Transaction") and Corporate Express/U.S.
Delivery Systems Inc. (the "U.S. Delivery Transaction" and, together with
the Intertrans Transaction, the "Selected Transactions"), with particular
focus on the U.S. Delivery Transaction. Smith Barney compared the purchase
prices in such transactions as multiples of, among other things, latest 12
months and projected net income and transaction values as multiples of,
among other things, latest 12 months revenue, EBITDA and EBIT, and then
compared these multiples to similar multiples for United TransNet implied
by the Exchange Ratio. All multiples for the Selected Transactions were
based on information available at the time of announcement of the
transaction. The multiples of latest 12 months net income, projected net
income and latest 12 months revenue, EBITDA and EBIT of the U.S. Delivery
Transaction were 33.6x, 26.3x, 1.4x, 17.2x and 19.7x, respectively. The
multiples of latest 12 months net income, estimated calendar 1996 net
income and latest 12 months revenue, EBITDA and EBIT for United TransNet
implied by the Exchange Ratio (based on a closing stock price of Corporate
Express Common Stock on September 6, 1996) were 52.1x, 34.5x, 0.6x, 16.2x
and 24.0x, respectively.
No company, transaction or business used in the "Selected Company
Analysis" or "Selected Merger and Acquisition Transactions Analysis" as a
comparison is identical to United TransNet, Corporate Express or the
Merger. Accordingly, an analysis of the results of the foregoing is not
entirely mathematical; rather, it involves complex considerations and
judgments concerning differences in financial and operating characteristics
and other factors that could affect the acquisition, public trading or
other values of the Selected Companies, Selected Transactions or the
business segment, company or transaction to which they are being compared.
Discounted Cash Flow Analysis. Smith Barney performed a discounted
cash flow analysis of the projected free cash flow of United TransNet for
the fiscal years 1996 through 2000, based on internal estimates of the
management of United TransNet. The stand-alone discounted cash flow
analysis of United TransNet was determined by (i) adding (x) the present
value of projected free cash flows over the five-year period from 1996 to
2000 and (y) the present value of United TransNet's terminal value in year
2000 and (ii) subtracting the current net debt of United TransNet. The
range of terminal values for United TransNet at the end of the five-year
period was calculated by applying terminal multiples ranging from 5.0x to
8.0x to United TransNet's projected 2000 EBITDA, representing United
TransNet's estimated value beyond the year 2000. The cash flows and
terminal values of United TransNet were discounted to present value using
discount rates ranging from 10.0% to 15.0%. This analysis resulted in an
equity reference range for United TransNet of approximately $7.69 to $19.89
per share, as compared to the equity value for United TransNet implied by
the Exchange Ratio (based on a closing stock price of Corporate Express
Common Stock on September 6, 1996) of approximately $15.02 per share.
Pro Forma Merger Analysis. Smith Barney analyzed certain pro forma
effects resulting from the Merger, including, among other things, the
impact of the Merger on the projected EPS of Corporate Express for fiscal
years 1996 through 2000, based on estimates of selected investment banking
firms. The results of the pro forma merger analysis suggested that the
Merger could be accretive to the fully diluted EPS of Corporate Express in
each of the fiscal years analyzed. The actual results achieved by the
combined company may vary from projected results and the variations may be
material.
Contribution Analysis. Smith Barney analyzed the respective
contributions of United TransNet and Corporate Express to, among other
things, the estimated revenue, EBITDA, EBIT and net income of the combined
company for fiscal years 1996 and 1997, based on internal estimates of the
managements of United TransNet and Corporate Express. This analysis
indicated that (i) in fiscal year 1996, United TransNet would contribute
approximately 10.9% of revenue, 9.4% of EBITDA, 7.7% of EBIT and 6.8% of
net income, and Corporate
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Express would contribute approximately 89.1% of revenue, 90.6% of EBITDA,
92.3% of EBIT and 93.2% of net income of the combined company, and (ii) in
fiscal year 1997, United TransNet would contribute approximately 9.4% of
revenue, 10.4% of EBITDA, 10.4% of EBIT and 8.5% of net income, and
Corporate Express would contribute approximately 90.6% of revenue, 89.6% of
EBITDA, 89.6% of EBIT and 91.5% of net income, of the combined company.
Immediately following consummation of the Merger, stockholders of United
TransNet and Corporate Express would own approximately 5.4% and 94.6%,
respectively, of the combined company.
Other Factors and Comparative Analysis. In rendering its opinion,
Smith Barney considered certain other factors and conducted certain other
comparative analyses, including, among other things, a review of (i)
historical and projected financial results of United TransNet and Corporate
Express; (ii) the history of trading prices and volume for United TransNet
Common Stock and Corporate Express Common Stock and the relationship
between movements of such Common Stock and movements of the common stock of
the Selected Companies; (iii) selected published analysts' reports on
Corporate Express, including analysts' estimates as to the earnings growth
potential of Corporate Express; and (iv) the pro forma ownership of the
combined company.
Pursuant to terms of Smith Barney's engagement, United TransNet has
agreed to pay Smith Barney for its services in connection with the delivery
of its opinion an aggregate fee of $600,000. United TransNet has also
agreed to reimburse Smith Barney for reasonable travel and other out-of-
pocket expenses incurred by Smith Barney in performing its services,
including the reasonable fees and expenses of its legal counsel, and to
indemnify Smith Barney and related persons against certain liabilities,
including liabilities under the federal securities laws, arising out of
Smith Barney's engagement.
Smith Barney has advised United TransNet that, in the ordinary course
of business, Smith Barney and its affiliates may actively trade or hold the
securities of United TransNet and Corporate Express for their own account
or for the account of customers and, accordingly, may at any time hold a
long or short position in such securities. Smith Barney has in the past
provided certain investment banking services to United TransNet unrelated
to the proposed Merger, for which services Smith Barney has received
compensation. In addition, Smith Barney and its affiliates (including
Travelers Group Inc. and its affiliates) may maintain business
relationships with United TransNet and Corporate Express.
Smith Barney is a nationally recognized investment banking firm and
was selected by United TransNet based on Smith Barney's experience,
expertise and familiarity with United TransNet and its business. Smith
Barney regularly engages in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive bids, secondary distributions of listed and
unlisted securities, private placements and valuations for estate,
corporate and other purposes.
Effective Time of the Merger
Upon the terms and conditions of the Merger Agreement and in
accordance with the Delaware General Corporation Law (the "DGCL"),
Acquisition Sub will be merged with and into United TransNet at the
Effective Time. The Merger will become effective immediately when the
Certificate of Merger, prepared and executed in accordance with the
relevant provisions of the DGCL, is filed with the Secretary of State of
the State of Delaware or at such time thereafter as is provided in the
Certificate of Merger. The filing of the Certificate of Merger will be
made as soon as practicable on or after the Closing.
The Closing shall take place at a location mutually agreeable to
Corporate Express and United TransNet on the fifth business day after
satisfaction (or waiver in accordance with the Merger Agreement) of the
latest to
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occur of the conditions set forth in Article VIII of the Merger Agreement
(the "Closing Date"). See "The Merger Agreement -- Conditions to the
Merger."
Interests of Certain Persons in the Merger
In considering the recommendation of the United TransNet Board of
Directors with respect to the Merger, United TransNet's stockholders should
be aware that certain members of the United TransNet Board of Directors and
management have certain interests separate from their interests as holders
of United TransNet Common Stock, including those referred to below.
Upon consummation of the Merger, Corporate Express shall grant non-
qualified options to purchase 1,000,000 shares of Corporate Express Common
Stock to employees of United TransNet, as recommended to Corporate Express
in writing by senior management of United TransNet and as agreed to by the
compensation committee of the Corporate Express Board of Directors. In
addition, Corporate Express and United TransNet have agreed that the
Compensation Committee of Corporate Express' Board of Directors will review
the financial and operating performance of the business units formerly
under the control of United TransNet's employees for the period from
September 1, 1996 to March 1, 1997 and grant up to an additional 200,000
non-qualified options to certain United TransNet employees. See "The Merger
Agreement -- Additional Agreements." While the exact amounts are not yet
determined or agreed upon, it is anticipated that members of the United
TransNet Board of Directors and other senior management will receive a
material percentage of such options.
The Merger Agreement provides for continuing indemnification of the
officers and directors of United TransNet and obligates United TransNet to
purchase directors' and officers' liability insurance for directors and
officers of United TransNet which provides coverage following the Effective
Time for any claims against such directors and officers, in such
capacities, occurring prior to the Effective Time. See "The Merger
Agreement -- Additional Agreements."
Certain Federal Income Tax Consequences
United TransNet expects to receive an opinion effective as of the
Closing Date and based on factual representations by United TransNet and
Corporate Express, from Sullivan & Worcester LLP, tax counsel to United
TransNet, to the effect that the Merger will be treated for federal income
tax purposes as a reorganization within the meaning of Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code"), that Corporate
Express, Acquisition Sub and United TransNet will each be a party to that
reorganization within the meaning of Section 368(b) of the Code and that no
gain or loss will be recognized by a stockholder of United TransNet as a
result of the Merger with respect to the shares of United TransNet Common
Stock converted into Corporate Express Common Stock, except to the extent
such stockholders receive cash in lieu of fractional shares.
An opinion of counsel is not binding on the Internal Revenue Service
or on the courts. Therefore, there can be no assurance that the Merger
will constitute a tax-free reorganization or that any of the favorable tax
treatments pursuant to a tax-free reorganization will be available to
United TransNet stockholders. Because of the complexity of the tax laws
and because the tax consequences to any particular stockholder may be
affected by matters not discussed herein, each United TransNet stockholder
is advised to consult its own tax advisor concerning the applicable
federal, state and local income tax consequences of the Merger.
Assuming qualification as a tax-free reorganization under the Code,
(i) no gain or loss will be recognized by Corporate Express or its
shareholders as a result of the Merger, (ii) no gain or loss will be
recognized by United TransNet or its stockholders who receive Corporate
Express Common Stock in the Merger in exchange for their
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shares of United TransNet Common Stock (except to the extent such
stockholders receive cash in lieu of fractional shares), (iii) the basis of
the shares of Corporate Express Common Stock to be received by the United
TransNet stockholders in the Merger will be the same as the basis of the
shares of United TransNet Common Stock surrendered in exchange therefor and
(iv) the holding period of the shares of Corporate Express Common Stock to
be received by the United TransNet stockholders in the Merger will include
the holding period of the respective shares of United TransNet Common Stock
exchanged therefor, provided that all shares are held as capital assets of
United TransNet stockholders at the Effective Time.
THE DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION
ONLY. IT DOES NOT ADDRESS THE STATE, LOCAL OR FOREIGN TAX ASPECTS OF THE
MERGER. THE DISCUSSION IS BASED ON CURRENTLY EXISTING PROVISIONS OF THE
CODE, EXISTING AND PROPOSED TREASURY REGULATIONS THEREUNDER AND CURRENT
ADMINISTRATIVE RULINGS AND COURT DECISIONS. ALL OF THE FOREGOING ARE
SUBJECT TO CHANGE AND ANY SUCH CHANGE COULD AFFECT THE CONTINUING VALIDITY
OF THIS DISCUSSION. EACH CORPORATE EXPRESS AND UNITED TRANSNET STOCKHOLDER
SHOULD CONSULT HIS OR HER OWN TAX ADVISOR WITH RESPECT TO THE SPECIFIC TAX
CONSEQUENCES OF THE MERGER TO HIM OR HER, INCLUDING THE APPLICATION AND
EFFECT OF STATE, LOCAL AND FOREIGN TAX LAWS.
Anticipated Accounting Treatment
The Merger will be accounted for using the "pooling of interests"
method of accounting pursuant to APB 16. The "pooling of interests" method
of accounting assumes that the merging companies have been merged from
inception, and the historical financial statements for periods prior to
consummation of the Merger are restated as though the companies had been
combined from inception. The restated financial statements are adjusted to
conform the accounting policies of the separate companies. See "The Merger
Agreement -- Conditions to the Merger" and "Pro Forma Financial
Information."
Corporate Express, Acquisition Sub and United TransNet have agreed
that during the period from the date of the Merger Agreement through the
Effective Time, unless the parties shall have otherwise agreed in writing,
none of Corporate Express, Acquisition Sub, any other subsidiary of
Corporate Express, United TransNet or any subsidiary of United TransNet
shall knowingly take or fail to take any reasonable action which action or
failure to act would jeopardize the treatment of Acquisition Sub's
combination with United TransNet as a pooling of interests for accounting
purposes. Additionally, pooling of interests treatment is a condition to
Closing. See "The Merger Agreement -Conditions to the Merger."
Resale of Corporate Express Common Stock by Affiliates
Corporate Express Common Stock to be issued to stockholders of United
TransNet in connection with the Merger will be registered under the
Securities Act and, as such will be freely transferable under the
Securities Act, except for shares issued to any person who may be deemed an
"Affiliate" (as defined below) of United TransNet or Corporate Express
within the meaning of Rule 145 under the Securities Act ("Rule 145").
"Affiliates" are generally defined as persons who control, are controlled
by, or are under common control with United TransNet or Corporate Express
at the time of the Special Meeting (generally, directors, certain executive
officers and major stockholders). Affiliates of United TransNet or
Corporate Express may not sell their shares of Corporate Express Common
Stock acquired in connection with the Merger, except pursuant to an
effective registration statement under the Securities Act covering such
shares or in compliance with Rule 145 or another applicable exemption from
the registration requirements of the Securities Act. In general, under
Rule 145, for two years following the Effective Time, an Affiliate
(together with certain related persons) would be entitled to sell shares of
Corporate Express
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Common Stock acquired in connection with the Merger only through
unsolicited "broker transactions" or in transactions directly with a
"market maker," as such terms are defined in Rule 144 under the Securities
Act. Additionally, the number of shares to be sold by an Affiliate
(together with certain related persons and certain persons acting in
concert) during such two-year period within any three-month period for
purposes of Rule 145 may not exceed the greater of 1% of the outstanding
shares of Corporate Express Common Stock or the average weekly trading
volume of such stock during the four calendar weeks preceding such sale.
Rule 145 would remain available to Affiliates only if Corporate Express
remained current with its information filings with the Commission under the
Exchange Act. Two years after the Effective Time, an Affiliate would be
able to sell such Corporate Express Common Stock without such manner of
sale or volume limitations, provided that Corporate Express was current
with its Exchange Act information filings and such Affiliate was not then
an Affiliate of Corporate Express. Three years after the Effective Time,
an Affiliate would be able to sell such shares of Corporate Express Common
Stock without any restrictions provided such Affiliate has not been an
Affiliate of Corporate Express for at least three months prior thereto.
With certain non-material exceptions, shares of Corporate Express
Common Stock received by Affiliates of United TransNet or held by
Affiliates of Corporate Express may not be sold until Corporate Express
publishes at least one full month of the combined results of operations of
Corporate Express and United TransNet.
Certain Regulatory Matters
The HSR Act and the rules and regulations thereunder provide that
certain transactions may not be consummated until required information and
materials have been furnished to the U.S. Department of Justice ("DOJ") and
the Federal Trade Commission ("FTC") and certain waiting periods have
expired or been terminated. Corporate Express and United TransNet have
made the requisite filings in order to cause the waiting periods to
commence. There can be no assurance that the DOJ or FTC will permit the
waiting periods to expire without taking further action to examine the
implications of the Merger under applicable federal antitrust laws.
Based on information available to it, United TransNet believes that
the Merger can be effected in compliance with federal and state antitrust
laws. However, there can be no assurance that a challenge to the
consummation of the Merger on antitrust grounds will not be made or that,
if such a challenge were made, Corporate Express and United TransNet would
prevail or would not be required to accept certain conditions, possibly
including certain divestitures in order to consummate the Merger.
Rights of Dissenting Stockholders
United TransNet stockholders will not be entitled to any appraisal or
dissenters' rights under applicable state law in connection with the
Merger.
Comparison of Stockholder Rights
Prior to the Effective Time, the rights of United TransNet
stockholders are governed by the DGCL, the United TransNet Amended and
Restated Certificate of Incorporation (the "United TransNet Certificate")
and the United TransNet By-Laws (the "United TransNet By-Laws"). At the
Effective Time, the stockholders of United TransNet will become
shareholders of Corporate Express, a corporation governed by Colorado law,
the Corporate Express Articles of Amendment and Restatement (the "Corporate
Express Articles") and the Corporate Express By-Laws (the "Corporate
Express By-Laws"). The following discussion summarizes the material
differences between the rights of holders of the United TransNet Common
Stock and holders of the Corporate Express Common Stock. This summary does
not purport to be complete and is qualified in its entirety by reference to
the DGCL, the
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Colorado Business Corporation Act (the "CBCA"), the Corporate Express
Articles and the Corporate Express By-Laws, the United TransNet Certificate
and the United TransNet By-Laws.
General. The DGCL and the interpretations of those laws by Delaware
courts is generally more comprehensive and more developed than the CBCA and
the interpretation of those laws by Colorado courts. The DGCL is more
frequently updated and revised to meet changes in the business environment.
The CBCA replaced the Colorado Corporation Code effective July 1, 1994 and
is a modern, updated corporation statute. Corporate Express does not
believe that it has been impeded in operating its business under the CBCA.
Voting Groups. Under the CBCA, Corporate Express shareholders are
entitled to vote in voting groups in certain circumstances. A voting group
consists of all the shares of one or more classes or series that, under the
Corporate Express Articles or under the CBCA, are entitled to vote and be
counted together collectively on a matter at a meeting of shareholders. If
multiple voting groups are entitled to vote on a matter, favorable action
on the matter is taken only when it is duly approved by each such voting
group. Although the Corporate Express Common Stock is the only voting
stock of Corporate Express and the Corporate Express Articles do not
provide for voting by voting groups, any other class or series of capital
stock that may be issued by Corporate Express in the future is entitled to
vote separately as a voting group under the CBCA in connection with certain
amendments to the Corporate Express Articles and certain plans of merger
and share exchange. See "- Amendments to Corporate Express Articles and
United TransNet Certificate."
The DGCL has no equivalent provisions for voting groups.
Amendments to Corporate Express Articles and United TransNet
Certificate. Under the CBCA, an amendment to the Corporate Express
Articles (with certain exceptions for routine amendments) must be proposed
by the Corporate Express Board of Directors or the holders of shares
representing at least ten percent (10%) of all of the votes entitled to be
cast on the amendment, and must then be approved by the holders of a
majority of the votes cast within the voting groups entitled to vote on the
amendment.
Under the CBCA, all of the holders of Corporate Express Common Stock,
and each holder of shares of an affected class or series of stock, if any,
voting in separate voting groups, are entitled to vote on any amendment of
the Corporate Express Articles that would (i) increase or decrease the
aggregate number of authorized shares of the class or series; (ii) effect
an exchange or reclassification of all or part of the shares of the class
or series into shares of another class or series; (iii) effect an exchange
or reclassification, or create the right of exchange, of all or part of the
shares of another class or series into shares of the class or series; (iv)
change the designation, preferences, limitations, or relative rights of all
or part of the shares of the class or series; (v) change the shares of all
or part of the class or series into a different number of shares of the
same class or series; (vi) create a new class of shares having rights or
preferences with respect to distributions or dissolution that are prior,
superior or substantially equal to the shares of the class or series; (vii)
increase the rights, preferences, or number of authorized shares of any
class or series that, after giving effect to the amendment, have rights or
preferences with respect to distributions or to dissolution that are prior,
superior, or substantially equal to the shares of the class or series;
(viii) limit or deny an existing preemptive right of all or part of the
shares of the class or series; or (ix) cancel or otherwise affect rights to
distributions or dividends that have accumulated but have not yet been
declared on all or part of the shares of the class or series.
Under the DGCL and the United TransNet Certificate, amendments to the
United TransNet Certificate must be adopted by the United TransNet Board of
Directors and must then be approved by the holders of a majority of the
voting power of the outstanding shares of stock entitled to vote thereon
except that amendments of the provisions in the United TransNet Certificate
relating to, among other things, the authorization of United TransNet to
issue
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preferred stock, the indemnification of directors, officers, employees and
agents, filling vacancies on the United TransNet Board of Directors and the
power to amend, alter or repeal the United TransNet By-Laws, require the
approval of the holders of sixty-six and two-third percent (66 2/3%) of the
voting power of the outstanding shares of stock entitled to vote thereon.
The DGCL requires the approval of a majority of the outstanding shares of a
class of stock, voting as a separate class, for any amendment that changes
the number of authorized shares of that class, changes the par value of
that class or adversely affects the powers, preferences or special rights
of that class.
Amendments to By-Laws. Under the CBCA and the Corporate Express By-
Laws, the Corporate Express By-Laws may be amended to add, change or delete
a provision by either the Corporate Express Board of Directors of by the
affirmative vote of the holders of a majority of the shares of stock
entitled to vote thereon.
As permitted under the DGCL, the United TransNet Certificate provides
that the United TransNet By-Laws may be adopted, amended, or repealed by
either the affirmative vote of the holders of sixty-six and two-thirds
percent (66 2/3%) of the voting power of the outstanding shares of stock
entitled to vote thereon or by the affirmative vote of a majority of the
members of the United TransNet Board of Directors.
Vote Required for Merger and Certain Other Transactions. Under the
CBCA, a plan of merger or share exchange or a transaction involving the
sale, lease, exchange or other disposition of all or substantially all of
Corporate Express' property, other than in the usual and regular course of
business, must be adopted by the Corporate Express Board of Directors and
then approved by each voting group entitled to vote separately on such
plan, share exchange or transaction by the holders of a majority of all the
votes entitled to be cast on such plan, share exchange or transaction by
that voting group; provided, however, that unless the articles of
incorporation of a corporation that was in existence on June 30, 1994
provide otherwise, a plan of merger or share exchange which requires
shareholder approval must be approved by two-thirds (2/3) of all votes
entitled to be cast on the plan by that voting group. The CBCA requires
separate voting by voting groups (i) on a plan of merger if the plan
contains a provision that, if contained in an amendment to the Corporate
Express Articles, would require action by separate voting groups, and (ii)
on a plan of share exchange by each class or series of shares included in
the share exchange, with each class or series constituting a separate
voting group.
Under the DGCL, an agreement of merger or a sale, lease or exchange of
all or substantially all of United TransNet's assets must be approved by
the United TransNet Board of Directors and then adopted by the holders of a
majority of the voting power of the outstanding shares of stock entitled to
vote thereon.
Directors. The Corporate Express Articles provide that the number of
directors shall be fixed by the Corporate Express By-Laws. The Corporate
Express By-Laws provide that the Corporate Express Board of Directors shall
consist of five members.
The United TransNet Certificate provides that the number of directors
shall be fixed from time to time by resolution passed by a majority of the
United TransNet Board of Directors, within the limits provided in the
United TransNet By-Laws. The United TransNet By-Laws provide that the
United TransNet Board of Directors shall consist of not less than one nor
more than fifteen members.
Removal of Directors. Under the CBCA and the Corporate Express By-
Laws, a member of the Corporate Express Board of Directors may be removed,
with or without cause, by the holders of a majority of the shares of stock
entitled to vote on the election of directors. In addition, a director may
be removed by the district court of the county in Colorado in which
Corporate Express' principal or registered office is located, in a
proceeding commenced either by Corporate Express or by shareholders holding
at least ten percent (10%) of the outstanding
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shares of any class, if the court finds that the director engaged in
fraudulent or dishonest conduct or gross abuse of authority or discretion
with respect to Corporate Express and that removal is in Corporate Express'
best interests.
Under the DGCL, directors of United TransNet may be removed, with or
without cause, by the holders of a majority of the voting power of the
outstanding shares of stock entitled to vote thereon.
Newly Created Directorships and Vacancies. Under the CBCA and the
Corporate Express By-Laws, vacancies in the Corporate Express Board of
Directors may be filled by the affirmative vote of a majority of the
directors then in office, even if less than a quorum, and newly created
directorships resulting from an increase in the number of directors,
including an increase effected by the Corporate Express Board of Directors,
may be filled by the affirmative vote of a majority of the directors then
in office or by an election at an annual meeting or special meeting of
shareholders called for that purpose.
Under the DGCL and the United TransNet By-Laws, vacancies and newly
created directorships resulting from any increase in the number of
directors, including an increase effected by the United TransNet Board of
Directors, may only be filled by a majority of the directors then in
office, even if less than a quorum. If, at the time of filling any vacancy
or any newly created directorship, the directors then in office shall
constitute less than a majority of the whole board (as constituted
immediately prior to any such increase), the Delaware Court of Chancery
may, upon application of any stockholder or stockholders holding at least
ten percent (10%) of the total number of the shares at the time outstanding
having the right to vote for such directors, summarily order an election to
be held to fill any such vacancies or newly created directorships, or to
replace the directors chosen by the directors then in office.
Cumulative Voting. As permitted under the CBCA, the Corporate Express
Articles expressly provide that there shall be no cumulative voting in the
election of directors.
As permitted under the DGCL, the United TransNet Certificate expressly
provides that there shall be no cumulative voting in the election of
directors.
Limitation of Director's Liability. As permitted by both the CBCA and
the DGCL, both the Corporate Express Articles and the United TransNet
Certificate eliminate or limit the personal liability of a director to
Corporate Express or its shareholders and United TransNet or its
stockholders, respectively, for monetary damages based on such director's
breach of fiduciary duty, provided that a director's liability is not
eliminated or limited for any breach of the director's duty of loyalty to
the corporation or its stockholders, for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of
law, for certain excess or prohibited distributions, or for any transaction
from which the director derived an improper personal benefit.
Indemnification of Directors and Officers. The CBCA and the DGCL
contain generally similar provisions for the indemnification of directors,
officers, employees and agents. The CBCA permits indemnification of a
director only if the director conducted himself or herself in good faith
and reasonably believed, in connection with conduct in an official
capacity, that his or her conduct was in the best interests of the
corporation and, in all other cases, that his or her conduct was at least
not opposed to the corporation's best interests. The DGCL permits such
indemnification if the director acted in good faith and reasonably believed
that such conduct was in or not opposed to the best interests of the
corporation. The CBCA generally precludes indemnification if there is an
adjudication of liability that the director obtained an improper personal
benefit. The DGCL does not specifically deal with cases of improper
personal benefit. Neither the CBCA nor the DGCL permits a corporation to
indemnify directors against judgments in actions brought by or in the right
of the corporation in which such director was adjudged liable to the
corporation, and the DGCL extends such limitation to indemnification of
officers. However, both the CBCA and
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the DGCL permit indemnification for reasonable expenses in such situations
if the indemnification is ordered by a court. Both the CBCA and the DGCL
permit the corporation to advance expenses upon a written undertaking for
their repayment if the person receiving the advance is not ultimately
entitled to indemnification. In addition, the CBCA requires (i) written
affirmation of a good faith belief of having met his or her standard of
conduct and (ii) determination that facts known would not preclude
indemnification. The CBCA prohibits provisions in articles of
incorporation, bylaws, or contracts that are inconsistent with the
statutory provisions, while the DGCL specifies that the statutory
provisions are not exclusive of other rights to indemnification or
advancement of expenses that may be provided by bylaws, agreements, votes
of stockholders or disinterested directors, or otherwise.
Special Meeting of Shareholders; Action by Consent. Under the CBCA
and the Corporate Express By-Laws, a special meeting of the shareholders of
Corporate Express may be called for any purpose by the Chairman of the
Corporate Express Board of Directors, by the Corporate Express Board of
Directors, by the Chief Executive Officer or by the President of Corporate
Express and must be called by the Chairman of the Corporate Express Board
of Directors at the request of the holders of not less than ten percent
(10%) of all votes entitled to be cast on any issue proposed to be
considered at such meeting. Under the CBCA, unless the Corporate Express
Articles require that action be taken at a shareholders' meeting, any
action required or permitted to be taken at a shareholders' meeting may be
taken without a meeting if all of the shareholders entitled to vote thereon
consent to such action in writing.
As permitted under the DGCL, the United TransNet By-Laws provide that
special meetings of stockholders of United TransNet may be called only by
the United TransNet Board of Directors pursuant to a resolution adopted by
a vote of the Board of Directors, and only the United TransNet Board of
Directors may set the record date and agenda for such a meeting. No
actions may be considered at a special meeting other than those specified
in the notice thereof. In addition, the United TransNet Certificate
provides that stockholder action must be taken at a duly called annual or
special meeting and may not be effected by any consent in writing of the
stockholders.
Business Combinations Involving a Change of Control. Neither the
CBCA, the Corporate Express Articles nor the Corporate Express By-Laws
contain any special provisions regarding business combinations involving a
change of control.
The DGCL prohibits certain transactions between a Delaware
corporation, the shares of which are listed on a national securities
exchange, and an "interested stockholder," unless the certificate of
incorporation of the corporation contains a provision expressly electing
not to be governed by this prohibition. The United TransNet Certificate
does not contain such an election. An "interested stockholder" includes a
person that is directly or indirectly a beneficial owner of fifteen percent
(15%) or more of the voting power of the outstanding voting stock of the
corporation and such person's affiliates and associates. The provision
prohibits certain business combinations between an interested stockholder
and a corporation for a period of three years after the date the interested
stockholder became an interested stockholder, unless (i) the business
combination is approved by the corporation's board of directors prior to
the date such stockholder became an interested stockholder, (ii) the
interested stockholder acquired at least eighty-five percent (85%) of the
voting stock of the corporation in the transaction in which such
stockholder became an interested stockholder or (iii) the business
combination is approved by a majority of the board of directors and the
affirmative vote of two-thirds of the outstanding stock that is not owned
by the interested stockholder.
Additionally, the United TransNet Certificate contains a so-called
"fair price" provision, which requires that, unless the proposed
transaction is approved by a majority of United TransNet's disinterested
directors, certain minimum price and procedural requirements must be
observed by any party who seeks to acquire more than ten percent (10%) of
the outstanding shares of United TransNet Common Stock and then seeks to
consummate a merger
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or other form of business combination or transaction which would eliminate
or significantly change the interests of the remaining stockholders.
Dissenters' Rights. Under the CBCA, a shareholder who complies with
prescribed statutory procedures, whether or not entitled to vote, is
entitled to dissent and obtain payment of the fair value of the
shareholder's shares in the event of (i) consummation of a plan of merger
to which Corporate Express is a party, if approval by Corporate Express
shareholders is required for the merger or if Corporate Express were a
subsidiary that was merged with its parent corporation, (ii) consummation
of a plan of share exchange to which Corporate Express is a party as the
corporation whose shares will be acquired, (iii) consummation of a sale,
lease, exchange, or other disposition of all, or substantially all, of
Corporate Express' property, if a shareholder vote is required for such
disposition under the CBCA, (iv) consummation of a sale, lease, exchange,
or other disposition of all, or substantially all, of the property of an
entity controlled by Corporate Express if Corporate Express shareholders
are entitled to vote on whether Corporate Express will consent to the
disposition; unless the shareholder's shares are listed on a national
securities exchange or on the National Market System of the National
Association of Securities Dealers Automated Quotation System or are held of
record by more than 2,000 shareholders, provided, however, that this
limitation shall not apply if the shareholder will receive for the
shareholder's shares, pursuant to the corporation action, anything except
(a) shares of the corporation surviving the consummation of the plan of
merger or share exchange, (b) shares of any other corporation which at the
effective date of the plan of merger or share exchange either will be
listed on a national securities exchange or on the National Market System
of the National Association of Securities Dealers Automated Quotation
System or will be held of record by more than 2,000 shareholders, (c) cash
in lieu of fractional shares, or (d) any combination of the shares
described in (a) and (b) or cash in lieu of fractional shares.
A shareholder is also entitled to dissent and obtain payment of the
fair value of the shareholder's shares in the event of (i) a reverse split
that reduces the number of shares owned by the shareholder to a fraction of
a share or to scrip if such fractional share or scrip is to be acquired for
cash or the scrip is to be voided under the CBCA, or (ii) any corporate
action, to the extent provided by the Corporate Express By-Laws or a
resolution of the Corporate Express Board of Directors.
Generally, stockholders of a Delaware corporation who object to
certain mergers or consolidations of the corporation are entitled to
appraisal rights, requiring the surviving corporation to pay the fair value
of the dissenting shares. There are, however, no statutory rights of
appraisal with respect to stockholders of a Delaware corporation whose
shares of stock are either (i) listed on a national securities exchange or
(ii) held of record by more than 2,000 stockholders. In addition, no
appraisal rights shall be available for any shares of stock of a surviving
corporation in a merger if the merger did not require the approval of the
stockholders of such corporation. Further, the DGCL does not provide
appraisal rights to stockholders who dissent from the sale of all or
substantially all of the corporation's assets unless the certificate of
incorporation provides otherwise. The United TransNet Certificate does not
provide for appraisal rights upon the sale of all or substantially all of
the assets of United TransNet.
Dividends. Under the CBCA, a dividend may be paid on the Corporate
Express Common Stock unless, after payment of the dividend, (i) Corporate
Express would not be able to pay its debts as they become due in the usual
course of business or (ii) Corporate Express' total assets would be less
than the sum of its total liabilities plus the amount that would be needed,
if Corporate Express were dissolved at the time of the distribution, to
satisfy the preferential rights of shareholders whose preferential rights
are superior to those holders receiving the dividend.
Under the DGCL, a dividend may be paid on the United TransNet Common
Stock out of either surplus (defined as the excess of net assets over
capital) or if no surplus exists, out of net profits for the fiscal year in
which the dividend is declared and/or the preceding fiscal year. Dividends
may not be paid on such stock out of surplus
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if the capital of United TransNet is less than the aggregate amount of the
capital represented by the issued and outstanding stock of all classes
having a preference upon the distribution of assets.
Stock Repurchases. Under the CBCA, Corporate Express may purchase,
redeem or otherwise acquire its own shares, unless after giving effect
thereto, (i) Corporate Express would not be able to pay its debts as they
become due in the usual course of business or (ii) Corporate Express' total
assets would be less than the sum of its total liabilities plus the amount
that would be needed, if Corporate Express were dissolved at the time of
the redemption, to satisfy the preferential rights of shareholders whose
preferential rights are superior to those holders whose shares are to be
acquired.
Under the DGCL, United TransNet may purchase, redeem or otherwise
acquire its own shares. However, United TransNet may not, (i) purchase or
redeem its own shares of capital stock for cash or other property when the
capital of the corporation is impaired or when such purchase or redemption
would cause any impairment of the capital of the corporation, except that a
corporation may purchase or redeem out of capital any of its own shares
which are entitled upon any distribution of its assets, whether by dividend
or in liquidation, to a preference over another class or series of its
stock, if such shares will be retired upon their acquisition and the
capital of the corporation reduced; or (ii) purchase, for more than the
price at which they may then be redeemed, any of its shares which are
redeemable at the option of the corporation.
Related Party Transactions. Under the CBCA, no contract or
transaction between Corporate Express and one or more of its directors or
officers, or between Corporate Express and any other corporation,
partnership, association, or other organization in which one or more of
Corporate Express' directors or officers are directors or officers, or have
a financial interest, unless the contract or transaction is between
Corporate Express and an entity that owns, directly or indirectly, all of
the outstanding shares of Corporate Express or all of the outstanding
shares or other equity interests of which are owned, directly or
indirectly, by Corporate Express, is void or voidable solely for that
reason, or solely because the director or officer is present at or
participates in the meeting of the Corporate Express Board of Directors or
committee thereof which authorizes the contract or transaction, or solely
because such director's votes are counted for that purpose, if: (i) the
material facts as to such director's relationship or interest and as to the
contract or transaction are disclosed or are known to the Corporate Express
Board of Directors or the committee, and the Corporate Express Board of
Directors or committee in good faith authorizes, approves or ratifies the
contract or transaction by the affirmative vote of a majority of the
disinterested directors, even though the disinterested directors constitute
less than a quorum; (ii) the material facts as to such director's
relationship or interest and as to the contract or transaction are
disclosed or are known to the shareholders entitled to vote thereon, and
the contract or transaction is specifically authorized, approved or
ratified in good faith by a vote of the shareholders; or (iii) the contract
or transaction is fair to Corporate Express.
In addition, under the CBCA, the Corporate Express Board of Directors
or a committee thereof may not authorize a loan by Corporate Express to a
Corporate Express director or to an entity in which a Corporate Express
director is a director or officer or has a financial interest or a guaranty
by Corporate Express of an obligation of a Corporate Express director or of
an obligation of an entity in which a Corporate Express director is a
director or officer or has a financial interest, unless such entity (where
an entity is involved) is one that owns, directly or indirectly, all of the
outstanding shares of Corporate Express or all of the outstanding shares or
other equity interests of which are owned, directly or indirectly, by
Corporate Express, until at least ten days after written notice of the
proposed authorization of the loan or guaranty has been given to the
holders of the Corporate Express Common Stock who would be entitled to vote
on such a transaction.
The DGCL contains provisions regarding transactions with directors and
officers that are substantially similar to those of the CBCA. In addition,
the DGCL provides that United TransNet may loan money to, or
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guaranty any obligation incurred by, its officers (including those who are
also directors) if, in the judgment of the United TransNet Board of
Directors, such loan or guarantee may reasonably be expected to benefit
United TransNet.
Corporate Records; Shareholder Inspection. Under the CBCA, a
shareholder or a shareholder's agent or attorney is entitled to inspect and
copy, upon at least five business days' written notice and during regular
business hours at Corporate Express' principal office, the Corporate
Express Articles, the Corporate Express By-Laws, minutes of all
shareholders meetings and records for all action taken by shareholders
without a meeting for the past three years, all written communications
within the past three years to shareholders as a group, a list of the names
and business addresses of current directors and officers, the most recent
corporate report delivered to the Colorado Secretary of State, and certain
financial statements of Corporate Express prepared for periods ending
during the last three years. In addition, a shareholder who (i) has been a
Corporate Express shareholder for at least three months or who is a holder
of at least five percent of all of the outstanding shares of any class of
Corporate Express capital stock, (ii) makes a demand in good faith and for
a purpose reasonably related to the shareholder's interest as a
shareholder, (iii) describes with reasonable particularity the purpose and
the records the shareholder desires to inspect, and (iv) requests records
that are directly connected with the described purpose or such
shareholder's agent or attorney, purpose, is entitled to inspect and copy,
upon at least five business days' written notice and during regular
business hours at a reasonable location specified by Corporate Express:
excerpts from minutes or records of any Corporate Express Board of
Directors meeting or action, minutes or records of any shareholders'
meeting or action, excerpts of records of any action of a Corporate Express
Board of Directors committee, waivers of notices of any shareholder,
Corporate Express Board of Directors or Corporate Express Board of
Directors committee meeting, accounting records of Corporate Express, and
records of the names and addresses of shareholders.
Under the DGCL, any stockholder of United TransNet, in person or by
attorney or other agent, may, upon written demand under oath stating the
purpose thereof, during the usual hours for business, inspect for any
proper purpose, the corporation's stock ledger, a list of its stockholders,
and its other books and records, and to make copies or extracts therefrom.
Preemptive Rights. As permitted by the CBCA, the Corporate Express
Articles provide that, unless otherwise approved by Corporate Express'
Board of Directors, Corporate Express shareholders shall have no preemptive
right to acquire additional unissued shares, or securities convertible into
shares or carrying a right to acquire or subscribe to shares.
Under the DGCL, the stockholders of United TransNet do not have
preemptive rights unless specifically granted in the certificate of
incorporation. The United TransNet Certificate does not grant United
TransNet stockholders preemptive rights.
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THE MERGER AGREEMENT
The following description does not purport to be complete and is
qualified in its entirety by reference to the Merger Agreement, a copy of
which is attached as Appendix I to this Proxy Statement and Prospectus and
is incorporated by this reference herein.
Conditions to the Merger
The respective obligations of each party to effect the Merger are
subject to the following conditions:
Stockholder Approval. The Merger Agreement and the transactions
contemplated therein shall have been approved and adopted by the requisite
vote of the stockholders of United TransNet under applicable law and
applicable listing requirements.
NASDAQ Listing. The shares of Corporate Express Common Stock issuable
in the Merger shall have been authorized for listing on the NASDAQ upon
official notice of issuance.
Other Approvals. The waiting period applicable to the consummation of
the Merger under the HSR Act shall have expired or been terminated and all
other governmental waivers, consents, orders and approvals legally required
for the consummation of the Merger and the transactions contemplated
thereby shall have been obtained and be in effect at the Effective Time.
The Registration Statement. The Registration Statement shall have
become effective in accordance with the provisions of the Securities Act,
and no stop order suspending such effectiveness shall have been issued and
remain in effect and no proceeding for that purpose shall have been
instituted by the Commission or any state regulatory authorities.
No Injunctions or Restraints. No preliminary or permanent injunction
or other order or decree by any federal or state court which would prevent
the consummation of the Merger shall have been issued and remain in effect.
No Actions. No action shall have been taken, and no statute, rule or
regulation shall have been enacted, by any state or federal government or
governmental agency in the United States which would prevent the
consummation of the Merger or make the consummation of the Merger illegal.
Other Consents. All required consents and approvals of lenders shall
have been obtained and be in effect at the Effective Time.
Pooling of Interests. Coopers & Lybrand L.L.P., certified public
accountants for Corporate Express and Acquisition Sub, shall have delivered
a letter addressed to Corporate Express, dated as of the Closing Date, in
form and substance reasonably satisfactory to Corporate Express, stating
that the Merger will qualify as a pooling of interests transaction under
APB 16.
The obligation of Corporate Express to effect the Merger is subject to
the fulfillment at or prior to the Closing of the following additional
conditions:
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Performance of Obligations and Representations and Warranties of
United TransNet. United TransNet shall have performed in all material
respects its agreements contained in the Merger Agreement required to be
performed on or prior to the Closing Date and the representations and
warranties of United TransNet contained in the Merger Agreement shall be
true and correct in all material respects on and as of the date made and on
and as of the Closing Date as if made at and as of such date and Corporate
Express shall have received a Certificate of the President and Chief
Executive Officer or of a Vice President of the Company to that effect.
Legal Opinion. Corporate Express shall have received an opinion from
Sullivan & Worcester LLP, counsel to United TransNet, dated as of the
Closing Date, reasonably satisfactory to Corporate Express and addressing
various legal matters related to the Merger.
Comfort Letters. Corporate Express shall have received "comfort"
letters in customary form from Price Waterhouse LLP, independent
accountants for United TransNet, dated the date of the Proxy Statement and
Prospectus, the effective date of the Registration Statement and the
Closing Date (or such other date reasonably acceptable to Corporate
Express) with respect to certain financial statements and other financial
information included in the Registration Statement and any subsequent
changes in specified balance sheet and income statement items, including
total assets, working capital, total stockholders' equity, total revenues
and the total and per share amounts of net income.
No Material Changes. After the date of the Merger Agreement, there
shall have been no changes that constitute, and no event or events shall
have occurred which have resulted in or constitute, a material adverse
change in the business, operations, properties, assets, condition
(financial or other) or results of operations of United TransNet and its
subsidiaries, taken as a whole.
Governmental Waivers and Consents. All governmental waivers,
consents, orders and approvals legally required for the consummation of the
Merger and the transactions contemplated thereby shall have been obtained
and be in effect at the Closing Date, and no governmental authority shall
have promulgated any statute, rule or regulation which, when taken together
with all such promulgations, would materially impair the value to Corporate
Express of the Merger.
Fairness Opinion. Corporate Express shall have received from
Donaldson, Lufkin & Jenrette Securities Corporation (or other nationally
recognized investment banking firm reasonably acceptable to United
TransNet) an opinion, dated as of the date of the Merger Agreement, and, if
requested by Corporate Express, confirmed as of the date of this Proxy
Statement and Prospectus, to the effect that the Exchange Ratio is fair,
from a financial point of view, to Corporate Express' shareholders, and
such opinion shall not have been withdrawn.
The obligation of United TransNet to effect the Merger is subject to
the following additional conditions:
Performance of Obligations and Representations and Warranties of
Corporate Express and Acquisition Sub. Corporate Express and Acquisition
Sub shall have performed in all material respects their agreements
contained in the Merger Agreement required to be performed on or prior to
the Closing Date and the representations and warranties of Corporate
Express and Acquisition Sub contained in the Merger Agreement shall be true
and correct in all respects on and as of the date made and on and as of the
Closing Date as if made at and as of such date, and United TransNet shall
have received a certificate of the Chairman of the Board and Chief
Executive Officer, the President or a Vice President of Corporate Express
and of the President and Chief Executive Officer or a Vice President of
Acquisition Sub to that effect.
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Legal Opinions. United TransNet shall have received an opinion of
Sullivan & Worcester LLP, counsel to United TransNet, in form and substance
reasonably satisfactory to United TransNet, dated as of the Closing Date,
to the effect that holders of United TransNet Common Stock (except to the
extent any stockholders receive cash in lieu of fractional shares) will
recognize no gain or loss for federal income tax purposes as a result of
consummation of the Merger. In addition, United TransNet shall have
received an opinion or opinions from Ballard Spahr Andrews & Ingersoll,
counsel to Corporate Express and Acquisition Sub, effective as of the
Closing Date, reasonably satisfactory to United TransNet and addressing
various legal matters related to the Merger.
Comfort Letters. United TransNet shall have received "comfort"
letters in customary form from Coopers & Lybrand L.L.P., certified public
accountants for Corporate Express and Acquisition Sub, dated the date of
this Proxy Statement and Prospectus, the effective date of the Registration
Statement and the Closing Date (or such other date reasonably acceptable to
United TransNet) with respect to certain financial statements and other
financial information included in the Registration Statement and any
subsequent changes in specified balance sheet and income statement items,
including total assets, working capital, total stockholders' equity, total
revenues and the total and per share amounts of net income.
No Material Changes. After the date of the Merger Agreement, there
shall have been no changes that constitute, and no event or events shall
have occurred which have resulted in or constitute, a material adverse
change in the business, operations, properties, assets, condition
(financial or other) or results of operations of Corporate Express and its
subsidiaries, taken as a whole.
Governmental Waivers and Consents. All governmental waivers,
consents, orders, and approvals legally required for the consummation of
the Merger and the transactions contemplated thereby shall have been
obtained and be in effect at the Closing Date, and no governmental
authority shall have promulgated any statute, rule or regulation which,
when taken together with all such promulgations, would materially impair
the value to Corporate Express of the Merger.
Fairness Opinion. United TransNet shall have received from Smith
Barney (or other nationally recognized investment banking firm reasonably
acceptable to Corporate Express) an opinion, dated as of the Merger
Agreement, and, if requested by United TransNet, confirmed as of the date
of this Proxy Statement and Prospectus, to the effect that the Exchange
Ratio is fair, from a financial point of view, to the holders of United
TransNet Common Stock, and such opinion shall not have been withdrawn.
Representations and Warranties
The Merger Agreement contains various representations and warranties
by each of Corporate Express, Acquisition Sub and United TransNet relating
to, among other things, (i) organization and qualification to do business,
(ii) capitalization, (iii) subsidiaries, (iv) authority to enter into the
Merger; non-contravention of laws or governing documents and regulatory
approvals, (v) reports and financial statements, (vi) absence of
undisclosed liabilities, (vii) absence of certain changes or events, (viii)
litigation, (ix) the Registration Statement and this Proxy Statement and
Prospectus, (x) violations of law, (xi) compliance with agreements, (xii)
taxes, (xiii) employee benefit plans and ERISA matters, (xiv) labor
controversies, (xv) environmental matters, (xvi) title to assets, (xvii)
trademarks and intellectual property, (xviii) material agreements, (xix)
pooling of interests matters, (xx) insurance, and (xxi) transactions with
related parties. United TransNet makes additional representations and
warranties with respect to (i) stockholder approval, (ii) excess parachute
payments, (iii) execution of amendments to certain employment agreements
with employees of United TransNet as such relate to the payment of cash
compensation upon a change of control of United TransNet or upon the
voluntary termination of employment, and (iv) the execution of certain
affiliate agreements by certain stockholders, directors and officers of
United TransNet relating
49
<PAGE>
to restrictions on the resale of Corporate Express Common Stock to be
received in conjunction with the consummation of the merger.
Certain Covenants
During the period from the date of the Merger Agreement and continuing
until the Effective Time, United TransNet shall, and shall cause its
subsidiaries to:
Ordinary Course. Conduct their respective businesses in the ordinary
and usual course of business and consistent with past practice.
Changes in Stock. Not (i) amend or propose to amend their respective
charters or by-laws, (ii) split, combine or reclassify their outstanding
capital stock or (iii) declare, set aside or pay any dividend or
distribution payable in cash, stock, property or otherwise, except for the
payment of dividends or distributions by a wholly owned subsidiary of
United TransNet.
Issuance of Securities. Not issue, sell, pledge or dispose of, or
agree to issue, sell, pledge or dispose of, any additional shares of, or
any options, warrants or rights of any kind to acquire any shares of their
capital stock of any class or any debt or equity securities convertible
into or exchangeable for such capital stock, except that United TransNet
may issue shares (i) upon conversion of convertible securities and exercise
of options outstanding on the date of the Merger Agreement; and (ii) in
connection with the certain acquisitions.
Other Conduct. Not (i) incur or become contingently liable with
respect to any indebtedness for borrowed money other than (X) borrowings in
the ordinary course of business or (Y) borrowings to refinance existing
indebtedness, (ii) redeem, purchase, acquire or offer to purchase or
acquire any shares of its capital stock or any options, warrants or rights
to acquire any of its capital stock or any security convertible into or
exchangeable for its capital stock, (iii) take any action which would
jeopardize the treatment of the Merger as a pooling of interests under APB
No. 16, (iv) take or fail to take any action which action or failure would
cause United TransNet or its stockholders (except to the extent that any
stockholders receive cash in lieu of fractional shares) to recognize gain
or loss for federal income tax purposes as a result of the consummation of
the Merger, (v) sell, pledge, dispose of or encumber any assets or
businesses other than sales in the ordinary course of business, or (vi)
enter into any contract, agreement, commitment or arrangement with respect
to any of the foregoing.
Preservation of Goodwill. Use all reasonable efforts to preserve
intact their respective business organizations and goodwill, keep available
the services of their respective present officers and key employees, and
preserve the goodwill and business relationships with customers and others
having business relationships with them and not engage in any action,
directly or indirectly, with the intent to adversely impact the
transactions contemplated by the Merger Agreement.
Communication with Corporate Express. Confer on a regular and
frequent basis with one or more representatives of Corporate Express to
report operational matters of materiality and the general status of ongoing
operations.
No Changes in Employment Agreements. Not enter into or amend any
employment, severance, special pay arrangement with respect to termination
of employment or other similar arrangements or agreements with any
directors, officers or key employees, except in the ordinary course and
consistent with past practice (excluding material management non-
competition and severance agreements).
50
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No Changes in Compensation Arrangements. Not adopt, enter into or
amend any bonus, profit sharing, compensation, stock option, pension,
retirement, deferred compensation, health care, employment or other
employee benefit plan, agreement, trust, fund or arrangement for the
benefit or welfare of any employee or retiree, except as required to comply
with changes in applicable law.
Maintain Insurance. Maintain with adequately capitalized insurance
companies insurance coverage for its tangible assets and its businesses in
such amounts and against such risks and losses as are consistent with past
practice.
During the period from the date of the Merger Agreement and continuing
until the Effective Time, Corporate Express shall, and shall cause its
subsidiaries to:
Ordinary Course. Conduct their respective businesses in the ordinary
and usual course of business and consistent with past practice.
Changes in Stock. Not (i) except as necessary to consummate the
transactions contemplated by the Merger, amend or propose to amend their
respective charters or by-laws, (ii) split, combine or reclassify (whether
by stock dividend or otherwise) their outstanding capital stock, or (iii)
declare, set aside or pay any dividend or distribution payable in cash,
stock, property or otherwise, except for the payment of dividends or
distributions by a wholly owned subsidiary of Corporate Express.
Issuance of Securities. Not issue, sell, pledge or dispose of, or
agree to issue, sell, pledge or dispose of, any additional shares of United
TransNet Common Stock, or any options, warrants or rights of any kind to
acquire, any shares of their capital stock of any class or any debt or
equity securities convertible into or exchangeable for such capital stock,
except that United TransNet may issue shares (i) upon conversion of
convertible securities and exercise of options outstanding on the date of
the Merger Agreement; and (ii) in connection with certain acquisitions.
Other Conduct. Not (i) incur or become contingently liable with
respect to any indebtedness for borrowed money other than (X) borrowings in
the ordinary course of business or (Y) borrowings to refinance existing
indebtedness, (ii) redeem, purchase, acquire or offer to purchase or
acquire any shares of its capital stock or any options, warrants or rights
to acquire any of its capital stock or any security convertible into or
exchangeable for its capital stock, (iii) take any action which to the
knowledge of United TransNet would jeopardize the treatment of the Merger
as a pooling of interests under APB No. 16, (iv) take or fail to take any
action which action or failure which to the knowledge of United TransNet
would cause United TransNet or its stockholders (except to the extent that
any stockholders receive cash in lieu of fractional shares) to recognize
gain or loss for federal income tax purposes as a result of the
consummation of the Merger, (v) sell, pledge, dispose of or encumber any
assets or businesses other than sales in the ordinary course of business or
(vi) enter into any contract, agreement, commitment or arrangement with
respect to any of the foregoing.
Preservation of Goodwill. Use all reasonable efforts to preserve
intact their respective business organizations and goodwill, keep available
the services of their respective present officers and key employees, and
preserve the goodwill and business relationships with customers and others
having business relationships with them and not engage in any action,
directly or indirectly, with the intent to adversely impact the
transactions contemplated by the Merger Agreement.
No Changes in Compensation Arrangements. Not adopt, enter into or
amend any bonus, profit sharing, compensation, stock option, pension,
retirement, deferred compensation, health care, employment or other
employee
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benefit plan, agreement, trust, fund or arrangement for the benefit or
welfare of any employee or retiree, except as required to comply with
changes in applicable law.
Employment and Severance Agreements. Not enter into or amend any
employment, severance, special pay arrangement with respect to termination
of employment or other similar arrangements or agreements with any
directors, officers or key employees, except in the ordinary course and
consistent with past practice; provided, however, that Corporate Express
and its subsidiaries shall in no event enter into any written employment
agreement which provides for an annual base salary in excess of $125,000
and has a term in excess of one year or enter into or amend any material
severance or termination agreement.
Maintain Insurance. Maintain with financially responsible insurance
companies insurance on its tangible assets and its businesses in such
amounts and against such risks and losses as are consistent with past
practice.
Communication with United TransNet. Confer on a regular and frequent
basis with one or more representatives of United TransNet to report
operational matters of materiality and the general status of ongoing
operations.
No Solicitation
After the date of the Merger Agreement and prior to the Effective Time
or earlier termination of the Merger Agreement, United TransNet shall not,
and shall not permit any of its subsidiaries to, initiate or solicit, and
United TransNet shall, and shall use its best efforts to cause each of its
subsidiaries to, cause any of its officers, directors or employees, or any
attorney, accountant, investment banker, financial advisor or other agent
retained by it, not to initiate or solicit, any proposal or offer to
acquire all or any substantial part of the business and properties of
United TransNet and its subsidiaries or any capital stock of United
TransNet and its subsidiaries, whether by merger, purchase of assets,
tender offer or otherwise, whether for cash, securities or any other
consideration or combination thereof in a transaction, upon the
consummation of which the holders of United TransNet Common Stock will own
less than a majority of the equity of the offeror or resulting entity or
have the right to elect no more than a minority of the board of directors
(or similar governing body) of the offeror or the resulting entity (any
such transactions being referred to herein as "Acquisition Transactions").
Notwithstanding any other provision in the Merger Agreement, in
response to an unsolicited proposal or inquiry with respect to an
Acquisition Transaction, (i) United TransNet may engage in discussions or
negotiations regarding such proposal or inquiry with a third party who
(without any solicitation or initiation, directly or indirectly, by or with
United TransNet or any United TransNet representative after the date of the
Merger Agreement) seeks to initiate such discussions or negotiations and
may negotiate with and furnish to such third party information concerning
United TransNet and its business, properties and assets, and (ii) if such
Acquisition Transaction is a tender offer subject to the provisions of
Section 14(d) under the Exchange Act, United TransNet's Board of Directors
may take and disclose to United TransNet's stockholders a position
contemplated by Rule 14e-2 under the Exchange Act.
In the event United TransNet shall determine to provide any
information or negotiate as described above, or shall receive any offer of
the type referred to above, it shall (i) immediately provide Corporate
Express a copy of all information provided to the third party, (ii) inform
Corporate Express that information is to be provided, that negotiations are
to take place or that an offer has been received, as the case may be, and
(iii) furnish to Corporate Express the identity of the entity receiving
such information or the proponent of such offer, if applicable, and, if an
offer has been received, unless the United TransNet Board of Directors
concludes that such disclosure is inconsistent with its fiduciary duties
under applicable law, a description of the material terms thereof.
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<PAGE>
United TransNet may terminate the Merger Agreement, withdraw, modify
or not recommend the approval of the Merger to the United TransNet
stockholders and enter into a definitive agreement for an Acquisition
Transaction if but only if (i) United TransNet shall have determined in
good faith after consultation with the independent financial advisors of
United TransNet that such Acquisition Transaction would be more favorable
to United TransNet's stockholders from a financial point of view than the
Merger, (ii) the United TransNet Board of Directors shall conclude in good
faith after consultation with its legal counsel that such action is
necessary in order for the United TransNet Board of Directors to act in a
manner that is consistent with its fiduciary obligations under and (iii)
United TransNet shall have furnished Corporate Express with a copy of the
definitive agreement at least five business days prior to its execution and
Corporate Express shall have failed within such five business day period to
offer to amend the terms of the Merger Agreement so that the Merger would
be, in the good faith determination of the United TransNet Board of
Directors, at least as favorable to United TransNet stockholders from a
financial point of view as the Acquisition Transaction.
Additional Agreements
Pursuant to the Merger Agreement, Corporate Express and United
TransNet have made the following additional agreements:
Access. Corporate Express and United TransNet and their respective
subsidiaries shall each afford to the other access to their respective
accountants, counsel, financial advisors and other representatives,
properties, books, contracts, documents filed or received pursuant to
federal or state securities laws or filed with the Commission in connection
with the Merger or which may have a material effect on their respective
businesses and other information as the other party may reasonably request.
Corporate Express and its subsidiaries shall hold and shall use their
reasonable best efforts to cause representatives of United TransNet to
hold, in strict confidence all non-public documents and information
furnished to Corporate Express and Acquisition Sub or to the Company, as
the case may be, in connection with the transactions contemplated by the
Merger Agreement, except that such information as may be necessary may be
disclosed in connection with statutory approvals, United TransNet
stockholders' approval and as required by law or judicial or administrative
order.
Registration Statement. Corporate Express and United TransNet will
prepare and file with the Commission as soon as is reasonably practicable,
this Proxy Statement and Prospectus and shall use all reasonable efforts to
have the Registration Statements declared effective by the Commission as
promptly as practicable. Corporate Express shall also take any action
required under applicable state blue sky or securities law in connection
with the issuance of Corporate Express Common Stock pursuant to the Merger.
Stockholder Meeting. United TransNet will submit the Merger Agreement
for the approval of its stockholders in accordance with applicable law and
listing requirements and, subject to the fiduciary duties of the Boards of
Directors under applicable law, shall use their reasonable best efforts to
obtain stockholder approval and adoption.
Exchange Listing. Corporate Express shall use its reasonable best
efforts to effect, at or before the Effective Time, authorization for
listing on the NASDAQ, upon official notice of issuance, of the shares of
Corporate Express Common Stock to be issued pursuant to the Merger.
Expenses and Fees. United TransNet and Corporate Express shall bear
their own expenses incurred in connection with the Merger, except that the
fees and expenses incurred in connection with the printing and mailing of
this Proxy Statement and Prospectus will be shared equally by United
TransNet and Corporate Express. Additionally, if the Merger is not
consummated because United TransNet determines to enter into an Acquisition
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Transaction with any party other than Corporate Express within twelve
months of the date of the Merger Agreement, United TransNet shall pay to
Corporate Express the sum of $3,375,000.
Agreement to Cooperate. Corporate Express and United TransNet will
use all reasonable efforts to take, or cause to be taken, all actions
necessary to consummate and make effective the transactions contemplated by
the Merger Agreement. Each of Corporate Express and United TransNet
undertakes and agrees to make all filings and comply with all requests
related to the HSR Act.
Public Statements and Filings. Unless required by law, Corporate
Express and United TransNet (i) shall consult with each other prior to
issuing any press release or any written public statement with respect to
the Merger Agreement or the transaction contemplated thereby, and (ii)
shall not issue any such press release or written public statement prior to
such consultation. In addition, Corporate Express and United TransNet
shall each provide the other party with a written copy of any of its SEC
Reports to be filed at least forty-eight hours prior to the filing of such
report.
Option Plans. Prior to the Effective time, United TransNet and
Corporate Express shall take such action as may be necessary to cause each
unexpired and unexercised United TransNet Option under United TransNet's
1995 Stock Incentive Plan (the "Plan") and its several stock option
agreements to be automatically converted at the Effective Time into an
option (each a "Corporate Express Option") to purchase a number of shares
of Corporate Express Common Stock equal to the number of shares of United
TransNet Common Stock that could have been purchased under the United
TransNet Option multiplied by the Exchange Ratio, at a price per share of
Corporate Express Common Stock equal to the option exercise price
determined based on the United TransNet Option divided by the Exchange
Ratio and subject to the same terms and conditions as the United TransNet
Option. Corporate Express shall assume all of United TransNet's
obligations with respect to United TransNet Options which United TransNet
Options become fully vested upon the consummation of the Merger under the
provisions of the Plan, and shall, from and after the Effective Time,
reserve and make available for issuance upon exercise of Corporate Express
Options all shares of Corporate Express Common Stock covered thereby and
shall have amended its Registration Statement on Form S-8 (the "Form S-8"),
to register the additional shares of Corporate Express Common Stock subject
to Corporate Express Options granted in replacement of United TransNet
Options.
Notification. Each of United TransNet, Corporate Express and
Acquisition Sub agrees to give prompt notice to each other of, and to use
its reasonable best efforts to prevent or promptly remedy, (i) the
occurrence or failure to occur or the impending or threatened occurrence or
failure to occur, of any event which occurrence or failure to occur would
be likely to cause any of its representations or warranties in the Merger
Agreement to be untrue or inaccurate in any material respect at any time
from the date hereof to the Effective Time and (ii) any material failure on
its part to comply with or satisfy any covenant, condition or agreement to
be complied with or satisfied by it under the Merger Agreement.
Indemnification. From and after the Effective Time, Corporate Express
shall, and Corporate Express shall cause the Surviving Corporation to,
indemnify, defend and hold harmless the present and former officers and
directors of United TransNet (collectively, the "Indemnified Parties")
against all losses, expenses, claims, damages, liabilities or amounts that
are paid in settlement of, or otherwise in connection with any claim,
action, suit, proceeding or investigation (a "claim"), based in whole or in
part on the fact that such person is or was a director or officer of United
TransNet and arising out of actions or omissions occurring at or prior to
the Effective Time (including, without limitation, the Merger Agreement,
the Merger and the transactions contemplated thereby), in each case to the
fullest extent permitted under the DGCL (and shall pay any expenses in
advance of the final disposition of any such action or proceeding to each
Indemnified Party to the fullest extent permitted under the DGCL, upon
receipt from the Indemnified Party to whom expenses are advanced of any
undertaking to repay such
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advances required under the DGCL). Corporate Express shall, and Corporate
Express shall cause the Surviving Corporation to, observe and comply with
United TransNet's obligations pursuant to the indemnification agreements it
has identified to Corporate Express.
Corporate Express shall, and Corporate Express shall cause the
Surviving Corporation to, cause to be maintained in effect until sixty (60)
days after the running of the statute of limitations the current policies
of directors' and officers' liability insurance maintained by United
TransNet (provided that Corporate Express or the Surviving Corporation may
substitute therefor policies of at least the same coverage and amounts
containing terms and conditions which are no less advantageous to such
officers and directors) with respect to claims arising from facts or events
which occurred at or before the Effective Time.
In the event the Surviving Corporation or Corporate Express or any of
their successors or assigns (i) consolidates with or merges into any other
person and shall not be the continuing or surviving corporation or entity
of such consolidation or merger or (ii) transfers all or substantially all
of its properties and assets to any person, then in each such case, proper
provisions shall be made so that the successors and assigns of the
Surviving Corporation or Corporate Express shall assume the obligations set
forth above.
Corrections. Prior to the date of approval of the Merger by their
respective stockholders, United TransNet and Corporate Express shall
promptly correct any information provided by them to be used specifically
in this Proxy Statement and Prospectus and the Registration Statement that
shall have become false or misleading in any material respect and shall
take all steps necessary to file with the Commission and have declared
effective or cleared by the Commission any amendment or supplement to this
Proxy Statement and Prospectus or the Registration Statement so as to
correct the same and to cause this Proxy Statement and Prospectus as so
corrected to be disseminated to the stockholders of United TransNet, in
each case to the extent required by applicable law.
Irrevocable Proxies. United TransNet will use their best efforts to
cause its officers and employee directors to execute and deliver to each
other party to the Merger Agreement irrevocable proxies authorizing the
other party to vote all shares of United TransNet Common Stock which such
executive officers and employee directors are entitled to vote in favor of
the Merger.
Grant of Options to United TransNet Employees. Upon consummation of
the Merger, Corporate Express shall grant non-qualified options to purchase
1,000,000 shares of Corporate Express Common Stock to certain employees of
United TransNet as recommended to Corporate Express in writing by senior
management of United TransNet and as agreed to by the compensation
committee of the Corporate Express Board of Directors. In addition,
Corporate Express and United TransNet have agreed that the Compensation
Committee of the Corporate Express' Board of Directors will review the
financial and operating performance of the business units formerly under
the control of United TransNet's employees for the period from September 1,
1996 to March 1, 1997 and grant up to an additional 200,000 non-qualified
options to United TransNet employees. Such options will vest over five (5)
years (2.083% per month, for months thirteen (13) through sixty (60),
inclusive, following the Effective Time), expire ten (10) years from the
date of grant and otherwise be subject to the terms and conditions of
Corporate Express' existing stock option plan except that such options
shall not qualify as incentive stock options under the Code. Corporate
Express shall register the shares issuable pursuant to the options
Corporate Express has agreed to grant under the Merger Agreement on Form S-
8, and shall use reasonable efforts to cause such shares to be listed on
NASDAQ.
Tax Free Treatment of Merger. Corporate Express, Acquisition Sub and
United TransNet shall each use its best efforts to cause the Merger to be
treated as a tax-free reorganization for federal income tax purposes.
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Corporate Express' Periodic Reports Following the Merger. Following
the Effective Time, Corporate Express shall file with the Commission a
periodic report under the Exchange Act which contains at least thirty (30)
days of combined results of operations of United TransNet and Corporate
Express as required by ASR 135 within the time prescribed for the filing of
such report.
Termination, Amendment and Waiver
The Merger Agreement may be terminated at any time prior to the
Closing Date, whether before or after approval by the stockholders of
United TransNet, (i) by either United TransNet or Corporate Express, (A) if
the Merger is not consummated by December 31, 1996, otherwise than on
account of delay or default on the part of the terminating party or any of
its 5% stockholders or any of their affiliates or associates; (B) if the
Merger is enjoined by a final unappealable court order not entered at the
request or with the support of the terminating party or any of its
respective five percent (5%) stockholders, affiliates or associates; (C) if
the nonterminating party fails to perform in any material respect any of
its covenants in the Merger Agreement and does not cure such default in all
material respects within 30 days after written notice of such default is
given to the nonterminating party by the terminating party; or (D) if the
United TransNet stockholders' vote is not sufficient to approve the Merger;
and (ii) by United TransNet if it determines to enter into a qualifying
Acquisition Transaction, as described under " - No Solicitation."
The Merger Agreement may not be amended except by action taken by the
parties' respective Boards of Directors or duly authorized committees
thereof and then only by an instrument in writing signed on behalf of each
of the parties to the Merger Agreement and in compliance with applicable
law.
At any time prior to the Effective Time, the parties to the Merger
Agreement may (a) extend the time for the performance of any of the
obligations or other acts of the other parties to the Merger Agreement, (b)
waive any inaccuracies in the representations and warranties contained
therein or in any document delivered pursuant thereto and (c) waive
compliance with any of the agreements or conditions contained therein. Any
agreement on the part of a party to the Merger Agreement to any such
extension or waiver shall be valid if set forth in an instrument in writing
signed on behalf of such party.
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SELECTED CONSOLIDATED FINANCIAL DATA
(In thousands, except per share data)
Corporate Express
The following selected consolidated financial data for fiscal 1995,
fiscal 1994, and fiscal 1993 have been derived from Corporate Express'
consolidated financial statements which have been audited by independent
auditors. The selected consolidated financial data for the three months
ended May 27, 1995 and June 1, 1996, fiscal 1992 and fiscal 1991 are
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 Delivery acquisition
(effective March 1, 1996), the Richard Young Journal, Inc. ("Young")
acquisition (effective February 2, 1996) and the acquisition of Lucas
Bros., Inc. ("Lucas") (effective November 30, 1993) were accounted for as
poolings of interests and, accordingly, the Delivery, Young and Lucas
accounts and results are included for all periods presented. The
information set forth below should be read in conjunction with the
consolidated financial statements of Corporate Express and other
information incorporated herein by reference.
<TABLE>
<CAPTION>
Fiscal Year
----------------------------------------------------------------------------
May 27
1991 1992 1993 1994 1995 1995
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Statements of Operations Data:
Net Sales......................................... $195,783 $237,473 $337,094 $927,918 $1,590,104 $330,394
Cost of Sales(1).................................. 144,418 175,309 254,698 681,962 1,173,255 243,586
Merger related inventory provisions(2)............ --- --- 1,146 --- 5,952 ---
-------- -------- -------- -------- ---------- --------
Gross profit..................................... 51,365 62,164 81,250 245,956 410,897 86,808
Warehouse operating and selling expenses.......... 38,489 49,383 69,851 188,464 297,275 62,611
Corporate general and administrative expenses..... 5,088 7,139 8,690 23,852 46,980 9,243
Merger and other nonrecurring charges(3).......... --- 2,592 1,928 --- 36,838 ---
-------- -------- -------- -------- ---------- --------
Operating profit................................. 7,788 3,050 781 33,640 29,804 14,954
Interest expense, net............................. 5,109 4,087 4,463 15,610 15,396 4,203
Other expenses (income)(4)........................ 480 1,737 (126) (352) (724) (167)
-------- -------- -------- -------- ---------- --------
Income (loss) before income taxes................ 2,199 (2,774) (3,556) 18,382 15,132 10,918
Income tax expense................................ 1,326 947 1,894 6,164 10,952 4,297
-------- -------- -------- -------- ---------- --------
Income (loss) before minority interest........... 873 (3,721) (5,450) 12,218 4,180 6,621
Minority Interest................................. --- --- 152 69 1,436 115
-------- -------- -------- -------- ---------- --------
Income (loss) from continuing operations......... 873 (3,721) (5,602) 12,149 2,744 6,506
Income (loss) from discontinued operations(5)..... (435) (4,571) 138 --- --- ---
-------- -------- -------- -------- ---------- --------
Income (loss) before extraordinary item.......... 438 (8,292) (5,464) 12,149 2,744 6,506
Extraordinary item(6)............................. --- --- (1,169) 586 --- ----
-------- -------- -------- -------- ---------- --------
Net income (loss)................................ $ 438 $(8,292) $(6,633) $ 12,735 $ 2,744 $ 6,506
======== ======== ======== ======== ========== ========
Per common share:
Income (loss) from continuing operations......... $(.21) $.24 $.04 $.10
======== ======== ========== ========
Net Income (loss)................................ $(.25) $.25 $.04 $.10
======== ======== ========== ========
Shares used to compute per share amounts.......... 32,265 49,195 68,057 62,971
======== ======== ========== ========
Balance Sheet Data:
Working capital................................... $ 21,061 $ 25,560 $ 68,084 $131,202 $ 217,243 $194,738
Total assets...................................... 83,682 108,811 387,477 568,161 910,523 673,334
Long-term debt and capital lease obligations...... 39,339 38,576 161,881 166,427 137,468 200,712
Shareholders' equity and redeemable preferred(7).. 14,502 25,528 100,045 240,470 496,514 303,736
</TABLE>
<TABLE>
<CAPTION>
Three Months
ended
June 1
1996
----
<S> <C>
Statements of Operations Data:
Net Sales......................................... $ 500,624
Cost of Sales(1).................................. 369,178
Merger related inventory provisions(2)............ ---
----------
Gross profit..................................... 131,446
Warehouse operating and selling expenses.......... 95,309
Corporate general and administrative expenses..... 15,933
Merger and other nonrecurring charges(3).......... ---
----------
Operating profit................................. 20,204
Interest expense, net............................. 3,279
Other expenses (income)(4)........................ ---
----------
Income (loss) before income taxes................ 16,925
Income tax expense................................ 7,079
----------
Income (loss) before minority interest........... 9,846
Minority Interest................................. 230
----------
Income (loss) from continuing operations......... 9,616
Income (loss) from discontinued operations(5)..... ---
----------
Income (loss) before extraordinary item.......... 9,616
Extraordinary item(6)............................. ---
----------
Net income (loss)................................ $ 9,616
==========
Per common share:
Income (loss) from continuing operations......... $.13
==========
Net Income (loss)................................ $.13
==========
Shares used to compute per share amounts.......... 75,139
==========
Balance Sheet Data:
Working capital................................... $ 201,353
Total assets...................................... 1,114,652
Long-term debt and capital lease obligations...... 252,378
Shareholders' equity and redeemable preferred(7).. 512,297
</TABLE>
(1) Cost of sales include occupancy and delivery expenses.
(2) Reflects the write-down to market value of certain inventory which the
Company has decided to eliminate from its product line in connection with
the Delivery, Young and Lucas mergers.
(3) Merger and other nonrecurring charges relate primarily to the mergers with
Delivery and Young in fiscal 1995 and Lucas in fiscal 1993 and include,
among other things, costs to complete the acquisitions, merging and closing
redundant facilities, and centralizing certain administrative functions.
(4) Includes a write-off of $1.2 million of investments in fiscal 1992.
57
<PAGE>
(5) In November 1990, Corporate Express made a strategic decision to close all
of its retail operations 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 and extraordinary gain related to the
repurchase by the Company of $10 million principal amount of 9 1/8% Senior
Subordinated Notes in fiscal 1994.
(7) Redeemable preferred stock was converted to Common Stock in fiscal 1994.
58
<PAGE>
SELECTED FINANCIAL DATA
UNITED TRANSNET
Simultaneous with the closing of United TransNet's initial public offering on
December 19, 1995, separate wholly-owned subsidiaries of United TransNet merged
with six companies which provide ground and air courier services, Courier
Dispatch Group, Inc. ("Courier Dispatch"), Tricor America, Inc. ("Tricor"), Film
Transit, Incorporated ("Film Transit"), Lanter Courier Corporation ("Lanter"),
Sunbelt Courier, Inc. ("Sunbelt") and 3D Distribution Systems, Inc. ("3D")
(collectively, the "Combined Founding Companies" and each individually, a
"Founding Company").
The statement of operations data shown below for the years ended December 31,
1991, 1992, 1993, and 1994 and the period from January 1 to December 19, 1995
and for the six months ended June 30, 1995 and the balance sheet data as of
December 31, 1991, 1992, 1993 and 1994 are that of the Combined Founding
Companies prior to their merger, on a historical basis except for pro forma
data. During the periods presented the Combined Founding Companies were not
under common control or management and some were not taxable entities. Therefore
the data presented may not be comparable to or indicative of post-combination
results to be achieved by United TransNet after such mergers.
The following selected financial data with respect to the Combined Founding
Companies' combined statements of operations for the years ended December 31,
1993 and 1994 and the period from January 1 to December 19, 1995 and for the six
months ended June 30, 1995 and with respect to the Combined Founding Companies'
combined balance sheets as of December 31, 1993 and 1994 have been derived from
the Combined Founding Companies' combined financial statements that appear
elsewhere in this Proxy Statement and Prospectus. The selected financial data
with respect to United TransNet's consolidated statements of operations for the
period from December 20 to December 31, 1995 and for the six months ended June
29, 1996 and with respect to United TransNet's consolidated balance sheets as of
December 31, 1995 and June 29, 1996 have been derived from United TransNet's
consolidated financial statements that appear elsewhere in this Proxy Statement
and Prospectus. The financial data provided below should be read in conjunction
with these accompanying financial statements and related notes thereto as well
as "Management's Discussion and Analysis of Financial Condition and Results of
Operations--United TransNet."
59
<PAGE>
<TABLE>
<CAPTION>
Combined Founding Companies(1) United Transnet, Inc. Combined(2)
-------------------------------------------------------------- --------------------- -----------
Period from | Period from
January 1 to | December 20, Year ended
Year ended December 31, December 19, | to December 31, December 31,
1991(3) 1992 1993 1994 1995 | 1995 1995
-------- ---------- -------- -------- -------- | ----------- ------------
(In thousands, except per share amounts) | (In thousands, except
| per share amounts)
<S> <C> <C> <C> <C> <C> | <C> <C>
Statements of Operations: |
Historical Data |
Net revenues $150,793 $ 154,884 $171,901 $214,099 $246,526 | $ 7,748 $ 254,274
Cost of delivery 112,196 112,620 122,110 156,323 181,217 | 5,462 186,679
-------- ---------- -------- -------- -------- | ----------- ------------
Gross profit 38,597 42,264 49,791 57,776 65,309 | 2,286 67,595
|
Selling, general and |
administrative expenses 34,836 34,778 41,095 48,395 53,444 | 1,585 55,029
Amortization of |
intangible assets 849 1,642 2,258 3,667 3,204 | 92 3,296
-------- ---------- -------- -------- -------- | ----------- ------------
Operating income 2,912 5,844 6,438 5,714 8,661 | 609 9,270
Interest expense 1,741 2,291 2,387 3,758 5,288 | 137 5,425
Interest income and |
other, net(4) 2,781 227 127 2,245 264 | 5 269
-------- ---------- -------- -------- -------- | ----------- ------------
Income before income |
taxes and |
extraordinary item 3,952 3,780 4,178 4,201 3,637 | 477 4,114
Provision (benefit) for |
income taxes (223) 1,361 1,067 336 1,021 | (2,231) (1,210)
-------- ---------- -------- -------- -------- | ----------- ------------
Income before |
extraordinary item 4,175 2,419 3,111 3,865 2,616 | 2,708 5,324
Extraordinary loss on |
extinguishment of |
debt - - - - - | 1,204 1,204
-------- ---------- -------- -------- -------- | ----------- ------------
Net income $ 4,175 $ 2,419 $ 3,111 $ 3,865 $ 2,616 | $ 1,504 $ 4,120
======== ========== ======== ======== ======== | =========== ============
Net income (loss) |
available for common |
stockholders(5) $ 4,175 $ 1,027 $ 2,980 $ 3,338 ($16,814) |
Earnings per corporation |
share |
Income before |
extraordinary item | $0.31
Extraordinary loss on early |
extinguishment of debt | 0.14
| ------------
Net income | $0.17
| ============
Weighted average number |
of common |
and common equivalent |
shares(6) | 8,798,963
| -----------
|
Unaudited Pro Forma Data(7) |
Income before income |
taxes and |
extraordinary item $ 3,952 $ 3,780 $ 4,178 $ 4,201 | $4,114
Provision for income taxes(8) 1,115 2,499 2,278 1,754 | 519
Income before extraordinary item 2,837 1,281 1,900 2,447 | 3,595
Net income 2,837 1,281 1,900 2,447 | 2,391
Pro forma earnings per |
common share: |
Income before extraordinary item | $0.46
Extraordinary loss on |
early |
extinguishment of debt | 0.15
| ------------
Net income | $0.31
| ===========
Weighted average number |
of common |
and common equivalent |
shares(9) | 7,848,962
| ============
|
<CAPTION> |
As of December 31, | As of
---------------------------------------------------- | December 31,
1991 1992 1993 1994 | 1995
---------- -------- -------- ----------- | ------------
Balance Sheet Data: |
<S> <C> <C> <C> <C> | <C>
Working capital $ 3,744 $ 12 $ (407) $ (4,962) | $ 232
Property and equipment 12,750 12,236 13,224 15,165 | 10,332
Total assets 42,393 45,264 47,130 68,423 | 70,430
Long-term debt 14,639 12,500 13,706 25,967 | 24,811
Stockholders' equity 12,144 11,731 7,152 3,056 | 16,177
</TABLE>
60
<PAGE>
<TABLE>
<CAPTION>
Combined United
Founding Companies (10) TransNet, Inc.
--------------------------- ----------------
For the Six | For the Six
Months Ended | Months Ended
June 30, | June 29,
1995 | 1996
-------- | --------
(In thousands, except | per share amounts)
|
<S> <C> | <C>
Statements of Operations Data: |
Net revenues $ 123,670 | $ 137,766
Cost of delivery 89,837 | 102,377
---------- | ----------
Gross profit 33,833 | 35,389
Selling, general and 26,570 | 30,585
administrative expenses |
Amortization of intangible assets 1,615 | 1,554
---------- | ----------
Operating income 5,648 | 3,250
Interest expense (2,528) | (1,428)
Interest income and other, net 122 | 38
---------- | ----------
Income before income taxes 3,242 | 1,860
Provision for income taxes 682 | 739
---------- | ----------
|
|
Net income $ 2,560 | $ 1,121
---------- | ----------
|
Net income (loss) available for |
common stockholders (5) $ (1,397) | $ 1,121
---------- | ----------
Earnings per common shares |
|
Net income | $0.12
| ----------
|
Unaudited pro forma |
information: (7) |
Income before income taxes and |
extraordinary item $ 3,242 |
Provision for taxes 1,795 |
---------- |
|
Net income $ 1,447 |
========== |
|
Earnings per common share: |
|
Net income $0.19 |
---------- |
|
Weighted average number of common |
and common equivalent shares 7,805,409 | 9,349,593
========== | =========
|
|
Balance Sheet Data: |
Working capital | $ 10,355
Property and equipment | 9,633
Total assets | 90,525
Long-term debt | 30,276
Stockholders' equity | 29,620
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
Period From
Year Ended January 1 to
December 31, December 19, 1995
----------- -----------------
1993 1994
---- ----
(In thousands)
<S> <C> <C> <C>
Courier Dispatch
Net revenues $ 70,631 $104,614 $133,701
Gross profit 20,671 27,929 33,905
Selling, general and
administrative 17,443 24,060 28,533
Net loss (319) (1,768) (2,076)
======== ======== ========
Tricor
Net revenues $ 32,504 $ 34,288 $ 37,252
Gross profit 8,778 9,442 10,080
Selling, general and
administrative 6,789 7,058 6,898
Net income 1,666 4,112 3,156
======== ======== ========
Film Transit
Net revenues $ 24,692 $ 24,717 $ 22,352
Gross profit 8,613 7,888 7,786
Selling, general and
administrative 7,348 7,351 7,155
Net income 688 253 396
======== ======== ========
Lanter
Net revenues $ 19,647 $ 21,431 $ 21,777
Gross profit 5,195 5,629 5,309
Selling, general and
administrative 3,511 3,816 3,845
Net income 1,317 1,431 1,095
======== ======== ========
Sunbelt
Net revenues $ 11,882 $ 14,187 $ 16,629
Gross profit 2,616 2,984 3,542
Selling, general and
administrative 2,135 2,096 2,320
Net (loss) income (176) 54 272
======== ======== ========
3D
Net revenues $ 12,545 $ 14,862 $ 14,815
Gross profit 3,918 3,904 4,687
Selling, general and
administrative 3,869 4,014 4,693
Net loss (65) (217) (227)
======== ======== ========
Combined
Net revenues $171,901 $214,099 $246,526
Gross profit 49,791 57,776 65,309
Selling, general and
administrative 41,095 48,395 53,444
Net income 3,111 3,865 2,616
======== ======== ========
</TABLE>
- ----------------
(1) The Founding Companies collectively are considered predecessors to the
Company. The following table represents selected information of the
individual Founding Companies for the two most recent fiscal years and
the period from January 1 to December 19, 1995.
(2) Reflects the results of operations of the Combined Founding
Companies for the period from January 1 to December 19, 1995 and
the results of operations of United TransNet, Inc. for the period
from December 20 to December 31, 1995.
62
<PAGE>
(3) Includes financial information of a predecessor company to
Courier Dispatch for nine months and actual data for Courier
Dispatch for three months.
(4) Included in other income for the years ended December 31, 1991 and
1994 are proceeds from key man life insurance of $3.0 million and $2.0
million, respectively.
(5) Net income (loss) available for common stockholders includes warrant
accretion for the years ended December 31, 1992, 1993 and 1994 and the
period ended December 19, 1995 and for the six months ended June 30,
1995 of $1.4 million, $0.1 million, $0.5 million, $19.4 million and
$4.0 million, respectively.
(6) Weighted average number of common and common equivalent shares for the
period from December 20 to December 31, 1995 includes (i) 4,692,222
shares issued to the stockholders of the Founding Companies in
connection with the Founding Company Mergers which gives effect to 58,021
shares repurchased from a minority stockholder immediately prior to United
TransNet's initial public offering, (ii) 3,925,000 shares sold in United
TransNet's initial public offering and (iii) the dilution attributable to
outstanding options to purchase Common Stock, applying the treasury stock
method.
(7) Certain of the Founding Companies were S corporations during the
period presented and, accordingly were not subject to corporate income
taxes. The unaudited pro forma information is presented for the
purpose of reflecting a provision for income taxes as if all of the
Founding Companies had been subject to income tax for all periods
presented, calculated in accordance with FAS 109, based on tax laws
that were in effect during the respective periods.
(8) Provision for income taxes for the year ended December 31, 1995
reflects the benefits of (i) the reversal of the valuation allowance
of $2,164 related to the deferred tax assets of Courier Dispatch and
(ii) the recording of a net deferred tax asset of $243 at Tricor and
Lanter upon their change from S corporations to C corporations.
(9) For 1995, weighted average number of common and common equivalent shares
also includes (i) the weighted average portion of the 3,925,000 shares sold
in United TransNet's initial public offering, net of the shares sold to
cover the cash portion of the purchase price paid in connection with the
Founding Companies Mergers, (ii) the weighted average portion of 58,021
shares repurchased in December 1995 from a minority stockholder and
(iii) the weighted average portion of stock options which became
exercisable during 1995.
(10) The Founding Companies are considered predecessors to United TransNet.
The following table represents selected unaudited information of the
individual Founding Companies for the six month period ended June 30,
1995.
<TABLE>
<CAPTION>
For the Six
Months Ended
June 30,
1995
------------
<S> <C>
Courier Dispatch
Net revenues $ 66,819
Gross profit 17,588
Selling, general and administrative 14,498
Net loss (680)
========
Tricor
Net revenues $ 18,323
Gross profit 5,423
Selling, general and administrative 3,387
Net income 1,994
========
</TABLE>
63
<PAGE>
<TABLE>
<CAPTION>
For the Six
Months Ended
June 30,
1995
------------
<S> <C>
Film Transit
Net revenues $ 11,685
Gross profit 3,820
Selling, general and administrative 3,535
Net income 174
========
Lanter
Net revenues $ 11,170
Gross profit 2,889
Selling, general and administrative 1,953
Net income 745
========
Sunbelt
Net revenues $ 8,251
Gross profit 1,826
Selling, general and administrative 1,114
Net income 197
========
3D
Net revenues $ 7,422
Gross profit 2,287
Selling, general and administrative 2,083
Net income 130
========
Combined
Net revenues $123,670
Gross profit 33,833
Selling, general and administrative 26,570
Net income 2,560
========
</TABLE>
64
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - UNITED TRANSNET
The following discussion of United TransNet's results of operations and of its
liquidity and capital resources should be read in conjunction with the
Consolidated Financial Statements of United TransNet, the Combined Financial
Statements of the Combined Founding Companies, the Financial Statements of the
Founding Companies and the related Notes thereto appearing elsewhere in this
Proxy Statement and Prospectus.
Introduction
Simultaneously with the closing of United TransNet's initial public offering in
December 1995, separate wholly-owned subsidiaries of United TransNet merged with
each of the six Founding Companies (the "Founding Company Mergers"). Prior to
such mergers, each of the Founding Companies operated as a separate independent
entity. As a result, historical combined results may not be comparable to or
indicative of future performance. For the years ended December 31, 1993 and
1994, the Combined Financial Statements include the accounts of the Founding
Companies as if the Founding Companies had always been members of the same
operating group without giving effect to the Founding Company Mergers or the
initial public offering. Pro Forma year ended December 31, 1995 includes the
accounts of the Founding Companies for the period from January 1 to December 19,
1995 as if the Founding Companies had always been members of the same operating
group without giving effect to the Founding Company Mergers or the initial
public offering and the accounts of United TransNet for the period from December
20 to December 31, 1995.
The Founding Companies derived their revenues from fees charged for ground and
air delivery and distribution management services. Cost of delivery expenses
relating to ground delivery services consist primarily of salaries and related
benefits paid to drivers, fees paid to independent contractors and vehicle
operating and maintenance expenses. The primary cost of delivery expenses for
air delivery services include purchased services from commercial air carriers
and ground delivery agents.
Prior to the mergers of the Founding Companies and the United TransNet initial
public offering, Tricor and Lanter were S corporations under the Code. United
TransNet will begin to file as a consolidated group for federal income tax
purposes. For purposes of the Combined Financial Statements presented in this
Proxy Statement and Prospectus, pro forma federal and state income taxes have
been provided for these two companies as if they had filed C corporation tax
returns. See Note 15 to Notes to the Combined Financial Statements of the
Combined Founding Companies.
Results of Operations
The following table sets forth various items as a percentage of revenues:
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------
Pro
Combined Combined Forma
1993 1994 1995
---- ---- ------
<S> <C> <C> <C>
Net revenue.............................. 100.0% 100.0% 100.0%
Cost of delivery......................... 71.0% 73.0% 73.4%
------ ------ ------
Gross profit............................ 29.0% 27.0% 26.6%
Selling, general and administrative expenses 24.0% 22.6% 21.7%
Amortization............................. 1.3% 1.7% 1.3%
------ ------ ------
Operating income....................... 3.7% 2.7% 3.6%
Interest expense......................... 1.4% 1.8% 2.1%
Interest income and other, net........... 0.1% 1.1% 0.1%
------ ------ ------
Income before income taxes and
extraordinary item 2.4% 2.0% 1.6%
====== ====== ======
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
For the Six Months ended
------------------------
Consolidated Combined
June 29, 1996 June 30, 1995
<S> <C> <C>
Net revenue 100.00% 100.00%
Cost of delivery 74.31% 72.64%
------- -------
Gross profit 25.69% 27.36%
Selling, general and administrative expenses 22.20% 21.48%
Amortization 1.13% 1.31%
------- -------
Operating income 2.36% 4.57%
Interest expense 1.04% 2.04%
Interest income and other, net 0.03% 0.09%
------- -------
Income before income taxes 1.35% 2.62%
======= =======
</TABLE>
Consolidated Six Months Ended June 29, 1996 Compared to Combined Six Months
Ended June 30, 1995
Net revenues increased $14.10 million or 11.40% to $137.77 million for the
six months ended June 29, 1996 from $123.67 million for the six months
ended June 30, 1995. Of this $14.10 million net increase, $3.73 million
was attributable to the acquisitions of four courier operations by United
TransNet during the second quarter of 1996. Approximately $3.20 million of
the increase is due to an acquisition by a Founding Company which occurred
in May of 1995. The remaining net increase of $7.17 million was primarily
attributable to internal growth through additions to the customer base and
increases in business with existing customers.
Cost of delivery increased $12.54 million or 13.96% to $102.38 million for
the six months ended June 29, 1996 from $89.84 million for the six months
ended June 30, 1995. Of this $12.54 million increase, $2.75 million was
attributable to acquisitions made by United TransNet during the second
quarter of 1996. Cost of delivery as a percentage of revenues increased to
74.31% for the six months ended June 29, 1996 from 72.64% for the six
months ended June 30, 1995. The deterioration in margin was due to a 2.00%
increase, as a percentage of revenues, in purchased transportation costs
as a result of an increase in the use of outside agents.
Selling, general and administrative ("SG & A") expenses increased $4.02
million or 15.11% to $30.59 million for the six months ended June 29, 1996
from $26.57 million for the six months ended June 30, 1995. Of the $4.02
million increase, United TransNet took special charges, on a pre-tax basis,
of approximately $1.81 million. The special charges primarily consisted
of a $1.41 million accrual of severance cost related to the reduction in
staffing and approximately $400,000 in expenses related to terminated
merger discussions. Excluding these charges, SG & A expenses increased
$2.20 million or 8.29% as compared to the six months ended June 30, 1995.
Of the $2.20 million increase, approximately $644,000 was attributable to the
acquisitions completed in the second quarter of 1996. The remaining increase of
approximately $1.56 million in SG & A expenses was due to general increased
expenditures and additional payroll expense to support the higher level of
revenues and increased administrative costs of operating as a public company. SG
& A expenses decreased as a percentage of revenues to 20.89% for the six months
ended June 29, 1996, excluding the special charges discussed previously, as
compared to 21.48% for the six months ended June 30, 1995.
Amortization of intangibles decreased slightly to $1.55 million for the six
months ended June 29, 1996 from $1.62 million for the six months ended June 30,
1995. This decrease is attributable to non-competition agreements being fully
amortized at December 31, 1995 which was partially offset by the amortization of
intangibles related to the acquisitions completed in second quarter of 1996.
66
<PAGE>
Interest expense decreased to $1.43 million for the six months ended June 29,
1996 from $2.53 million for the six months ended June 30, 1995. The decrease is
a result of the decrease of approximately $8.65 million in the average debt
outstanding between periods. The decrease in the average balance was due to the
use of United TransNet's initial public offering proceeds to repay a portion of
the indebtedness of United TransNet.
The effective tax rate was 39.73% for the six months ended June 29, 1996
compared to a pro forma effective tax rate of 55.37% for the six months ended
June 30, 1995. The decrease is the result of relatively constant federal
nondeductible items creating a disproportionately higher taxable income for the
six months ended June 30, 1995, as compared to the six months ended June 29,
1996.
Pro Forma Year Ended December 31, 1995 Compared to Historical Combined Year
Ended December 31, 1994
Net revenues increased 18.8% to $254.2 million for the year ended December 31,
1995 from $214.1 million for the year ended December 31, 1994. The increase of
$40.1 million was comprised of $33.6 million from Courier Dispatch, $4.1 million
from Tricor and $4.3 million from Lanter, Sunbelt and 3D combined and a decrease
of $1.9 million from Film Transit. Of this net increase, $23.2 million was
attributable to acquisitions by Courier Dispatch in the Mid-Atlantic, Florida
and Upper Midwest regions. The remaining net increase was primarily attributable
to internal growth in Courier Dispatch, Tricor and Sunbelt through additions to
their customer base and increases in business with existing customers.
Cost of delivery increased 19.4% to $186.7 million for the year ended December
31, 1995 from $156.3 million for the year ended December 31, 1994. The increase
of $30.4 million was comprised of $26.2 million from Courier Dispatch, $3.2
million from Tricor, $3.3 million from Sunbelt and Lanter combined, and a
decrease of $2.3 million from Film Transit and 3D combined. The increase at
Courier Dispatch is primarily due to 1994 and 1995 acquisitions. Cost of
delivery as a percentage of net revenues increased to 73.4% for the year ended
December 31, 1995 from 73.0% for the year ended December 31, 1994. This
deterioration in margin, attributable to Courier Dispatch, resulted primarily
from the implementation of benefit programs and lower profit margins associated
with Commercial Courier Express, Inc. ("Commercial Courier", acquired in June
1994), which has a higher concentration of dedicated as compared to conjunctive
business.
Selling, general and administrative expenses increased 13.7% to $55.0 million
for the year ended December 31, 1995 from $48.4 million for the year ended
December 31, 1994. The increase of $6.6 million was comprised of $5.4 million
from Courier Dispatch and $1.3 million from Tricor, Sunbelt, Lanter and 3D
combined and a decrease of $0.1 million from Film Transit. The increase is a
result of (i) one-time compensation items associated with United TransNet's
initial public offering at Courier Dispatch and 3D, (ii) Courier Dispatch's 1994
and 1995 acquisitions, (iii) organizational changes at Courier Dispatch as a
result of United TransNet's initial public offering, and (iv) increases required
to support higher levels of revenue at Courier Dispatch, Tricor, Sunbelt, Lanter
and 3D.
Amortization of intangibles decreased to $3.3 million for the year ended
December 31, 1995 from $3.7 million for the year ended December 31, 1994. This
decrease is primarily attributable to the one-time write-off of operating
certificates at December 31, 1994 which totalled $0.6 million. Excluding this
adjustment, amortization of intangibles increased $0.2 million for the year
ended December 31, 1995 primarily as a result of Courier Dispatch's 1994 and
1995 acquisitions.
Interest expense increased to $5.4 million for the year ended December 31, 1995
from $3.8 million for the year ended December 31, 1994, primarily as a result of
borrowings by Courier Dispatch for acquisitions in 1994 and 1995 and for working
capital purposes.
Interest income and other, net decreased to $0.3 million for the year ended
December 31, 1995 from $2.2 million for the year ended December 31, 1994,
primarily as a result of $2.0 million of key man life insurance proceeds
received in 1994 related to the death of a former officer of Tricor.
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The effective tax rate was (29.4%) in 1995 compared to 8.0% in 1994. In
1995, the valuation allowance of $2.2 million relating to the deferred tax
assets of Courier Dispatch was reversed because the consolidated earnings
of United TransNet have caused realization to become probable. Also in
1995, a benefit of $0.2 million was recognized related to the recording of
net deferred tax assets at Tricor and Lanter upon their change from S
corporations to C corporations. See the notes to the related accompanying
financial statements of United TransNet and the Combined Founding Companies
for a more detailed analysis of the provision for income taxes.
The extraordinary loss of $1.2 million relates to the early extinguishment
of debt, reflecting the use of proceeds from United TransNet's initial
public offering.
Historical Combined Year Ended December 31, 1994 Compared to Historical
Combined Year Ended December 31, 1993
Net revenues increased 24.5% to $214.1 million in 1994 from $171.9 million
in 1993. The increase of $42.2 million was comprised of $34.0 million from
Courier Dispatch, $1.8 million from Tricor and $6.4 million from Film
Transit, Lanter, Sunbelt and 3D combined. Of this increase, $26.2 million
was attributable to acquisitions in 1993 and 1994 by Courier Dispatch in
the Mid-Atlantic, Florida and Upper Midwest regions. The remaining net
increase was primarily attributable to internal growth in Courier Dispatch,
Tricor, Lanter and Sunbelt through additions to their customer base and
increases in business with existing customers.
Cost of delivery increased 28.0% to $156.3 million for the year ended
December 31, 1994 from $122.1 million for the year ended December 31, 1993.
The increase of $34.2 million was comprised of $26.7 million from Courier
Dispatch, $2.3 million from 3D, and $5.2 million from Sunbelt, Tricor,
Lanter and Film combined. The increase at Courier Dispatch is primarily due
to 1993 and 1994 acquisitions. Cost of delivery as a percentage of net
revenues increased to 73.0% for the year ended December 31, 1994 from 71.0%
for the year ended December 31, 1993. This deterioration in margin,
attributed to Courier Dispatch, resulted primarily from lower profit
margins associated with Commercial Courier, which has a higher
concentration of dedicated as compared to conjunctive business.
Selling, general and administrative expenses increased 17.8% to $48.4
million for the year ended December 31, 1994 from $41.1 million for the
year ended December 31, 1993. The increase of $7.3 million was comprised of
$6.6 million from Courier Dispatch and $0.7 million from Tricor, Sunbelt,
Lanter, 3D and Film combined. The increase at Courier Dispatch is primarily
a result of 1993 and 1994 acquisitions as well as increases required to
support higher revenue.
Amortization of intangibles increased to $3.7 million for the year ended
December 31, 1994 from $2.3 million for the year ended December 31, 1993 as
a result of Courier Dispatch's acquisitions in 1993 and 1994.
Interest expense increased to $3.8 million in 1994 from $2.4 million in
1993, primarily as a result of Courier Dispatch borrowings for the
acquisition of companies and the repurchase of common stock.
Interest income and other, net, increased to $2.2 million in 1994 from $0.1
million in 1993, primarily as a result of $2.0 million of key man life
insurance proceeds received in 1994 related to the death of a former
officer of Tricor.
The effective tax rate was 8.0% in 1994 compared to 25.5% in 1993. Income
not subject to corporate level taxation increased by $2.6 million in 1994
compared to 1993. See the notes to the related accompanying financial
statements of the Combined Founding Companies for a more detailed analysis
of the provision for income taxes.
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Liquidity and Capital Resources
Historical Combined Year Ended December 31, 1993
During 1993, net cash provided by operating activities was $8.4 million.
Cash used in investing activities was $6.4 million, which primarily
consisted of $3.3 million of capital expenditures and payments of $3.1
million by Courier Dispatch to acquire companies. Cash used in financing
activities was $3.6 million which primarily consisted of net debt payments
of $1.1 million by Courier Dispatch, Tricor, Film Transit and 3D, a
distribution by Tricor of $0.6 million to a stockholder, borrowings by
Sunbelt of $0.3 million from a related party and net payments by the
Districts of $2.2 million to Lanter.
Historical Combined Year Ended December 31, 1994
During 1994, net cash provided by operating activities was $11.1 million.
Cash used in investing activities was $17.1 million, which primarily
consisted of $2.0 million of capital expenditures and payments of $14.3
million by Courier Dispatch to acquire companies. Cash provided by
financing activities was $8.1 million which primarily consisted of net
borrowings of $13.9 million by Courier Dispatch, a distribution by Tricor
of $1.6 million to a stockholder, payments by Courier Dispatch of $3.0
million to repurchase common stock offset by proceeds of $0.6 million from
the sale of common stock, borrowings by Sunbelt of $0.5 million from a
related party and net payments by the Districts of $2.3 million to Lanter.
Pro Forma Year Ended December 31, 1995
During 1995, net cash provided by operating activities was $8.3 million.
Cash used in investing activities was $4.1 million, which primarily
consisted of $2.3 million of capital expenditures and payments of $3.5
million by Courier Dispatch to acquire companies during the year. Cash used
in financing activities was $5.9 million, which consisted of net proceeds
from the issuance of common stock, net of the cash consideration of the
Founding Company Mergers, of $11.4 million, a net increase in borrowings of
$24.3 million, repayment of debt totaling $33.4 million, net payments by
the Districts of Lanter of $2.1 million, a distribution by Tricor of $5.3
million to a stockholder and $0.8 million for the repurchase of Common
Stock by Courier Dispatch. The net increase in borrowings was the result of
the repayment of existing debt assumed in the Founding Company Mergers and
additional borrowings for working capital purposes. The repayment of debt
was primarily the refinancing of $12.9 million of debt incurred by Courier
Dispatch for acquisitions of companies in 1994 and 1995, repayment of $10.9
million of Courier Dispatch subordinated debt and Sunbelt's repayment of
$5.8 million to a related party.
United TransNet for the Period from December 20 to December 31, 1995
On December 20, 1995, United TransNet completed the Founding Company
Mergers and its initial public offering, which involved the public sale of
3,925,000 shares of common stock at a price of $14.50 per share. The
proceeds from United TransNet's initial public offering, net of
underwriting discounts and commissions and after deducting expenses of the
initial public offering, were approximately $47.2 million. Of this amount,
$35.8 million was used to pay the cash portion of the purchase price to the
stockholders of the Founding Companies. The remaining $11.4 million was
used to repay a portion of the indebtedness assumed from the Founding
Companies in connection with the Founding Company Mergers.
For the period from December 20 to December 31, 1995, net cash used by
operating activities was $1.8 million. Cash used in investing activities
was less than $0.1 million. Cash provided by financing activities was $0.8
million.
United TransNet for the Six Months Ended June 29, 1996
During the six months ended June 29, 1996, net cash used by operating
activities was $4.45 million. Cash used in investing activities was $13.16
million, which primarily consisted of funds used for the acquisition of
four courier operations during the second quarter of 1996. Cash provided
by financing activities was $16.91 million
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which primarily consisted of the net proceeds from the issuance of common
stock totaling $6.18 million, net of interest and underwriting discounts
and commissions, and the issuance of 226,921 shares of common stock with a
market value at the time of issuance of approximately $5.90 million and an
increase in the line of credit of $6.43 million. The proceeds from the
issuance of 226,921 shares of common stock and the increase in the line of
credit were used primarily to finance the three acquisitions accounted for
under the purchase method of accounting.
On April 12, 1996 United TransNet entered into a $50.0 million credit
agreement (the "Credit Agreement") with a syndicate of banks led by First
Union National Bank of Georgia ("First Union"). The agreement provides a
credit facility of $50.0 million to United TransNet to refinance the $35.0
million credit agreement United TransNet entered into with First Union (the
"Bridge Credit Agreement") to provide bridge financing to United TransNet
during the period between the closing of United TransNet's initial public
offering and the date the Credit Agreement was entered into, and to fund
acquisitions, provide working capital and for other general corporate
purposes.
The Credit Agreement provides for a revolving line of credit of $50.0
million which terminates and, at United TransNet's election, converts to a
term facility on December 20, 1998, whereupon the outstanding indebtedness
will be fully amortized and repaid over the succeeding three years. Under
the Credit Agreement, First Union (for itself and as an agent for other
participating lenders) holds a first priority security interest on United
TransNet's and its subsidiaries' accounts and accounts receivable, a
negative pledge with respect to United TransNet's and its subsidiaries'
remaining assets and a pledge of the stock of United TransNet's
subsidiaries. Also, successive borrowings by United TransNet will be
subject to the continued accuracy of certain representations and warranties
set forth in the Credit Agreement.
Interest rates under the Credit Agreement are determined, at the option of
United TransNet, at either First Union's prime rate (or, if greater, the
federal funds rate plus 0.5%) plus an applicable margin of between 0.0% and
0.625% or LIBOR plus an applicable margin of between 0.75% and 1.75%, in
each case based upon the ratio of United TransNet's consolidated debt to
earnings before interest, taxes and amortization.
The Credit Agreement contains certain operational and financial covenants
and other restrictions with which United TransNet must comply. These
covenants include, among others, maintenance of business, compliance with
laws and agreements and limitations on additional indebtedness,
encumbrances, advances, investments and sales of assets, as well as
requirements to maintain certain financial ratios. In particular, lender
consent is required for acquisitions, except for acquisitions of businesses
substantially in the business of United TransNet and its subsidiaries if
the consideration does not exceed cash in excess of $5.0 million in cash or
cash and other consideration in excess of $10.0 million (which limits will
be reduced during the period prior to January 1, 1997 if certain financial
tests are not met).
United TransNet had approximately $28.76 million in total funded debt as of
September 23, 1996, and as of that date approximately $5.46 million was
available for borrowing under the Credit Agreement based upon pro forma
leverage ratios after giving effect to the sale of approximately $6.18
million of common stock pursuant to the underwriters' overallotment option
which was exercised in January 1996.
Management believes that operating cash flow and credit resources available
under the Credit Agreement will be adequate to make the repayments of
indebtedness described herein and to meet the cash needs of United TransNet
which United TransNet anticipates over the next three years. United
TransNet has no material commitments for capital expenditures. Although
United TransNet desires to issue shares of common stock as its primary
method of financing acquisitions, it anticipates that additional funds may
be required to implement successfully its acquisition program, and will use
various methods to finance acquisitions, including the payment of cash, for
this purpose.
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Accounting Standards
United TransNet currently accounts for stock-related compensation using
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and therefore United TransNet does not expect any effect, other
than additional financial statement disclosure, from the adoption of
Statement of Financial Accounting Standard No. 123, "Accounting for Stock-
Based Compensation." This statement is effective for United TransNet's year
ending December 28, 1996.
Seasonality and Inflation
United TransNet's revenue typically shows no significant seasonal
variations, although its delivery services may be affected by sudden or
prolonged inclement weather if transportation channels are disrupted.
The impact of inflation on United TransNet's operations has not been
significant to date. However, there can be no assurance that a high rate of
inflation in the future would not have an adverse effect on United
TransNet's operating results.
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THE COMPANIES
Corporate Express, Inc.
Corporate Express is a leading provider of office products and
services to large corporations. Since 1991, Corporate Express has expanded
through acquisitions from a regional operation in Colorado to operations
throughout the United States, Canada, the United Kingdom, Australia,
Germany and New Zealand. Corporate Express believes it has developed a
substantially different business model from traditional contract
stationers, defining itself as a "Corporate Supplier" which provides a
broad array of nonproduction goods and services to its customers while
reducing overall procurement costs and providing a high level of customer
service. The Company's current offering includes office supplies, computer
and imaging supplies, computer software, office furniture, forms
management, printing, same-day local delivery service and distribution
logistics management. Corporate Express markets to its existing and
prospective customers through a direct sales force and fulfills its
products and services through over 500 locations and a fleet of
approximately 7,000 owned or contracted vehicles.
Corporate Express' target customers are large corporations with over
100 employees. Corporate Express believes that these large corporations
increasingly are seeking to reduce the cost of procuring nonproduction
goods and services and decrease the time and effort spent managing
functions that are not considered core competencies. To that end,
corporations are seeking to reduce the number of their suppliers in order
to eliminate the internal costs associated with multiple invoices,
deliveries, ordering procedures, uneven service levels and inconsistent
product availability. Many large corporations operate from multiple
locations and can benefit from selecting a single supplier who can service
them nationally or internationally.
In many non-production goods and services sectors, including office
products and same-day local delivery, competition is often highly
fragmented and consists primarily of smaller local or regional providers.
Corporate Express believes that the desire of large corporations to reduce
their number of suppliers to a small group of reliable and cost-effective
partners will lead to a further consolidation of currently fragmented
sectors, as well as initiate consolidations between sectors where the
ultimate requirement will be the ability to meet customers' needs rather
than to supply a particular product or service.
Corporate Express' Corporate Supplier strategy is designed to reduce
its customers' total costs and the internal effort necessary to manage the
procurement of non-production goods and services. Corporate Express
believes that its target customers value a high level of service including
account relationship managers, delivery services and customized pricing,
electronic interfaces, reporting formats and product catalogs. Corporate
Express' broad product and service offering permits it to reduce the
procurement costs its customers incur in dealing with multiple vendors
while servicing customers' broad geographical service and delivery
requirements.
Corporate Express also seeks to continually reduce its merchandise and
operating costs which should permit it to offer its customers lower prices.
By purchasing most of its products directly from manufacturers in large
volumes and limiting the number of manufacturers represented in its In-
Stock Catalog and other specialty catalogs, Corporate Express is
increasingly able to earn volume discounts and advertising allowances from
its vendors. Corporate Express believes its computer systems represent a
key strategic advantage which differentiates the Company from its
competitors and permits it to achieve cost savings, provide superior
customer service and centrally manage its operations.
Corporate Express historically has grown and intends to continue to
grow in the future through a combination of acquisitions and internal
growth. Corporate Express plans to increase sales to existing customers by
cross-selling its expanded product and service offering and developing
existing customers into international, national or multi-regional
accounts. Corporate Express seeks to gain new customers, including
national and international accounts, through the marketing efforts of its
direct sales force and through acquisitions of other suppliers and
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companies offering complimentary products and services. Further, the
recent merger with Delivery has expanded Corporate Express' delivery
capabilities and geographic coverage in the United States and Corporate
Express intends to develop sales efforts in these new geographic areas. In
addition, Corporate Express may open additional satellite sales offices and
distribution breakpoints to serve new accounts and to continue to add new
product and service capabilities.
In order to better service its multi-national customers and to take
advantage of the fragmented nature of many international markets, Corporate
Express has devoted substantial resources to expanding outside of the
United States, principally through acquisitions. Corporate Express has
acquired or made investments in companies in Canada and Australia in
calendar 1995, and the United Kingdom, Germany and New Zealand in calendar
1996. In addition, Corporate Express has recently entered into agreements
to acquire two office products suppliers in Italy. The Company plans to
enter additional international markets in the future. Over time, the
Company plans 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 and
focusing on larger customers and national and international accounts.
Recent Developments
Corporate Reorganization. As of June 18, 1996, Corporate Express
consummated a reorganization pursuant to which Corporate Express formed CEX
Holdings, Inc., a wholly-owned subsidiary organized under the laws of
Colorado ("CEX Holdings"), and contributed substantially all of its assets,
including the capital stock of most of its operating subsidiaries, and
assigned substantially all of its liabilities, to CEX Holdings. Corporate
Express believes that the reorganization will enable it to achieve certain
tax advantages, provide it more flexibility to engage in certain financing
transactions and allow it to better manage its operating subsidiaries.
Acquisition Activity. Since the beginning of fiscal 1996, the Company
has completed 56 acquisitions, including 46 office products companies and
ten delivery companies. Of these acquisitions, 35 were in the United
States, five were in Canada, seven were in the United Kingdom, six were in
Australia, two were in New Zealand and one was in Germany.
Recent Financial Results. During the three months ended August 31,
1996, the Company's net sales were $602.4 million, net income was $11.2
million and earnings per share were $.15. For the prior year's three month
period ended August 26, 1995, the Company's net sales were $371.1 million,
net income was $5.8 million and earnings per share were $.09.
United TransNet, Inc.
General
United TransNet offers a variety of customized distribution services for
corporate customers with time-sensitive pickup and delivery requirements.
Management believes that United TransNet is the second largest same-day
delivery service provider in the United States. Through both its ground and
air divisions, United TransNet provides scheduled and unscheduled time
sensitive delivery service, primarily for local and regional shipments.
United TransNet's ground delivery business serves 47 states and all major
metropolitan markets in the United States. The approximately 4,300 ground
transportation vehicles facilitates United TransNet's broad geographic
coverage.
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Industry Overview
The ground courier industry in the United States is highly fragmented and
is composed of same-day, next-day and second-day service providers with a
customer base of businesses which regularly require time-sensitive
deliveries of documents and parcels. Management estimates that the ground
courier industry is a multi-billion dollar industry comprised of thousands
of companies. The document and parcel delivery market is served by (i)
thousands of small, closely-held owner-operator businesses which operate in
only one location with little or no national market share, (ii) numerous
firms which operate principally on a regional basis, (iii) fewer than ten
multi-regional companies, including United TransNet, which focus on same-
day and early next-day delivery, and (iv) several large companies with
national hub-and-spoke delivery systems which dominate the next-day and
second-day delivery market and provide service based upon their own pickup
and delivery schedules rather than those established by the customer. These
large national companies currently do not have a meaningful presence in the
same-day delivery market.
Business Strategy
The principal components of United TransNet's operating strategy are to
continue to focus primarily on customized, time sensitive scheduled
delivery service, to maintain internal growth, to capitalize on favorable
industry trends and to pursue an aggressive acquisition program to
consolidate United TransNet's position and broaden its geographic reach:
- Focus on Customized, Scheduled Delivery Service: United TransNet
concentrates primarily on customized, same-day and overnight scheduled
delivery services. Most of United TransNet's 1995 ground and air
revenue was derived from scheduled service, which is provided to
customers on a recurring basis with specific pickup and delivery
times. Because the majority of United TransNet's revenue is derived
from customized delivery service, United TransNet generally does not
compete directly with the large, national parcel and overnight
delivery companies, which offer primarily standardized next-day
service with fixed pickup and delivery schedules.
- Maintain Strong Internal Growth: The Founding Company Mergers have
enabled the Founding Companies to broaden their geographic reach.
Consequently, United TransNet expects to capture substantial national
account business with customers previously served by the Founding
Companies only on a regional basis. Additionally, United TransNet will
expand the use of its industrial engineering group (an internal
logistics consulting operation) to maximize the efficiency of
customers' delivery systems and to promote additional services.
- Capitalize on Favorable Industry Trends: United TransNet intends to
take advantage of several favorable industry trends, including (i)
outsourcing -- companies are increasingly outsourcing non-core
services such as expedited pickup and delivery transportation
services; (ii) just-in-time inventory management -- companies seeking
to reduce inventory and warehousing costs are relying on service-
intensive, expedited delivery companies with increasing frequency; and
(iii) improved communications technology -- improved technology
facilitates effective, just-in-time inventory management, while
allowing providers of expedited delivery services to be more
responsive to customers.
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- Grow Through Acquisitions: United TransNet intends to pursue an
aggressive acquisition program to consolidate its position in its
current operating regions and to broaden its geographic reach in a
highly fragmented industry. United TransNet's management believes its
prior acquisition experience will be instrumental in identifying and
negotiating acquisitions. By acquiring companies in markets where
United TransNet already has a presence, management expects to
recognize substantial operating advantages by consolidating
overlapping delivery routes. United TransNet also expects to achieve
significant cost savings by eliminating redundant administrative
functions and facilities. Additionally, United TransNet intends to
expand into new markets. In such situations, the key management of the
acquired companies would, under most circumstances, remain in place.
Acquisition Strategy
The highly fragmented courier industry consists of thousands of small
courier companies. Many of these companies present attractive acquisition
opportunities for United TransNet. United TransNet's senior management team
has significant acquisition experience, including (in addition to the
Founding Company Mergers) the completion of the acquisition of ten ground
courier companies and two air courier companies in the last three years.
United TransNet intends to continue to acquire courier businesses in
regions where it currently has a presence, and may seek to make strategic
acquisitions in regions where it does not presently operate. United
TransNet recently consummated four acquisitions, as described below
under"--Acquisition History." United TransNet is not considering any
acquisition which is both probable and material as of the date of this
Proxy Statement and Prospectus.
In the regions where it has operations, United TransNet will endeavor to
acquire businesses with strong customer relationships, a history of
superior customer service and the potential to be assimilated efficiently
into United TransNet's existing regional management structure. For
strategic acquisitions in new regions, United TransNet will evaluate the
strength of the existing management and operations, and will seek
management with operating philosophies consistent with its own. In all
acquisitions, United TransNet will evaluate the potential for revenue
growth and the efficiencies that may be achieved through consolidation.
United TransNet believes it is an attractive acquiror for closely held
businesses which are unable to raise sufficient capital to expand and for
companies whose owners desire liquidity. United TransNet intends to issue
shares of common stock as its primary method of financing acquisitions;
however, it may use other financing methods as necessary, including the
payment of cash or the issuance of debt or other equity securities. See
"Risk Factors -- Risks Relating to United TransNet -- Acquisition Strategy;
Possible Need for Additional Financing."
United TransNet believes that it has a competitive advantage because of
management's experience in assimilating acquired companies into ongoing
operations. Once a new business has been acquired, United TransNet expects
to assign an operations logistics team from its industrial engineering
group to integrate the acquisition into United TransNet. The team would
initially convert accounting, payroll and cash management functions,
assimilate and standardize insurance coverage and employee benefits, visit
customers and meet with employees. Thereafter, in regions where United
TransNet has already established operations, the team would seek to
consolidate route structures and facilities with United TransNet's pre-
existing operations.
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Acquisition History
In May 1996, United TransNet acquired the assets of M & R Express, Inc. ("M &
R"), the assets of Statewide Delivery Service, Inc. ("Statewide") used in
connection with Statewide's scheduled and unscheduled ground messenger and
courier services in Massachusetts and the capital stock of Carl Messenger
Service, Inc. ("Carl Messenger"). These companies provide scheduled and
unscheduled ground messenger and courier services in Connecticut, Maryland and
Massachusetts. The total revenue of these companies for the year ended December
31, 1995 was approximately $12 million. The aggregate consideration for these
transactions was approximately $3.3 million in cash, excluding certain
contingent payments based on future performance, and approximately 58,000 shares
of Common Stock.
On May 14, 1996, a wholly-owned subsidiary of United TransNet merged with Eddy
Messenger Service, Inc. ("Eddy Messenger"), a company which provides scheduled
and unscheduled ground messenger and courier services in Connecticut, New Jersey
and New York State (including New York City). The aggregate consideration (the
"Eddy Messenger Merger Consideration") for the Eddy Messenger merger was valued
at $9.5 million, excluding certain contingent payments based on future
performance, and included the issuance of approximately 226,900 shares of United
TransNet common stock and the payment of approximately $3.6 million in cash. The
amount of the Eddy Messenger Merger Consideration was determined based on Eddy
Messenger's current operating results, estimates of additional customer base
available to Eddy Messenger and estimates of cost savings for United TransNet
resulting from the Eddy Messenger merger. The cash portion of the Eddy Messenger
Merger Consideration was funded by borrowings under United TransNet's revolving
credit facility with First Union, as agent for a group of lenders.
Upon the closing of the Eddy Messenger merger, three of the four former
stockholders of Eddy Messenger entered into a three-year employment agreement
with United TransNet which includes a two-year covenant not to compete. The
fourth former Eddy Messenger stockholder entered into a two-year noncompetition
agreement with United TransNet.
Ground Courier Operations
United TransNet offers its customers scheduled ground parcel and package courier
service on a recurring basis with specific pickup and delivery times as well as
unscheduled (or on-call) ground courier service. United TransNet's ground
delivery business serves 47 states and all major metropolitan markets in the
United States and management believes that United TransNet is the second largest
same-day delivery service provider in the United States. United TransNet serves
clients nationwide with particularly strong regional franchises in the
Southeast, in the Midwest, along the East Coast and in select western states.
United TransNet's fleet, which consisted of approximately 4,300 ground
transportation vehicles as of June 29, 1996, is one of the largest courier and
parcel fleets in the United States and facilitates United TransNet's broad
geographic coverage. The following chart indicates the states in which United
TransNet provides scheduled ground courier services on a state-wide basis:
<TABLE>
<CAPTION>
Statewide Service
---------------------------------------------------
<S> <C>
Northeast Connecticut, Maine, Massachusetts, New Hampshire,
New Jersey, New York, Rhode Island, Vermont
Mid-Atlantic Maryland, North Carolina, South Carolina,
Virginia, Washington, D.C.
Southeast Alabama, Florida, Georgia, Tennessee (Eastern)
South Central Arkansas, Louisiana, Mississippi, Oklahoma,
Tennessee (Western), Texas
Midwest Iowa, Minnesota, Nebraska, North Dakota, South
Dakota, Wisconsin
West California
</TABLE>
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United TransNet also provides ground courier services in connection with its air
courier service to all locations within the United States.
United TransNet provides a variety of ground distribution services, including
(a) time sensitive customized routed service, such as delivery of documents,
data and other paper instruments, (b) small package and parcel service, such as
just-in-time delivery of various products, (c) same-day and overnight pouch
service, for items such as interoffice mail, and (d) other value-added services,
such as on-call deliveries, warehousing, mailroom management, expedited mail
delivery and transportation network consulting services.
United TransNet primarily offers two types of ground courier service,
"conjunctive" service and "dedicated" service. When providing "conjunctive"
service, United TransNet adjusts its existing scheduled route structure in order
to meet a customer's pickup and delivery needs in conjunction with service
provided to other customers. United TransNet attempts to develop its conjunctive
delivery business to increase route concentration. Certain of United TransNet's
customers favor United TransNet's "dedicated" service, in which United TransNet
assigns one or more vehicles and drivers to pick up and deliver items for a
single customer at the times and to the locations designated by the customer.
United TransNet's subsidiaries have entered into written contracts with
approximately 450 customers. The contracts typically specify the types of
services to be provided, the price of such services and the term of the
contract, which is at least one year. Although such contracts generally can be
terminated by the customer after a short notice and cure period if the level of
service is inadequate, such terminations have been rare in United TransNet's
experience.
In recent years, unscheduled or on-call services have been offered as a
supplemental service to customers who request it, rather than developed as a
profit center of United TransNet's ground operations. For certain of its
customers, United TransNet provides warehousing services in the form of
temporary storage of parts and supplies required for distribution on demand. To
a smaller degree, United TransNet also provides in-house mailroom management.
Industrial Engineering. United TransNet's industrial engineering department
provides logistics consulting services and designs customized delivery programs.
The industrial engineering department utilizes United TransNet's costing models
(including cost factors such as fuel, insurance and labor costs, types of
vehicles to be used, time and mileage), data from operations and route dry runs
in making its recommendations for dedicated and conjunctive delivery routes. The
industrial engineering department works closely with United TransNet's marketing
staff and is actively involved in developing United TransNet's proposals for new
accounts and for additional services for existing accounts. The industrial
engineering department also provides consulting services to potential and
existing customers to analyze and evaluate a customer's existing operations and
propose more efficient delivery systems. Finally, the industrial engineering
department conducts internal studies of United TransNet's routes to assist
United TransNet in achieving maximum efficiency.
Vehicles. As of June 29, 1996, United TransNet operated a fleet of approximately
4,300 ground transportation vehicles, of which approximately 65% were leased by
United TransNet from approximately nine unaffiliated lessors. Of these vehicles,
31 were operated as manufacturers' test vehicles. To lower its costs, United
TransNet intends to reduce the number of firms from which it leases vehicles. A
United TransNet vehicle lease typically has a term of 12 months with renewal
options. Monthly lease payments are calculated based upon a variable percentage
of the vehicle's stipulated cost. Upon termination of the lease, the vehicle is
sold with a stipulated residual value. United TransNet is responsible for the
vehicle's maintenance and insurance. Vehicles range in size from passenger cars
to trailers.
77
<PAGE>
In an effort to extend the useful lives of its vehicles and to maximize safety,
United TransNet has implemented a sophisticated fleet maintenance program. In
its Northeast, Mid-Atlantic, Southeast, South Central and Midwest regions,
United TransNet operates thirty-four of its own maintenance shops in order to
provide high quality service for its vehicles. United TransNet, through one of
its vehicle lessors, participates in an extended warranty plan offered by
certain automobile manufacturers, and certain of its repair facilities are
certified by at least two such manufacturers. In all regions where it does not
operate a maintenance shop, United TransNet contracts with independent shops in
order to service its vehicles.
Drivers. As of June 29, 1996, United TransNet employed approximately 5,800 full-
and part-time drivers who constituted approximately 83% of its workforce. The
ground courier industry has typically experienced a high driver turnover rate.
United TransNet believes, based upon the experience of certain of the Founding
Companies, that its strict safety and human resources policies will continue to
favorably affect United TransNet's aggregate driver turnover rate. United
TransNet believes that continued reduction in the driver turnover rate will
reduce the time devoted to driver training and thereby increase the overall
efficiency of United TransNet's operations. United TransNet anticipates that
over time it will institute health insurance benefits for all of its full-time
drivers in its continuing effort to reduce its driver turnover rate.
Use of Independent Owner/Operators. In contrast to courier companies which rely
heavily or exclusively on independent owner/operators to provide ground courier
service, United TransNet has historically employed its drivers directly because
it can maintain greater control over the route operations and quality of service
provided. United TransNet will, however, utilize the services of independent
owner/operators where management deems this to be more cost-effective. As of
June 29, 1996, United TransNet had contracted with approximately 1,500
independent owner/operators.
The federal employment and income tax reporting of many companies in the
transportation industry has been challenged by the Internal Revenue Service on
the grounds that independent owner/operators should have been classified and
treated, for federal tax purposes, as employees. In order to avoid such issues,
United TransNet will attempt to assure that its arrangements with independent
owner/operators are structured so that they will not be deemed to be employees.
As a result, such independent owner/operators will, among other things, have
substantial control over the timing and manner of the services they provide.
Air Courier Operations
United TransNet offers air delivery service through commercial airlines and
third party aircraft to transport time-sensitive documents and packages,
primarily for financial institutions. United TransNet
78
<PAGE>
provides scheduled door-to-door air service nationally and emergency next-
flight-out service throughout the United States.
United TransNet purchases its air transportation from certain major airlines and
air charter operators. United TransNet has negotiated favorable terms with
commercial and charter airlines that enable it to charge competitive rates for
its services while maintaining its margins. United TransNet does not currently
own or operate any aircraft and has no intention to do so.
United TransNet provides a variety of air delivery services, including
customized, time sensitive scheduled service, such as same-day delivery of
documents, data and other paper instruments primarily for financial
institutions, and next-flight-out service, in which United TransNet provides
door-to-door delivery of documents as quickly as possible.
Customers
The financial services industry, including commercial banks, savings banks and
Federal Reserve banks, represents United TransNet's largest category of
customers, and in 1995 accounted for approximately 40% of the Combined Founding
Companies' revenue with other large corporations representing a substantial
portion of the remainder. As of June 29, 1996, no single customer accounted for
more than 5% of United TransNet's revenue.
Marketing and Customer Service
United TransNet conducts a comprehensive marketing program involving direct
sales and customer service to maintain and increase its customer base. As of
June 29, 1996, United TransNet employed approximately 46 sales employees and
approximately 51 customer service employees. United TransNet's marketing efforts
are organized regionally with senior management acting to coordinate the efforts
of regional staff and supplement their efforts in marketing for and serving
national accounts.
United TransNet's marketing representatives make regular calls on existing and
potential customers to design customized services capable of meeting the
customer's delivery requirements within reasonable cost parameters. Whenever
possible, United TransNet offers its customers several different service options
in an effort to provide the most cost effective delivery services possible when
bidding for new accounts. Customer service representatives regularly communicate
with customers to monitor the quality of services and to determine promptly a
customer's
79
<PAGE>
need for new or different services. United TransNet's senior management attends
and makes presentations at customer conferences, seminars and related events to
promote new business.
United TransNet's marketing and sales personnel also identify and pursue new
areas of business for United TransNet. In addition, United TransNet intends to
market its existing delivery routes to companies in various industries which are
outsourcing their delivery systems or otherwise require customized delivery
services.
Risk Management
From time to time, United TransNet's drivers are involved in accidents. United
TransNet carries liability insurance of $15 million for each such accident (it
may effectively self-insure for the first $250,000 claimed), and independent
owner/operators are required to maintain liability insurance of at least the
minimum amounts required by applicable state law. Furthermore, all drivers and
independent owner/operators are covered by United TransNet's fidelity bond.
United TransNet also has insurance policies covering property and fiduciary
trust liability.
United TransNet has appointed a director of risk management who is responsible
for overseeing the creation, implementation and enforcement of United TransNet's
safety policies and programs. In addition, each district within each region of
United TransNet's operations has a division safety manager who is responsible
for various safety-related duties such as conducting driver education courses,
analyzing accident records to design appropriate preventative measures and
implementing safety incentive programs for drivers.
Competition
The courier business is highly competitive. In general, United TransNet competes
with national, regional and local courier companies. Management believes that
the principal competitive factors in the courier business are the ability to
provide timely deliveries on a consistent basis at a competitive price. When
competing for business, United TransNet emphasizes custom-designed services, the
Founding Companies' record of maintaining excellent on-time performance
standards and their established operating history.
In its scheduled ground courier operations, United TransNet competes with
organizations which operate on a national, regional and local basis and
typically provide scheduled courier services for time-sensitive documents and
parcels. United TransNet estimates that there are fewer than ten multi-regional
companies which focus on same-day delivery and numerous firms which operate
principally on a regional basis, and that it is the second largest of these
companies. United TransNet generally competes on the basis of price and its
ability to provide customized service to more points regionally and nationally.
In its air courier operations, United TransNet primarily competes with other air
courier companies which specialize in scheduled air delivery services, as well
as other shippers of air cargo, in which shipments are arranged in accordance
with the needs of the customer. United TransNet estimates that there are fewer
than twenty scheduled air delivery companies and that it is one of the third
largest of these companies.
80
<PAGE>
Regulation
As of January 1, 1995, the Federal Aviation Administration Authorization Act of
1994 became effective, abolishing all intrastate regulatory control over prices,
routes and services to which United TransNet had previously been subject. This
legislation has increased the ability of United TransNet to expand into new
states and to expand its presence in its existing areas of service.
United TransNet holds nationwide general commodities authority from the Federal
Highway Administration (formerly the Interstate Commerce Commission) to operate
as a common carrier on an interstate basis within the contiguous 48 states. The
Trucking Industry Regulatory Reform Act of 1994 further deregulated certain
segments of the transportation industry, so that United TransNet is no longer
required to file tariffs setting forth its interstate rates.
In connection with the operation of certain large vehicles and the handling of
hazardous materials in its courier operations, United TransNet is subject to
regulation by the United States Department of Transportation with respect to the
safety of operation and equipment for United TransNet's vehicles. United
TransNet is also subject to regulation by the Occupational Health and Safety
Administration and, to the extent it holds licenses to operate two-way radios to
communicate with its fleet, by the Federal Communications Commission. Management
believes that United TransNet is in substantial compliance with all of these
regulations.
United TransNet's operations are subject to various federal, state and local
environmental laws and regulations governing vehicle emissions, underground fuel
tanks and the storage, use and disposal of hazardous materials and hazardous
waste in connection with United TransNet's in-house maintenance operations.
Prior to entering into merger agreements with the Founding Companies, United
TransNet evaluated all of the properties to be assumed in the Founding Company
Mergers, and engaged an independent environmental audit firm to conduct
assessments of the properties owned by, or on which vehicle maintenance
activities are conducted by, the Founding Companies other than Courier Dispatch.
Such assessments included reviews of governmental databases relating to,
observation of surface conditions on and interviews with persons familiar with,
such properties. Management believes that, in connection with its prior
management activities with Courier Dispatch, it has had sufficient experience to
evaluate the Courier Dispatch properties, all of which are leased, and has
ordered no further environmental reviews for such properties. No material
environmental problems were discovered in the evaluations and reviews. To the
extent environmental contamination occurs or has occurred for which United
TransNet is deemed responsible under applicable law, it will be required to
assume the costs of remediation, which could be material.
Properties
As of June 29, 1996, United TransNet operated ground courier facilities in 205
locations, of which three were owned, 192 were leased, four were operated at
customer-owned locations, two were maintained at individual couriers' residences
and four were owned by another national courier company and were operated by
United TransNet. These facilities are principally used for operations, general
and administrative functions and training. In addition, several facilities also
contain or will primarily be used for storage and warehouse space. The owned
properties were located in Florida (one), Georgia (one) and Minnesota (one). The
chart below summarizes the locations of facilities which United TransNet leases:
81
<PAGE>
<TABLE>
<CAPTION>
Number of
Leased
Properties
as of
Region June 29, 1996
- -------------------------------------------------- -------------
<S> <C>
Northeast (ME, MA, NH, RI, VT, CT)............... 11
Mid-Atlantic (MD, NC, NY, SC, VA, DC)............ 28
Southeast (AL, FL, GA, TN (Eastern))............. 47
South Central (AR, LA, MS, OK, TN (Western), TX) 57
Midwest (IA, IL, MN, NE, ND, SD, WI)............. 31
West (AZ, CA, CO, NV, OR, UT, WA)................ 18
</TABLE>
United TransNet believes that its properties are well maintained, in good
condition and adequate for its present needs. United TransNet anticipates that
suitable additional or replacement space will be available when required.
The Combined Founding Companies' aggregate facilities rental expense for the
period ended December 19, 1995 was approximately $14 million and United
TransNet's facilities rental expense for the period from December 20, 1995 to
December 31, 1995 was approximately $0.48 million. United TransNet's facilities
rental expense for the period from January 1, 1996 to June 29, 1996 was
approximately $2.3 million. For additional information concerning United
TransNet's leases, see Note 11 to Notes to Combined Financial Statements of the
Combined Founding Companies and Note 8 to Notes to Consolidated Financial
Statements of United TransNet.
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<PAGE>
Employees
At June 29, 1996, United TransNet had approximately 6,900 employees, of which
approximately 1,150 were employed full-time primarily in various management,
supervisory, administrative, and other corporate positions, approximately 4,600
were employed full-time as drivers and approximately 1,150 were employed part-
time, primarily as drivers. In 1991, Courier Dispatch's drivers and mechanics
employed at its facilities in Georgia designated Local 728 of the Teamsters as
their bargaining representative, although as of June 29, 1996 only approximately
8.5% of such drivers and mechanics were union members. The stated term of the
collective bargaining agreement entered into at that time expired as of July 31,
1993; however, no formal notice of termination or renewal has been given by
either party under such agreement's automatic renewal clause. None of United
TransNet's other employees are represented by unions. United TransNet has
experienced no work stoppages and believes that its relations with its employees
are good.
Legal Proceedings
Except as set forth below, there are no pending legal proceedings involving
United TransNet other than routine litigation incidental to United TransNet's
business, including numerous motor vehicle-related accident claims. In the
opinion of United TransNet's management, such proceedings should not,
individually or in the aggregate, have a material adverse effect on United
TransNet's results of operations, financial condition or liquidity. See Note 11
to Notes to Combined Financial Statements of the Combined Founding Companies for
information concerning the Combined Founding Companies' insurance and casualty
claims.
83
<PAGE>
PRINCIPAL STOCKHOLDERS OF UNITED TRANSNET
The following table sets forth certain information known to United TransNet with
respect to beneficial ownership of United TransNet's Common Stock by (i) each
stockholder known by United TransNet to be the beneficial owner of more than 5%
of the Common Stock, (ii) each director, (iii) each executive officer and (iv)
all executive officers and directors as a group. Such information is presented
(a) as of October 3, 1996 and (b) after the effectiveness of the Merger.
<TABLE>
<CAPTION>
Beneficial Ownership of Beneficial Ownership of
United TransNet Common Corporate Express
Stock as of October 3, Common Stock After the
1996(1) Merger(2)
Name Number Percent Number Percent
- --------------------------- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Philip A. Belyew(3)........ 173,282 1.84% 100,477 *
Ronald J. Barowski(4)...... 47,942 * 32,824 *
R. David England, Jr.(5)... 60,300 * 38,385 *
Chee B. Louie(6)........... 840,520 8.96% 378,234 *
James G. Salmon............ 68,007 * 30,603 *
Mark E. Rykowski(7)........ 17,650 * 7,943 *
James W. Bennett(8)........ 5,438 * 2,447 *
George E. Glaser II(9)..... 0 * 2,250 *
John B. Ellis.............. 500 * 225 *
Craig H. Deery(10)......... 960,292 10.24% 432,131 *
Habib Y. Gorgi(11)......... 823,869 8.78% 370,741 *
Charles A. Krause(12)...... 2,000 * 900 *
Steven W. Lanter(13)....... 572,137 6.10% 257,462 *
BancBoston Ventures
Inc.(14).................. 960,292 10.24% 432,131 *
Fleet Venture Resources,
Inc.(15).................. 576,708 6.15% 259,519 *
Fleet Venture Partners
III(15)................... 247,161 2.63% 111,222 *
All directors and
executive officers as a
group (12 persons)(16).... 2,999,800 31.98% 1,397,160 1.87%
</TABLE>
- ----------------------
* Less than one percent
(1) Except as otherwise indicated, and subject to community property laws where
applicable, the persons named in the table above have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them.
(2) The beneficial ownership of Corporate Express Common Stock after the Merger
does not reflect any options to purchase Corporate Express Common Stock
which may be granted to management of United TransNet in conjunction with
the consummation of the Merger. See "The Merger -Interests of Certain
Persons in the Merger."
84
<PAGE>
(3) Includes 39,223 shares issuable upon the exercise of United TransNet
Options which are currently exercisable. Beneficial ownership of United
TransNet Common Stock does not include 50,000 shares issuable upon the
exercise of United TransNet Options granted under the United TransNet 1995
Stock Incentive Plan (the "1995 Plan"), which are not currently
exercisable.
(4) Includes 15,098 shares issuable upon the exercise of United TransNet
Options which are currently exercisable. Beneficial ownership of United
TransNet Common Stock does not include 25,000 shares issuable upon the
exercise of United TransNet Options granted under the 1995 Plan, which are
not currently exercisable.
(5) Includes 27,455 shares issuable upon the exercise of United TransNet
Options which are currently exercisable. Beneficial ownership of United
TransNet Common Stock does not include 25,000 shares issuable upon the
exercise of United TransNet Options granted under the 1995 Plan, which are
not currently exercisable.
(6) Mr. Louie holds all of the shares indicated as beneficially owned by him
jointly with his wife. Mr. Louie's address is 717 Airport Boulevard, South
San Francisco, California 94080.
(7) Includes 17,650 shares issuable upon exercise of United TransNet Options
which are currently exercisable.
(8) Includes 3,399 shares issuable upon exercise of United TransNet Options
which are currently exercisable.
(9) Beneficial ownership of United TransNet Common Stock does not include 5,000
shares issuable upon the exercise of United TransNet Options granted under
the 1995 Plan, which are not currently exercisable.
(10) Mr. Deery is a Managing Director of BancBoston. Mr. Deery disclaims
beneficial ownership of all shares of United TransNet's capital stock which
are directly owned by BancBoston.
(11) Consists of shares owned by Fleet Venture Partners III ("FVP") and Fleet
Venture Resources, Inc. ("FVR"). Mr. Gorgi is the President of Fleet Growth
Resources, Inc. ("FGR"), the corporate general partner of FVP, an
individual general partner of FVP and the President of FVR. As an
individual general partner of FVP, Mr. Gorgi may be deemed to share voting
and investment power with respect to such shares with Robert M. VanDegna
and FGR, the other general partners of FVP. As President of FVR, Mr. Gorgi
may be deemed to share voting and investment powers with Robert M.
VanDegna, Chairman and Chief Executive Officer of FVR. Mr. Gorgi disclaims
beneficial ownership of all shares of United TransNet's capital stock which
are directly owned by FVR, and those shares of United TransNet's capital
stock which are directly owned by FVP, except for his pecuniary interest
therein.
(12) Consists of shares owned by Krause Consultants Ltd. Retirement Trust (the
"Krause Trust"). Mr. Krause in the sole beneficiary and administrator of
the Krause Trust.
(13) Mr. Lanter's address is 2 Lake Lorraine Court, Belleville, Illinois 62221.
(14) The stockholder's address is 100 Federal Street, Boston, Massachusetts
02110.
(15) The stockholder's address is 50 Kennedy Plaza, Providence, Rhode Island
02903.
(16) Includes 102,825 shares issuable upon the exercise of United TransNet
Options which are currently exercisable.
85
<PAGE>
LEGAL MATTERS
The validity of the Corporate Express Common Stock offered hereby will be
passed upon for Corporate Express by Ballard Spahr Andrews & Ingersoll,
Philadelphia, Pennsylvania. Certain other matters will be passed upon for United
TransNet by Sullivan & Worcester LLP, Boston, Massachusetts.
EXPERTS
Corporate Express
The consolidated financial statements and financial statement schedule of
Corporate Express, Inc. as of March 2, 1996 and February 25, 1995 and for the
years ended March 2, 1996, February 25, 1995 and February 28, 1994 included in
the report on Form 10-K of the Company for the fiscal year ended March 2, 1996
have been audited by Coopers & Lybrand L.L.P., independent accountants, as set
forth in their report dated June 11, 1996. In their report, that firm states
that with respect to Corporate Express of the East, Inc. (formerly Corporate
Express of Delaware, Inc.) and subsidiaries, its opinion is based on the report
of Arthur Andersen LLP, independent public accountants. The financial statements
and financial statement schedule referred to above have been incorporated herein
by reference in reliance upon the authority of those firms as experts in
accounting and auditing in giving said reports.
The financial statements of Check Office Equipment Company as of February
29, 1996 and for the year ended February 29, 1996 incorporated herein by
reference have been so included in reliance on the report dated August 30, 1996
of Coopers & Lybrand L.L.P., independent accountants, given on the authority of
such firm as experts in auditing and accounting.
The financial statements of Forms and Supplies Inc. as of December 31,
1995 and for the year ended December 31, 1995 incorporated herein by reference
have been so included in reliance on the report dated February 21, 1996 of Horne
CPA Group, independent accountants, given on the authority of such firm as
experts in auditing and accounting.
The financial statements of Virginia Impression Products Co., Inc. as of
December 31, 1995 and for the year ended December 31, 1995 incorporated herein
by reference have been so included in reliance on the report dated March 4, 1996
of Schutrumpf & Koren, P.C., independent accountants, given on the authority of
such firm as experts in auditing and accounting.
The financial statements of Dock Truck Express Inc., Pronto Delivery
Service, Inc., and RUSHTRUCKING, Inc. incorporated by reference in this Form S-3
registration statement have been audited by Arthur Anderson LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
The financial statements of Miller Stationers Ltd. as of January 31, 1996
and for the year ended January 31, 1996 incorporated herein by reference have
been so included in reliance on the report dated April 4, 1996 of KPMG,
chartered accountants, given on the authority of such firm as experts in
auditing and accounting.
The financial statements of Enbee Company as of December 31, 1995 and for
the year ended December 31, 1995 incorporated herein by reference have been so
included in reliance on the report dated February 26, 1996, except for Note 13
as to which the date is March 4, 1996, of McGee, Wheeler & Co., P.C.,
independent accountants, given on the authority of such firm as experts in
auditing and accounting.
86
<PAGE>
The financial statements of ASAP Software Express, Inc. as of December
31, 1995 and 1994 and for the three years ended December 31, 1995 incorporated
herein by reference have been so included in reliance on the report dated
February 19, 1996, except Note 9 for which the date is May 13, 1996, of Ernst
& Young L.L.P, independent accountants, given on the authority of such firm as
experts in auditing and accounting.
The financial statements of Boulevard Office Products Inc. as at October
31, 1995 and for the year ended October 31, 1995 incorporated herein by
reference have been so included in reliance on the report dated December 5, 1995
of Samson Belair Deloitte & Touche, chartered accountants, given on the
authority of such firm as experts in auditing and accounting.
United TransNet
The consolidated financial statements of United TransNet, Inc. as of and
for the twelve days ended December 31, 1995; the combined financial statements
of the Combined Founding Companies as of and for the years ended December 31,
1993 and 1994 and the period ended December 19, 1995; the consolidated financial
statements of CDG Holding Corp., and its subsidiary, Courier Dispatch Group,
Inc. as of and for the years ended December 31, 1993 and 1994 and the period
ended December 19, 1995; the combined financial statements of Tricor America,
Inc. as of and for the years ended December 31, 1993 and 1994 and the period
ended December 19, 1995; the consolidated financial statements of Film Transit,
Incorporated and its subsidiary as of and for the years ended December 31, 1993
and 1994 and the period ended December 19, 1995; the combined financial
statements of Lanter Courier Corporation as of and for the years ended December
31, 1993 and 1994 and for the period ended December 19, 1995; the consolidated
financial statements of Salmon Acquisition Corporation and its subsidiary as of
and for the years ended December 31, 1993 and 1994 and for the period ended
December 19, 1995; and the consolidated financial statements of 3D Distribution
Systems, Inc. and its subsidiaries as of and for the years ended December 31,
1993 and 1994 and for the period ended December 19, 1995 included in this Proxy
Statement and Prospectus have been so included in reliance on the reports of
Price Waterhouse LLP, independent accountants, given on the authority of said
firm as experts in auditing and accounting.
The financial statements of Eddy Messenger Service, Inc. for the year
ended December 31, 1995 appearing in this Proxy Statement and Prospectus have
been audited by Ernst & Young LLP, independent auditors, as set forth in their
report thereon dated May 1, 1996, and are included in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
87
<PAGE>
CORPORATE EXPRESS, INC. AND UNITED TRANSNET, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CORPORATE EXPRESS, INC. AND UNITED TRANSNET, INC.
Unaudited Combined and Pro Forma Financial Information.................. F-4
Pro Forma Combined Balance Sheet........................................ F-5
Historical Combined Statements of Operations............................ F-6
Pro Forma Combined Statements of Operations............................. F-7
CORPORATE EXPRESS, INC.
Unaudited Pro Forma Combined Financial Data............................. F-9
Pro Forma Combined Balance Sheet........................................ F-11
Pro Forma Combined Statements of Operations............................. F-12
UNITED TRANSNET, INC.
Unaudited Pro Forma Financial Statements................................ F-14
Pro Forma Statements of Operations...................................... F-15
Consolidated Balance Sheets as of June 29, 1996 (unaudited) and December
31, 1995............................................................... F-18
Consolidated Statements of Operations of United TransNet, Inc. for the
three and six months ended June 29, 1996 (unaudited) and of the Com-
bined Founding Companies for the three months ended June 30, 1995 (un-
audited) and the six months ended June 30, 1995........................ F-19
Consolidated Statements of Cash Flows of United TransNet, Inc. for the
six months ended June 29, 1996 (unaudited) and of the Combined Founding
Companies for the six months ended June 30, 1995 (unaudited)........... F-20
Consolidated Statements of Stockholders' Equity for the period ended
June 29, 1996.......................................................... F-21
Notes to Consolidated Financial Statements (unaudited).................. F-22
Report of Price Waterhouse LLP, Independent Accountants ................ F-26
Consolidated Balance Sheet as of December 31, 1995...................... F-27
Consolidated Statement of Operations for the period from December 20 to
December 31, 1995...................................................... F-28
Consolidated Statement of Stockholders' Equity for the period from De-
cember 20 to December 31, 1995......................................... F-29
Consolidated Statement of Cash Flows for the period from December 20 to
December 31, 1995...................................................... F-30
Notes to Consolidated Financial Statements.............................. F-31
COMBINED FOUNDING COMPANIES (PREDECESSORS TO UNITED TRANSNET, INC.)
Report of Price Waterhouse LLP, Independent Accountants ................ F-40
Combined Balance Sheets as of December 31, 1993 and 1994................ F-41
Combined Statements of Operations for the years ended December 31, 1993
and 1994 and for the period ended December 19, 1995.................... F-42
Combined Statements of Stockholders' Equity for the years ended December
31, 1993 and 1994 and for the period ended December 19, 1995........... F-43
Combined Statements of Cash Flows for the years ended December 31, 1993
and 1994 and for the period ended December 19, 1995.................... F-44
Notes to Combined Financial Statements.................................. F-45
FOUNDING COMPANIES
CDG HOLDING CORP.
Report of Price Waterhouse LLP, Independent Accountants................. F-57
Consolidated Balance Sheets as of December 31, 1993 and 1994............ F-58
Consolidated Statements of Operations for the years ended December 31,
1993 and 1994 and for the period ended December 19, 1995............... F-59
Consolidated Statements of Stockholders' Deficit for the years ended De-
cember 31, 1993 and 1994 and for the period ended December 19, 1995.... F-60
Consolidated Statements of Cash Flows for the years ended December 31,
1993 and 1994 and for the period ended December 19, 1995............... F-61
Notes to Consolidated Financial Statements.............................. F-62
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
TRICOR AMERICA, INC.
Report of Price Waterhouse LLP, Independent Accountants................ F-74
Combined Balance Sheets as of December 31, 1993 and 1994............... F-75
Combined Statements of Operations for the years ended December 31, 1993
and 1994 and for the period ended December 19, 1995................... F-76
Combined Statements of Stockholder's Equity for the years ended
December 31, 1993 and 1994 and for the period ended December 19,
1995.................................................................. F-77
Combined Statements of Cash Flows for the years ended December 31, 1993
and 1994 and for the period ended December 19, 1995................... F-78
Notes to Combined Financial Statements................................. F-79
FILM TRANSIT, INCORPORATED
Report of Price Waterhouse LLP, Independent Accountants................ F-85
Consolidated Balance Sheets as of December 31, 1993 and 1994........... F-86
Consolidated Statements of Operations for the years ended December 31,
1993 and 1994 and for the period ended December 19, 1995.............. F-87
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1993 and 1994 and for the period ended December 19,
1995.................................................................. F-88
Consolidated Statements of Cash Flows for the years ended December 31,
1993 and 1994 and for the period ended December 19, 1995.............. F-89
Notes to Consolidated Financial Statements............................. F-90
THE DISTRICTS OF LANTER COURIER CORPORATION
Report of Price Waterhouse LLP, Independent Accountants................ F-97
Combined Balance Sheets as of December 31, 1993 and 1994............... F-98
Combined Statements of Operations for the years ended December 31, 1993
and 1994 and for the period ended December 19, 1995................... F-99
Combined Statements of Lanter Equity Investment Balance at December 31,
1993 and 1994 and for the period ended December 19, 1995.............. F-100
Combined Statements of Cash Flows for the years ended December 31, 1993
and 1994 and for the period ended December 19, 1995................... F-101
Notes to Combined Financial Statements................................. F-102
SALMON ACQUISITION CORPORATION
Report of Price Waterhouse LLP, Independent Accountants................ F-109
Consolidated Balance Sheets as of December 31, 1993 and 1994........... F-110
Consolidated Statements of Operations for the years ended December 31,
1993 and 1994 and for the period ended December 19, 1995.............. F-111
Consolidated Statements of Stockholders' Equity (Deficit) for the years
ended December 31, 1993 and 1994 and for the period ended December 19,
1995.................................................................. F-112
Consolidated Statements of Cash Flows for the years ended December 31,
1993 and 1994 and for the period ended December 19, 1995.............. F-113
Notes to Consolidated Financial Statements............................. F-114
3D DISTRIBUTION SYSTEMS, INC.
Report of Price Waterhouse LLP, Independent Accountants................ F-120
Consolidated Balance Sheets as of December 31, 1993 and 1994........... F-121
Consolidated Statements of Operations for the year ended October 31,
1993, for the two months ended December 31, 1993, for the year ended
December 31, 1994 and for the period ended December 19, 1995.......... F-122
Consolidated Statements of Stockholders' Equity for the year ended
October 31, 1993, for the two months ended December 31, 1993, for the
year ended December 31, 1994, and for the period ended December 19,
1995.................................................................. F-123
</TABLE>
F-2
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Consolidated Statements of Cash Flows for the year ended October 31,
1993, for the two months ended December 31, 1993, for the year ended
December 31, 1994 and for the period ended December 19, 1995.......... F-124
Notes to Consolidated Financial Statements............................. F-125
EDDY MESSENGER SERVICE, INC.
Report of Ernst & Young LLP, Independent Auditors...................... F-132
Balance Sheet as of December 31, 1995.................................. F-133
Statement of Income for the year ended December 31, 1995............... F-134
Statement of Retained Earnings as of December 31, 1995................. F-135
Statement of Cash Flows for the year ended December 31, 1995........... F-136
Notes to Financial Statements.......................................... F-137
</TABLE>
F-3
<PAGE>
CORPORATE EXPRESS, INC. AND UNITED TRANSNET, INC.
UNAUDITED COMBINED AND PRO FORMA FINANCIAL INFORMATION
The unaudited Historical Combined Statements of Operations are based upon
the historical financial statements of Corporate Express, Inc. and United
TransNet, Inc., which are included or incorporated by reference in this
registration statement and should be read in conjunction with those
consolidated financial statements and related notes. The Unaudited Historical
Combined Statements of Operations give effect to the proposed merger by
combining the results of operations of Corporate Express, Inc. for the three
months ended June 1, 1996 and United TransNet, Inc. for the three months ended
May 25, 1996. The results of operations of United TransNet, Inc. for the
period from December 20 to December 31, 1995 (December 20, 1995 inception date
of United TransNet) have not been combined with the Corporate Express results
of operations for the year ended March 2, 1996 due to immateriality. The first
quarter interim period for United TransNet, Inc. for fiscal 1996 has been
aligned to be consistent with the Corporate Express, Inc. June 1, 1996 interim
period. For purposes of the combined presentation, certain reclassifications
have been made to the United TransNet, Inc. financial information to be
consistent with the Corporate Express, Inc. presentation.
The unaudited Pro Forma Combined Balance Sheet presents the combined
financial position of Corporate Express and United TransNet, Inc. as of June
1, 1996. The unaudited Pro Forma Combined Balance Sheet further assumes that
the transactions set forth in the Corporate Express, Inc. Unaudited Pro Forma
Combined Financial Data were consummated as of June 1, 1996.
The unaudited Pro Forma Combined Statements of Operations give effect to all
the transactions set forth in the Corporate Express, Inc. Unaudited Pro Forma
Combined Financial Data and the United TransNet, Inc. Unaudited Pro Forma
Financial Statements included elsewhere in this document and should be read in
conjunction with those unaudited Pro Forma Financial Statements and related
notes. The unaudited Pro forma Combined Statements of Operations exclude
transaction costs and certain costs of consolidation which have yet to be
determined.
F-4
<PAGE>
CORPORATE EXPRESS, INC. AND UNITED TRANSNET, INC.
PRO FORMA COMBINED BALANCE SHEET
JUNE 1, 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CORPORATE CORPORATE
EXPRESS EXPRESS
AND PRO FORMA AND
UNITED TRANSNET ADJUSTMENTS UNITED TRANSNET
CORPORATE UNITED HISTORICAL CEI CORPORATE PRO FORMA
EXPRESS TRANSNET COMBINED ACQUISITIONS (1) EXPRESS (1) COMBINED
---------- -------- --------------- ---------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equiva-
lents................. $ 30,079 $ 5,249 $ 35,328 $ 4,564 $274,084 $ 313,976
Receivables, net....... 292,062 25,974 318,036 19,868 0 337,904
Inventories............ 119,408 626 120,034 13,321 (2,169) 131,186
Other current assets... 68,171 2,733 70,904 1,316 (4) 72,216
---------- ------- ---------- ------- -------- ----------
Total current assets.. 509,720 34,582 544,302 39,069 271,911 855,282
Property and Equipment,
net.................... 141,752 9,697 151,449 17,114 (2,767) 165,796
Goodwill, net........... 445,108 27,993 473,101 160 45,241 520,955
2,453 (2)
Other assets, net....... 18,072 16,650 34,722 2,053 6,485 42,539
(721)(2)
---------- ------- ---------- ------- -------- ----------
Total assets.......... $1,114,652 $88,922 $1,203,574 $58,396 $322,602 $1,584,572
========== ======= ========== ======= ======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable....... $ 213,346 $15,913 $ 229,259 $12,452 $ (72) $ 241,639
Accrued liabilities.... 61,834 8,990 70,824 5,784 639 77,247
Accrued purchase
costs................. 4,169 -- 4,169 -- 3,195 7,364
Accrued merger and
related costs......... 19,431 -- 19,431 -- -- 19,431
Current portion of
long-term debt and
capital leases........ 9,461 1,404 10,865 2,508 1,099 14,472
Other current
liabilities........... 126 -- 126 11 -- 137
---------- ------- ---------- ------- -------- ----------
Total current
liabilities.......... 308,367 26,307 334,674 20,755 4,861 360,290
Capital lease
obligations............ 10,694 84 10,778 122 0 10,900
Long-term debt.......... 241,684 29,207 270,891 8,084 317,092 596,067
Deferred income taxes... 12,390 -- 12,390 375 (285) 12,480
Minority interest in
subsidiaries........... 26,302 -- 26,302 -- -- 26,302
Other non-current lia-
bilities............... 2,918 4,795 7,713 438 -- 8,151
---------- ------- ---------- ------- -------- ----------
Total liabilities..... 602,355 60,393 662,748 29,774 321,668 1,014,190
Shareholders' equity:
Common stock........... 14 9 23 99 (99) 23
Additional paid-in
capital............... 506,914 26,832 533,746 3,724 22,862 560,332
Retained earnings
(deficit)............. 3,065 1,688 4,753 24,799 (23,561) 7,723
1,732 (2)
Foreign currency
translation
adjustment............ 2,304 -- 2,304 -- -- 2,304
---------- ------- ---------- ------- -------- ----------
Total shareholders'
equity............... 512,297 28,529 540,826 28,622 934 570,382
---------- ------- ---------- ------- -------- ----------
Total liabilities and
shareholders'
equity.............. $1,114,652 $88,922 $1,203,574 $58,396 $322,602 $1,584,572
========== ======= ========== ======= ======== ==========
</TABLE>
- --------
(1) Refer to F-11 for CEI acquisitions and explanation of pro forma
adjustments.
(2) Conform United TransNet to CEI accounting policies and related income tax
effect.
F-5
<PAGE>
CORPORATE EXPRESS, INC. AND UNITED TRANSNET, INC.
HISTORICAL COMBINED STATEMENTS OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED THREE MONTHS ENDED
----------------------------- -------------------
FEB. 28 FEB. 25 MARCH 2 MAY 27 JUNE 1
1994 1995 1996 1995 1996
-------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales.................... $337,094 $927,918 $1,590,104 $ 330,394 $ 570,249
Cost of sales................ 254,698 681,962 1,173,255 243,586 422,199
Merger related inventory pro-
visions..................... 1,146 -- 5,952 -- --
-------- -------- ---------- --------- ---------
Gross profit............... 81,250 245,956 410,897 86,808 148,050
Warehouse operating and sell-
ing expenses................ 69,851 188,464 297,275 62,611 106,904
Corporate general & adminis-
trative expenses............ 8,690 23,852 46,980 9,243 18,889
Merger and other non-recur-
ring charges................ 1,928 -- 36,838 -- --
-------- -------- ---------- --------- ---------
Operating profit........... 781 33,640 29,804 14,954 22,257
Interest expense, net........ 4,463 15,610 15,396 4,203 3,998
Other income................. 126 352 724 167 6
-------- -------- ---------- --------- ---------
Income (loss) before income
taxes & minority
interest.................. (3,556) 18,382 15,132 10,918 18,265
Income tax expense........... 1,894 6,164 10,952 4,297 7,803
-------- -------- ---------- --------- ---------
Income (loss) before minor-
ity interest.............. (5,450) 12,218 4,180 6,621 10,462
Minority interest............ 152 69 1,436 115 230
-------- -------- ---------- --------- ---------
Income (loss) from continu-
ing operations............ (5,602) 12,149 2,744 6,506 10,232
Income (loss) from discon-
tinued operations......... 138 -- -- -- --
-------- -------- ---------- --------- ---------
Income (loss) before ex-
traordinary item.......... (5,464) 12,149 2,744 6,506 10,232
Extraordinary item........... (1,169) 586 -- -- --
-------- -------- ---------- --------- ---------
Net income (loss).......... $ (6,633) $ 12,735 $ 2,744 $ 6,506 $ 10,232
======== ======== ========== ========= =========
Net income (loss) per common
share:
Continuing operations...... $ (0.21) $ 0.24 $ 0.04 $ 0.10 $ 0.13
Extraordinary item......... (0.04) 0.01 -- -- --
-------- -------- ---------- --------- ---------
Net income (loss).......... $ (0.25) $ 0.25 $ 0.04 $ 0.10 $ 0.13
======== ======== ========== ========= =========
Weighted average common
shares outstanding........ 32,265 49,195 72,017 62,971 79,346
======== ======== ========== ========= =========
</TABLE>
F-6
<PAGE>
CORPORATE EXPRESS, INC. AND UNITED TRANSNET, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 1, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CORPORATE
EXPRESS PRO FORMA
AND ADJUSTMENTS
UNITED TRANSNET ----------------------
CORPORATE UNITED HISTORICAL CEI UNITED TRANSNET CORPORATE UNITED
EXPRESS TRANSNET(1) COMBINED ACQUISITIONS(2) ACQUISITIONS(3) EXPRESS(2) TRANSNET
--------- ----------- --------------- --------------- --------------- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales........ $500,624 $69,625 $570,249 $86,576 $4,315 $ -- $ --
Cost of sales.... 369,178 53,021 422,199 65,914 2,919 -- (5)(5)
-------- ------- -------- ------- ------ ------- -----
Gross profit.... 131,446 16,604 148,050 20,662 1,396 -- 5
Warehouse
operating and
selling
expenses........ 95,309 11,595 106,904 13,543 1,296 (18) (271)(5)
Corporate general
& administrative
expenses........ 15,933 2,956 18,889 113 -- 572 127 (6)
(423)(4)
-------- ------- -------- ------- ------ ------- -----
Operating profit
(loss)......... 20,204 2,053 22,257 7,006 100 (131) 149
Interest expense,
net............. 3,279 719 3,998 63 9 421 99 (7)
Other expense
(income)........ -- (6) (6) (13) 34 -- 10 (5)
-------- ------- -------- ------- ------ ------- -----
Income before
income taxes &
minority
interest....... 16,925 1,340 18,265 6,956 57 (552) 40
Income tax
expense......... 7,079 724 7,803 717 11 1,576 191 (8)
123 (4)
-------- ------- -------- ------- ------ ------- -----
Income (loss)
before minority
interest....... 9,846 616 10,462 6,239 46 (2,251) (151)
Minority
interest........ 230 230 -- --
-------- ------- -------- ------- ------ ------- -----
Net income
(loss)......... $ 9,616 $ 616 $ 10,232 $ 6,239 $ 46 ($2,251) ($151)
======== ======= ======== ======= ====== ======= =====
Net income per
common share
Net income...... $ 0.13 $ 0.15 $ 0.13
======== ======= ========
Weighted average
common shares
outstanding.... 75,139 4,207(9) 79,346(9) 1,028 128 (9)
======== ======= ======== ======= =====
<CAPTION>
CORPORATE
EXPRESS
AND
UNITED TRANSNET
PRO FORMA
COMBINED
---------------
<S> <C>
Net sales........ $661,140
Cost of sales.... 491,027
---------------
Gross profit.... 170,113
Warehouse
operating and
selling
expenses........ 121,454
Corporate general
& administrative
expenses........ 19,278
---------------
Operating profit
(loss)......... 29,381
Interest expense,
net............. 4,590
Other expense
(income)........ 25
---------------
Income before
income taxes &
minority
interest....... 24,766
Income tax
expense......... 10,421
---------------
Income (loss)
before minority
interest....... 14,345
Minority
interest........ 230
---------------
Net income
(loss)......... $ 14,115
===============
Net income per
common share
Net income...... $ 0.18
===============
Weighted average
common shares
outstanding.... 80,502(9)
===============
</TABLE>
- -------
(1) Includes the results of operations of M&R, Statewide, Carl Messenger and
Eddy Messenger from the acquisition date of each respective company to May
25, 1996.
(2) Refer to F-12 for CEI acquisitions and explanation of pro forma
adjustments.
(3) Reflects the results of operations of M&R, Statewide, Carl Messenger and
Eddy Messenger from March 1, 1996 to the acquisition date for each
respective company.
(4) Conform United TransNet to CEI accounting policies and related income tax
effect.
(5) In connection with one of the acquisitions, a certain non-related
operation of the acquired entity was not a continuing part of the
operations of the combined entities. Additionally, certain terms regarding
officers' salaries and rental expenses with related parties have been
agreed to between the parties. These adjustments reflect the effect of
these agreements on the continuing revenue and expenses of the combined
entities.
(6) To amortize the portion of the purchase price that exceeds the fair value
of the net assets acquired. The amount assigned to goodwill is amortized
using the straight-line method over a period of twenty-five years.
(7) To record the interest expense related to the financed portion of the
acquisitions.
(8) Tax effect of the pro forma adjustments.
(9) Weighted average common shares outstanding reflects the conversion of
United TransNet Common Stock into .45 shares of Corporate Express Common
Stock.
F-7
<PAGE>
CORPORATE EXPRESS, INC. AND UNITED TRANSNET, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED MARCH 2, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
UNITED TRANSNET CORPORATE
FOUNDING PRO FORMA EXPRESS
COMPANIES ADJUSTMENTS AND
AND ---------------------- UNITED TRANSNET
CORPORATE ACQUISITIONS CEI CORPORATE UNITED PRO FORMA
EXPRESS COMBINED (6) ACQUISITIONS (7) EXPRESS (7) TRANSNET COMBINED
---------- --------------- ---------------- ----------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $1,590,104 $269,817 $502,941 $ -- $ -- $2,362,862
Cost of sales........... 1,173,255 203,604 387,082 (167) (392)(5) 1,763,382
Merger related inventory
provisions............. 5,952 -- -- -- -- 5,952
---------- -------- -------- ------- ------- ----------
Gross profit........... 410,897 66,213 115,859 167 392 593,528
Warehouse operating and
selling expenses....... 297,275 54,720 76,092 (895) (993)(5) 426,199
Corporate general &
administrative
expenses............... 46,980 3,204 14,900 3,888 636 (2) 67,878
(1,730)(8)
Merger and other non-
recurring charges...... 36,838 -- -- -- -- 36,838
---------- -------- -------- ------- ------- ----------
Operating profit
(loss)................ 29,804 8,289 24,867 (1,096) 749 62,613
Interest expense
(income), net.......... 15,396 5,063 1,612 2,235 530 (3) 24,836
Other expense (income).. (724) (307) 131 (67) 207 (5) (760)
---------- -------- -------- ------- ------- ----------
Income before income
taxes & minority
interest.............. 15,132 3,533 23,124 (3,264) 12 38,537
Income tax expense...... 10,952 989 3,473 2,567 1,733 (4) 20,223
509 (8)
---------- -------- -------- ------- ------- ----------
Income (loss) before
minority interest..... 4,180 2,544 19,651 (6,340) (1,721) 18,314
Minority interest....... 1,436 -- -- -- -- 1,436
---------- -------- -------- ------- ------- ----------
Income (loss) from
continuing
operations............ 2,744 2,544 19,651 (6,340) (1,721) 16,878
-- -- -- -- -- --
---------- -------- -------- ------- ------- ----------
Net income (loss)...... $ 2,744 $ 2,544 $ 19,651 $(6,340) $(1,721) $ 16,878
========== ======== ======== ======= ======= ==========
Net income per common
share
Continuing operations.. $ 0.04 $ 0.64 $ 0.23
========== ======== ==========
Net income............. $ 0.04 $ 0.64 $ 0.23
========== ======== ==========
Weighted average common
shares outstanding.... 68,057 3,960(1) 1,428 (300)(1) 73,145(1)
========== ======== ======= ======= ==========
</TABLE>
- -------
(1) Weighted average common shares outstanding reflects the conversion of
United TransNet Common Stock into .45 shares of Corporate Express Common
Stock.
(2) To amortize the portion of the purchase price that exceeds the fair value
of the net assets acquired. The amount assigned to goodwill is amortized
using the straight-line method over a period of twenty-five years.
(3) To record the interest expense related to the financed portion of the
acquisitions.
(4) Tax effect of the pro forma adjustments and of the Founding Companies
which were S corporations.
(5) In connection with one of the acquisitions, a certain non-related
operation of the acquired entity was not a continuing part of the
operations of the combined entities. Additionally, certain terms regarding
officers' salaries and rental expenses with related parties have been
agreed to between the parties. These adjustments reflect the effect of
these agreements on the continuing revenue and expenses of the combined
entities.
(6) Reflects the results of operations of the Combined Founding Companies for
the period from January 1 to December 19, 1995, and the results of
operations of M&R, Statewide, Carl Messenger and Eddy Messenger for the
twelve months ended December 31, 1995.
(7) Refer to F-13 for CEI Acquisitions and explanation of pro forma
adjustments.
(8) Conform United TransNet to CEI accounting policies and related income tax
effect.
F-8
<PAGE>
CORPORATE EXPRESS, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following unaudited pro forma combined balance sheet gives effect to the
Boulevard acquisition and the Acquired Companies as if they were acquired on
June 1, 1996. The unaudited pro forma combined balance sheet also gives effect
to the sales by the Company in June 1996 of the Notes as if such sales had
been made on June 1, 1996. The unaudited pro forma combined balance sheet as
of June 1, 1996 includes the Company's unaudited balance sheet as of June 1,
1996; the unaudited balance sheet of Boulevard as of July 31, 1996; and the
following unaudited balance sheets of the Acquired Companies; Miller
Stationers, Ltd. and Howard's Office Supplies, Inc. as of May 31, 1996; Center
Office Products, Inc. as of July 6, 1996; Carolina Ribbon Carbon and Sales
Corporation as of July 31, 1996; Laser Perfect Office Products, Inc., Forms
and Supplies, Inc., Dock Truck Express, Inc., Pronto Delivery Service, Inc.,
The Classic Companies and RUSHTRUCKING, Inc. as of June 30, 1996; and Virginia
Impression Products Co., Inc. as of August 31, 1996. ASAP, Enbee Company and
Check Office Equipment Company, Inc. were acquired by the Company prior to
June 1, 1996; therefore, these companies' statements of financial position are
included in the Company's consolidated balance sheet at June 1, 1996.
The unaudited pro forma combined statement of operations for the three
months ended June 1, 1996 gives effect to the Acquired Companies as if they
were acquired on February 26, 1995. The unaudited pro forma combined statement
of operations also gives effect to the ASAP and Boulevard acquisitions and the
sales by the Company in June 1996 of the Notes as if such sales had been made
on February 26, 1995. The unaudited pro forma combined statement of operations
for the quarter ended June 1, 1996 includes the unaudited results of
operations of the Company for the three months ended June 1, 1996; the
unaudited results of operations of ASAP for the period March 1, 1996 through
April 21, 1996; the unaudited results of operations of Boulevard for the three
months ended June 1, 1996; and the following unaudited results of operations
of the Acquired Companies; Miller Stationers, Ltd. and Howard's Office
Supplies, Inc. for the three months ended May 31, 1996; Center Office
Products, Inc. for the three months ended July 6, 1996; Carolina Ribbon Carbon
and Sales Corporation for the three months ended July 31, 1996; Laser Perfect
Office Products, Inc., Forms and Supplies, Inc., Dock Truck Express, Inc.,
Pronto Delivery Service, Inc., The Classic Companies and RUSHTRUCKING, Inc.
for the three months ended June 30, 1996; and Virginia Impression Products,
Co., Inc. for the three months ended August 31, 1996. Enbee Company and Check
Office Equipment Company, Inc. were acquired by the Company in the beginning
of the quarter ended June 1, 1996; therefore, the substantial portion of these
companies' operating results are included in the Company's consolidated
results of operations for the quarter ended June 1, 1996.
The unaudited pro forma combined statement of operations for the year ended
March 2, 1996 gives effect to the ASAP and Boulevard acquisitions and the
Acquired Companies as if they were acquired on February 26, 1995. The
unaudited pro forma combined statement of operations also gives effect to the
sales by the Company in June 1996 of the Notes as if such sales had been made
on February 26, 1995. The unaudited pro forma combined statement of operations
for the year ended March 2, 1996 includes the audited results of operations of
the Company for the year ended March 2, 1996; the audited results of
operations of ASAP for the fiscal year ended December 31, 1995; the unaudited
results of operations of Boulevard for the twelve months ended January 31,
1996; and the following results of operations of the Acquired Companies:
Macquarie Office Limited, Murphy Stationery Co. Ltd., Magnatron, Inc.,
Schooley, Inc. and Decora Steel City of Broward, Inc., for the two months
ended April 30, 1995; Barries (Australia) Pty Ltd for the three months ended
June 2, 1995; Ballment Office Products Pty Ltd for the four months ended June
30, 1995; Peerless Office Supply for the seven months ended August 31, 1995;
Boulton Robinson Office Supplies Pty Limited and Revson Australia Pty Ltd for
the nine months ended September 30, 1995 and Chisholm Group for the nine
months ended October 31, 1995; Check Office Equipment Company, Inc. for the
year ended February 29, 1996 (audited); Miller Stationers, Ltd. for the year
ended January 31, 1996 (audited); Enbee Company, Forms and Supplies, Inc.,
Dock Truck Express, Inc., Pronto Delivery, Inc., Virginia Impression Products
Co., Inc. and RUSHTRUCKING, Inc. for the year ended December 31, 1995
(audited); Howard's Office Supplies, Inc., Center Office Products, Inc., Laser
Perfect Office Products, Inc., and The Classic Companies for the year ended
December 31, 1995 (unaudited); and Carolina Ribbon & Carbon Sales Corporation
for the twelve months ended December 31, 1995 (unaudited).
F-9
<PAGE>
The pro forma combined financial data are based on available information and
on certain assumptions and adjustments described in the accompanying notes
which Corporate Express believes are reasonable. The pro forma combined
financial data are provided for informational purposes only and do not purport
to present the results of operations of the Company had the transactions
assumed therein occurred on or as of the dates indicated, nor are they
necessarily indicative of the results of operations which may be achieved in
the future. The unaudited proforma combined financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Corporate Express" and the financial statements of
Corporate Express, ASAP, Boulevard, Check Office Equipment Company, Inc.,
Miller Stationers Ltd., Enbee Company, Forms and Supplies, Inc., Dock Truck
Express, Inc., Pronto Delivery, Inc., Virginia Impression Products Co., Inc.,
RUSHTRUCKING, Inc., Howard's Office Supplies, Inc., Center Office Products,
Inc., Laser Perfect Office Products, Inc., The Classic Companies, and Carolina
Ribbon & Carbon Sales Corporation which are incorporated into this document by
reference.
F-10
<PAGE>
CORPORATE EXPRESS, INC.
PRO FORMA COMBINED BALANCE SHEET
JUNE 1, 1996
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
CORPORATE ACQUIRED PRO FORMA PRO FORMA
EXPRESS BOULEVARD COMPANIES ADJUSTMENTS COMBINED
---------- --------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.......... $ 30,079 $ 0 $ 4,564 $(35,411)(1) $ 308,727
(8,407)(2)
318,500 (3)
(598)(8)
Receivables, net...... 292,062 5,057 14,811 -- 311,930
Inventories........... 119,408 5,476 7,845 (1,824)(1) 130,560
(345)(8)
Other current assets.. 68,171 198 1,118 (4)(8) 69,483
---------- ------- ------- -------- ----------
Total current
assets............. 509,720 10,731 28,338 271,911 820,700
Property and Equipment,
net.................... 141,752 6,597 10,517 (1,757)(1) 156,099
(1,010)(8)
Goodwill, net........... 445,108 135 25 45,241 (1) 490,509
Other assets, net....... 18,072 -- 2,053 6,500 (3) 26,610
(15)(8)
---------- ------- ------- -------- ----------
Total assets........ 1,114,652 17,463 40,933 320,870 1,493,918
========== ======= ======= ======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable...... 213,346 5,481 6,971 (72)(8) 225,726
Accrued liabilities... 61,834 2,178 3,606 670 (4) 68,257
-- (1)
(31)(8)
Accrued purchase
costs................ 4,169 -- -- 3,195 (1) 7,364
Accrued merger and
related costs........ 19,431 -- -- -- 19,431
Current portion of
long-term debt and
capital leases....... 9,461 27 2,481 1,126 (5) 13,068
--
(27)(8)
Other current
liabilities.......... 126 -- 11 -- 137
---------- ------- ------- -------- ----------
Total current
liabilities........ 308,367 7,686 13,069 4,861 333,983
Capital lease
obligations............ 10,694 -- 122 -- 10,816
Long-term debt.......... 241,684 394 7,690 (17,287)(2) 566,860
-- (1)
(241)(8)
9,620 (9)
325,000 (3)
Deferred income taxes... 12,390 -- 375 (285)(1) 12,480
Minority interest in
subsidiaries........... 26,302 -- -- -- 26,302
Other non-current
liabilities............ 2,918 -- 438 -- 3,356
---------- ------- ------- -------- ----------
Total liabilities... 602,355 8,080 21,694 321,668 953,797
Shareholders' equity:
Common stock.......... 14 7 92 (99)(6) 14
Additional paid-in
capital.............. 506,914 -- 3,724 (3,596)(6) 533,500
26,458 (7)
Retained earnings
(deficit)............ 3,065 9,376 15,423 (12,340)(6) 4,303
(9,620)(9)
(1,601)(8)
Foreign currency
translation
adjustment........... 2,304 -- -- -- 2,304
---------- ------- ------- -------- ----------
Total shareholders'
equity............. 512,297 9,383 19,239 (798) 540,121
---------- ------- ------- -------- ----------
Total liabilities
and shareholders'
equity........... $1,114,652 $17,463 $40,933 $320,870 $1,493,918
========== ======= ======= ======== ==========
</TABLE>
- --------
(1) Use of cash as part of the consideration for certain of the acquisitions
accounted for under the purchase method of accounting and related
purchase price allocation (including estimated direct costs). The portion
of the consideration assigned to goodwill represents the excess of the
cost over the fair value of the net assets acquired.
(2) Repayment of certain debt of the acquired entities.
(3) Net proceeds from the sale of the Notes and the capitalization of debt
issuance costs.
(4) Short-term payable portion of consideration for an Acquired Company
accounted for under the purchase method of accounting.
(5) Notes payable portion of consideration for certain of the Acquired
Companies accounted for under the purchase method of accounting.
(6) Elimination of the historical equity of the acquired entities accounted
for under the purchase method of accounting.
(7) Issuance of shares of Corporate Express common stock as part of the
consideration for certain of the acquisitions accounted for under the
purchase method of accounting.
(8) Adjustment for assets and liabilities of an Acquired Company not
purchased by the Company.
(9) Boulevard shareholder distributions and related promissory notes.
F-11
<PAGE>
CORPORATE EXPRESS, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 1, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CORPORATE ACQUIRED PRO FORMA PRO FORMA
EXPRESS ASAP BOULEVARD COMPANIES ADJUSTMENTS COMBINED
--------- ------- --------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $500,624 $25,583 $14,738 $46,255 $ -- $587,200
Cost of sales........... 369,178 19,647 11,654 34,613 -- 435,092
-------- ------- ------- ------- ------ --------
Gross profit........... 131,446 5,936 3,084 11,642 -- 152,108
Warehouse operating and
selling expenses....... 95,309 1,612 2,179 9,752 (18)(1) 108,834
Corporate general &
administrative
expenses............... 15,933 113 -- -- 572 (2) 16,618
-------- ------- ------- ------- ------ --------
Operating profit
(loss)................ 20,204 4,211 905 1,890 (554) 26,656
Interest expense
(income), net.......... 3,279 (129) 79 113 3,656 (3) 3,763
325 (4)
(288)(5)
(3,272)(6)
Other income............ -- 9 -- 4 -- 13
-------- ------- ------- ------- ------ --------
Income before income
taxes & minority
interest.............. 16,925 4,349 826 1,781 (975) 22,906
Income tax expense...... 7,079 52 316 349 1,576 (7) 9,372
-------- ------- ------- ------- ------ --------
Income (loss) before
minority interest..... 9,846 4,297 510 1,432 (2,551) 13,534
Minority interest....... 230 -- -- -- -- 230
-------- ------- ------- ------- ------ --------
Net income (loss)...... 9,616 4,297 510 1,432 (2,551) 13,304
======== ======= ======= ======= ====== ========
Net income per common
share.................. $ 0.13 $ 0.17
======== ========
Weighted average common
shares outstanding.... 75,139 1,028 (8) 76,167
======== ====== ========
</TABLE>
- --------
(1) Elimination of excess compensation.
(2) Amortization of goodwill recorded in connection with the acquisitions
accounted for under the purchase method of accounting. The goodwill is
being amortized over an estimated life of 40 years.
(3) Increase in interest expense due to the sale of the Notes.
(4) Amortization of debt issuance costs over the term of the Notes.
(5) Interest expense not incurred on acquired entities' debts paid by the
Company.
(6) Increase in interest income as a result of the investment of the proceeds
of the Notes in commercial paper
(7) Income tax effect of pro forma adjustments and the adjustment of the
Acquired Companies' (accounted for under the purchase method of
accounting) income tax provision to the Company's statutory tax rate.
(8) Issuance of additional shares of Corporate Express common stock as part of
the consideration for certain of the Acquired Companies accounted for
under the purchase method of accounting and for all Acquired Companies
accounted for under the pooling of interests method of accounting.
F-12
<PAGE>
CORPORATE EXPRESS, INC.
PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED MARCH 2, 1996
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
CORPORATE ACQUIRED PRO FORMA PRO FORMA
EXPRESS ASAP BOULEVARD COMPANIES ADJUSTMENTS COMBINED
---------- -------- --------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $1,590,104 $157,795 $58,424 $286,722 $ -- $2,093,045
Cost of sales........... 1,173,255 132,500 45,542 209,040 (167)(1) 1,560,170
Merger related inventory
provisions............. 5,952 -- -- -- -- 5,952
---------- -------- ------- -------- ------- ----------
Gross profit........... 410,897 25,295 12,882 77,682 167 526,923
Warehouse operating and
selling expenses....... 297,275 3,834 9,866 62,392 (895)(1) 372,472
Corporate general &
administrative
expenses............... 46,980 11,205 -- 3,695 3,888 (2) 65,768
Merger and other non-
recurring charges...... 36,838 -- -- -- -- 36,838
---------- -------- ------- -------- ------- ----------
Operating profit
(loss)................ 29,804 10,256 3,016 11,595 (2,826) 51,845
Interest expense, net... 15,396 -- 360 1,252 14,336 (3) 19,243
-- -- -- -- 1,300 (4)
-- -- -- -- (537)(5)
-- -- -- -- (12,864)(6)
Other expense (income).. (724) -- -- 131 (67)(1) (660)
---------- -------- ------- -------- ------- ----------
Income before income
taxes & minority
interest.............. 15,132 10,256 2,656 10,212 (4,994) 33,262
Income tax expense...... 10,952 200 1,028 2,245 2,567 (7) 16,992
---------- -------- ------- -------- ------- ----------
Income (loss) before
minority interest..... 4,180 10,056 1,628 7,967 (7,561) 16,270
Minority interest....... 1,436 -- -- -- -- 1,436
---------- -------- ------- -------- ------- ----------
Net income (loss)...... $ 2,744 $ 10,056 $ 1,628 $ 7,967 $(7,561) $ 14,834
========== ======== ======= ======== ======= ==========
Net income per common
share.................. $ 0.04 $ 0.21
========== ==========
Weighted average common
shares outstanding.... 68,057 1,428 (8) 69,485
========== ======= ==========
</TABLE>
- --------
(1) Elimination of management fees, franchise fees amortization, excess
compensation, and depreciation which will not be incurred in future
periods.
(2) Amortization of goodwill recorded in connection with the acquisitions
accounted for under the purchase method of accounting. The goodwill is
being amortized over an estimated life of 40 years.
(3) Increase in interest expense due to the sale of the Notes or other cash
expended in connection with the acquisitions.
(4) Amortization of debt issuance costs over the term of the Notes.
(5) Interest expense not incurred on Acquired Companies' debt paid by the
Company.
(6) Increase in interest income as a result of the investment of the net
proceeds of the Notes in commercial paper.
(7) Income tax effect of pro forma adjustments and the adjustment of the
Acquired Companies' (accounted for under the purchase method of
accounting) income tax provision to the Company's statutory tax rate.
(8) Issuance of additional shares of Corporate Express common stock as part
of the consideration for certain of the acquisitions accounted for under
the purchase method of accounting and for all acquisitions accounted for
under the pooling of interests method of accounting.
F-13
<PAGE>
UNITED TRANSNET, INC.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The unaudited Pro Forma Statement of Operations of United TransNet, Inc. for
the six months ended June 29, 1996 is based upon (i) the unaudited
Consolidated Statement of Operations of United TransNet, Inc. for the six
months ended June 29, 1996, and (ii) the unaudited historical Statements of
Operations from January 1, 1996 to the date of acquisition for the four
courier operations acquired in 1996.
The unaudited Pro Forma Statement of Operations for the twelve months ended
December 31, 1995 is based upon (i) the results of operations of the Combined
Founding Companies for the period from January 1, 1995 to December 19, 1995
(ii) the results of operations of United TransNet, Inc. for the period from
December 20 to December 31, 1995, and (iii) the unaudited historical
Statements of Operations for the year ended December 31, 1995 for the four
courier operations acquired in 1996.
The unaudited Pro Forma Financial Statements should be read in connection
with the Notes to Pro Forma Financial Statements. The pro forma results herein
are not necessarily indicative of actual results that might have occurred had
the operations and management of United TransNet, Inc., the Combined Founding
Companies and the four courier operations acquired in 1996 been combined
during all the periods presented.
F-14
<PAGE>
UNITED TRANSNET, INC.
FOR THE SIX MONTHS ENDED JUNE 29, 1996
PRO FORMA STATEMENT OF OPERATIONS
UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMPANIES
UNITED ACQUIRED IN PRO FORMA TOTAL
TRANSNET, INC. 1996(7) ADJUSTMENTS PRO FORMA
-------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenues............ $ 137,766 $ 8,160 $ -- $ 145,926
Cost of delivery........ 102,377 5,157 (232)(6) 107,302
---------- ----------- ---------- ---------
Gross profit.......... 35,389 3,003 232 38,624
Selling, general and
administrative
expenses............... 30,585 4,070 (1,077)(6) 33,578
Amortization of intangi-
ble assets............. 1,554 1 233 (1) 1,788
---------- ----------- ---------- ---------
Operating income
(loss)............... 3,250 (1,068) 1,076 3,258
Other income (expense)
Interest expense...... (1,428) (19) (187)(2) (1,634)
Interest income and
other, net........... 38 5 (92)(6) (49)
---------- ----------- ---------- ---------
Income (loss) before in-
come taxes............. 1,860 (1,082) 797 1,575
Provision (benefit) for
income taxes........... 739 (411) 303(3) 631
---------- ----------- ---------- ---------
Net income (loss)....... 1,121 (671) 494 944
========== =========== ========== =========
Earnings per common
share:
Net income............ $ 0.12 $ 0.10
========== =========
Weighted average shares
outstanding............ 9,349,593 275,953 (4) 9,625,546
========== ========== =========
</TABLE>
See the accompanying Notes to Pro Forma Financial Statements.
F-15
<PAGE>
UNITED TRANSNET, INC.
FOR THE YEAR ENDED DECEMBER 31, 1995
PRO FORMA STATEMENT OF OPERATIONS
UNAUDITED
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMPANIES
PRO FORMA ACQUIRED TOTAL
COMBINED UNITED IN PRO FORMA ----------
TRANSNET, INC.(5) 1996(8) ADJUSTMENTS PRO FORMA
----------------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Net revenues............ $ 254,274 $23,291 $ -- $ 277,565
Cost of delivery........ 186,679 17,166 (392)(6) 203,453
---------- ------- -------- ----------
Gross profit.......... 67,595 6,125 392 74,112
Selling, general and
administrative
expenses............... 55,029 6,487 (993)(6) 60,523
Amortization of
intangible assets...... 3,296 4 636 (1) 3,936
---------- ------- -------- ----------
Operating income
(loss)............... 9,270 (366) 749 9,653
Other income (expense)
Interest expense...... (5,425) (46) (530)(2) (6,001)
Interest income and
other, net .......... 269 308 (207)(6) 370
---------- ------- -------- ----------
Income (loss) before
income taxes........... 4,114 (104) 12 4,022
Provision (benefit) for
income taxes........... (1,210) (32) 4 (3) (1,238)
---------- ------- -------- ----------
Income (loss) before
extraordinary item..... $ 5,324 $ (72) $ 8 5,260
========== ======= ======== ==========
Pro forma earnings per
common share:
Income before
extraordinary item... $ 0.46 $ 0.43
========== ==========
Weighted average number
of common and common
equivalent shares...... 7,848,962 285,173 (4) 8,134,135
========== ======== ==========
</TABLE>
See the accompanying Notes to Pro Forma Financial Statements.
F-16
<PAGE>
UNITED TRANSNET, INC.
NOTES TO PRO FORMA FINANCIAL STATEMENTS
(1) To amortize the portion of the purchase price that exceeds the fair value
of the net assets acquired. The amount assigned to goodwill is amortized
using the straight-line method over a period of twenty-five years.
(2) To record the interest expense calculated using an average Annual Interest
Rate of 7.68% related to the cash portion of the acquisitions of $6.9
million.
(3) Tax effect of the pro forma adjustments at an effective rate of 38%.
(4) To adjust the weighted average shares outstanding to reflect the pro forma
effect of the shares issued for the acquired companies during the
preacquisition period.
(5) Reflects the results of operations of the Combined Founding Companies for
the period from January 1, to December 19, 1995 and the results of
operations of United TransNet, Inc. for the period from December 20, to
December 31, 1995.
(6) In connection with one of the acquisitions, a certain non-related
operation of the acquired entity was not a continuing part of the
operations of the combined entities. Additionally, certain terms regarding
officers' salaries and rental expense with related parties have been
agreed to between the parties. These adjustments reflect the effect of
these agreements on the continuing revenue and expenses of the combined
entities.
(7) The financial information for the six months ended June 29, 1996 provided
for "Companies Acquired in 1996" is comprised of the following:
<TABLE>
<CAPTION>
EDDY MESSENGER ALL OTHER
SERVICE, INC. ACQUISITIONS TOTAL
-------------- ------------ -------
<S> <C> <C> <C>
Net revenues.......................... $ 4,272 $3,888 $ 8,160
Cost of delivery...................... 2,611 2,546 5,157
------- ------ -------
Gross profit....................... 1,661 1,342 3,003
Selling, general and administrative
expenses............................. 2,912 1,158 4,070
Amortization of intangible assets..... -- 1 1
------- ------ -------
Operating income (loss)............ (1,251) 183 (1,068)
Other income (expense)
Interest expense..................... (5) (14) (19)
Interest income and other, net....... 4 1 5
------- ------ -------
Income (loss) before income taxes..... (1,252) 170 (1,082)
Provision (benefit) for income taxes.. (476) 65 (411)
------- ------ -------
Net income (loss)..................... $ (776) $ 105 $ (671)
======= ====== =======
</TABLE>
(8) The financial information for the year ended December 31, 1995 provided
for "Companies Acquired in 1996" is comprised of the following:
<TABLE>
<CAPTION>
EDDY MESSENGER ALL OTHER
SERVICE, INC. ACQUISITIONS TOTAL
-------------- ------------ -------
<S> <C> <C> <C>
Net revenues.......................... $12,181 $11,110 $23,291
Cost of delivery...................... 9,628 7,538 17,166
------- ------- -------
Gross profit....................... 2,553 3,572 6,125
Selling, general and administrative
expenses............................. 2,710 3,777 6,487
Amortization of intangible assets..... -- 4 4
------- ------- -------
Operating income (loss)............ (157) (209) (366)
Other income (expense)
Interest expense..................... (6) (40) (46)
Interest income and other, net....... 307 1 308
------- ------- -------
Income (loss) before income taxes..... 144 (248) (104)
Provision (benefit) for income taxes.. 62 (94) (32)
------- ------- -------
Net income (loss)..................... $ 82 $ (154) $ (72)
======= ======= =======
</TABLE>
F-17
<PAGE>
UNITED TRANSNET, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 29, DECEMBER 31,
1996 1995
----------- ------------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
(UNAUDITED)
ASSETS
<S> <C> <C>
Current assets
Cash and cash equivalents........................... $ 1,632 $ 2,330
Accounts receivable, less allowance of $536 as of
June 29, 1996 and $654 as of December 31, 1995..... 26,757 20,512
Short-term investments.............................. -- 2
Prepaids and other assets........................... 5,336 2,644
Income taxes receivable............................. 487 198
Deferred tax assets................................. 444 --
------- -------
Total current assets.............................. 34,656 25,686
Property and equipment, net........................... 9,633 10,332
Goodwill, net......................................... 27,999 16,429
Other intangible assets, net.......................... 7,658 8,340
Other assets.......................................... 7,324 5,661
Deferred tax assets................................... 3,255 3,982
------- -------
Total assets.................................... $90,525 $70,430
======= =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Current liabilities
Short-term debt..................................... $ 1,343 $ 1,500
Dividends payable................................... -- 402
Accounts payable.................................... 11,637 9,105
Accrued liabilities................................. 11,059 13,644
Income taxes payable................................ 130 727
Deferred tax liabilities............................ 132 76
------- -------
Total current liabilities......................... 24,301 25,454
Long-term debt, net of current maturities............. 30,276 24,811
Deferred compensation................................. 1,969 487
Other liabilities..................................... 4,359 3,501
------- -------
Total liabilities............................... 60,905 54,253
------- -------
<CAPTION>
SHARE INFORMATION
-----------------------
1996 1995
----------- -----------
<S> <C> <C> <C> <C>
Stockholders' equity
Preferred stock:
Par value................... $ 0.001 $ 0.001
Shares authorized........... 1,000,000 1,000,000
Shares issued and
outstanding................ -- -- -- --
Common stock:
Par value................... $ 0.001 $ 0.001
Shares authorized........... 25,000,000 25,000,000
Shares issued and
outstanding................ 9,377,448 8,617,222 9 9
Paid-in capital....................................... 26,905 14,664
Retained earnings..................................... 2,706 1,504
------- -------
Total stockholders' equity........................ 29,620 16,177
------- -------
Commitments and contingencies ........................ -- --
------- -------
Total liabilities and stockholders' equity...... $90,525 $70,430
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-18
<PAGE>
UNITED TRANSNET, INC.
FOR THE THREE AND SIX MONTHS ENDED JUNE 29, 1996 AND
COMBINED FOUNDING COMPANIES
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1995
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
CONSOLIDATED COMBINED CONSOLIDATED COMBINED
------------- ------------- -------------- ------------
FOR THE THREE MONTHS ENDED FOR THE SIX MONTHS ENDED
------------------------------ ----------------------------
JUNE 29, JUNE 30, JUNE 29, JUNE 30,
1996 1995 1996 1995
------------- ------------- -------------- ------------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS OF DOLLARS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net revenues............ $ 71,511 $ 63,570 $ 137,766 $ 123,670
Cost of delivery........ 53,845 46,181 102,377 89,837
------------- ------------- ------------ ------------
Gross profit.......... 17,666 17,389 35,389 33,833
Selling, general and ad-
ministrative expenses.. 16,928 13,800 30,585 26,570
Amortization of intangi-
ble assets............. 807 810 1,554 1,615
------------- ------------- ------------ ------------
Operating income...... (69) 2,779 3,250 5,648
Other income (expense)
Interest expense...... (799) (1,314) (1,428) (2,528)
Interest income and
other, net........... 17 66 38 122
------------- ------------- ------------ ------------
Income (loss) before in-
come taxes............. (851) 1,531 1,860 3,242
Provision (benefit) for
income taxes........... (356) 414 739 682
------------- ------------- ------------ ------------
Net income (loss)....... (495) 1,117 1,121 2,560
Warrant accretion..... -- (3,430) -- (3,957)
------------- ------------- ------------ ------------
Net income (loss)
available for common
stockholders........... $ (495) $ (2,313) $ 1,121 $ (1,397)
============= ============= ============ ============
Earnings (loss) per com-
mon share:
Net income (loss)..... $ (0.05) $ 0.12
============= ============
Unaudited pro forma in-
formation:
Net income before
income taxes......... $ 1,531 $ 3,242
Provision for income
taxes................ 1,016 1,795
------------- ------------
Net income............ $ 515 $ 1,447
============= ============
Pro Forma
Earnings per common
share:
Net income before
income taxes......... $ 0.20 $ 0.42
Provision for income
taxes................ 0.13 0.23
------------- ------------
Net income............ $ 0.07 $ 0.19
============= ============
Weighted average shares
outstanding............ 9,228,116 7,805,409 9,349,593 7,805,409
============= ============= ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-19
<PAGE>
UNITED TRANSNET, INC.
FOR THE SIX MONTHS ENDED JUNE 29, 1996 AND
COMBINED FOUNDING COMPANIES
FOR THE SIX MONTHS ENDED JUNE 30, 1995
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
CONSOLIDATED COMBINED
-------------- -----------
FOR THE SIX MONTHS ENDED
---------------------------
JUNE 29, JUNE 30,
1996 1995
-------------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities
Net income....................................... $ 1,121 $ 2,560
Adjustments to reconcile net income to net cash
provided by (used in) operating activities
Depreciation and amortization................... 1,521 1,774
Provision for bad debts......................... 25 44
Amortization of goodwill and other intangible
assets......................................... 1,554 1,615
Amortization of discount on long-term debt...... -- 484
Deferred income taxes........................... 950 331
Loss on sale of assets.......................... -- 28
Non-cash employee compensation.................. -- 647
Change in operating assets and liabilities:
Accounts receivable............................ (4,717) (724)
Prepaid and other assets, current and
noncurrent.................................... (4,284) 1,181
Income tax receivable.......................... (45) --
Accounts payable............................... 2,250 1,374
Accrued liabilities............................ (3,259) (2,836)
Dividend payable............................... (402) --
Income taxes payable........................... (642) 91
Deferred compensation.......................... 1,482 (62)
------------ -----------
Net cash provided by (used in) operating
activities................................... (4,446) 6,507
------------ -----------
Cash flows from investing activities
Capital expenditures, net of disposals........... (443) (1,804)
Sale (purchase) of short term investments........ 2 (100)
Purchase of companies, net of cash acquired...... (12,716) (3,502)
------------ -----------
Net cash used in investing activities......... (13,157) (5,406)
------------ -----------
Cash flows from financing activities
Net increase (decrease) in line of credit........ 6,428 (725)
Payments of debt................................. (1,689) (3,680)
Proceeds from issuance of debt................... -- 5,609
Distributions to stockholder..................... -- (1,025)
Net transactions with Lanter..................... -- (1,144)
Exercise of common stock options................. 84 --
Issuance of common stock pursuant to
overallotment option............................ 6,182 --
Issuance of common stock in connection with
business combinations........................... 5,900 --
------------ -----------
Net cash provided by (used in) financing
activities................................... 16,905 (965)
------------ -----------
Net increase (decrease) in cash and cash
equivalents
Cash and cash equivalents......................... (698) 136
Beginning of period.............................. 2,330 4,019
------------ -----------
End of period.................................... $ 1,632 $ 4,155
============ ===========
Supplemental disclosure of cash flow information
Cash paid during the quarter for
Interest........................................ $ 1,437 $ 1,405
Income taxes.................................... 325 330
Disclosure of noncash investing and financing
activities
Net transfers of property........................ $ -- $ (26)
Note receivable from related party............... -- 115
Stock grants to key employees.................... -- 647
Supplemental schedule of noncash investing and
financing activities
In connection with a Founding Company's acquisi-
tions, liabilities were assumed as follows:
Fair value of assets acquired................... $ 3,150
Cash paid for capital stock and assets.......... (2,881)
-----------
Liabilities assumed........................... $ 269
===========
In connection with United TransNets's acquisi-
tions, liabilities were assumed as follows:
Fair value of assets acquired................... $ 14,289
Proceeds paid for capital stock and assets...... (12,731)
------------
Liabilities assumed........................... $ 1,558
============
</TABLE>
F-20
<PAGE>
UNITED TRANSNET, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
COMMON STOCK
---------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------ ------- -------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1995........ 8,617,222 $ 9 $14,664 $1,504 $16,177
Stockholders' equity of pooled
acquisition not restated........... 58,252 -- 75 81 156
Common stock issued for purchase
accounting acquisitions............ 226,921 -- 5,900 -- 5,900
Exercise of common stock options.... 16,653 -- 84 -- 84
Exercise of overallotment option.... 458,400 -- 6,182 -- 6,182
Net income.......................... -- -- -- 1,121 1,121
--------- --- ------- ------ -------
Balance at June 29, 1996............ 9,377,448 $ 9 $26,905 $2,706 $29,620
========= === ======= ====== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-21
<PAGE>
UNITED TRANSNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BUSINESS AND ORGANIZATION
United TransNet, Inc. (the "Company") provides scheduled and unscheduled
ground and air delivery services for local, regional, national, and
international shipments and offers same-day and next-day delivery options.
Primary customers of the Company are financial institutions, pharmaceutical
companies and automotive parts suppliers.
The Company was formed by the mergers (the "Mergers") of CDG Holding Corp.
and its operating subsidiary, Courier Dispatch Group, Inc. (collectively
"Courier Dispatch"); Tricor America, Inc. ("Tricor"); Film Transit,
Incorporated ("Film Transit"); Lanter Courier Corporation ("Lanter"); Salmon
Acquisition Corporation and its operating subsidiary, Sunbelt Courier, Inc.
(collectively "Sunbelt"); and 3D Distribution Systems, Inc. and its affiliated
corporations and subsidiaries (collectively "3D") (collectively the "Combined
Founding Companies"). Under the merger agreements, all outstanding shares of
the Combined Founding Companies' capital stock were converted into shares of
the Company's Common Stock concurrent with the consummation of the initial
public offering ("Offering") of such Common Stock. The Combined Founding
Companies are considered predecessor companies to the Company. The Mergers
were accounted for in a manner similar to poolings-of-interest and,
accordingly, the assets and liabilities of the Founding Companies were
transferred at their historical amounts. Prior to the Mergers, the Company had
no significant transactions or operations.
NOTE 2 -- BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation. The combined financial statements
include the accounts of the Combined Founding Companies and their
subsidiaries. In the opinion of management, all adjustments necessary for a
fair presentation of the financial positions and results of operations for the
interim periods have been made. All such adjustments are of a normal recurring
nature. Results of operations for the three and six months periods ended June
29, 1996 are not necessarily indicative of the results of operations for the
year ending December 28, 1996 or any interim periods. During the three and six
months ended June 30, 1995 the Combined Founding Companies were not under
common control or management and some were not taxable entities. Therefore,
the financial statements presented may not be comparable to or indicative of
post combination results achieved by the Company after the Mergers. While
certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and
regulations of the Securities and Exchange Commission, the Company believes
that the disclosures herein are adequate to make the information presented not
misleading. These statements should be read in conjunction with the Company's
1995 Consolidated Financial Statements included elsewhere herein.
On January 16, 1996, the Company changed its fiscal year end from December
31 to the last Saturday in December, beginning with the fiscal year ending
December 28, 1996. Each of the Company's fiscal quarters will end on the last
Saturday of the last month of each calendar quarter.
There have been no changes to the accounting policies of the Company during
the periods presented. For description of these policies, see Note 1 of the
Notes to Consolidated Financial Statements in the Company's audited
Consolidated Financial Statements for the year ended December 31, 1995
included elsewhere herein.
Certain of the Combined Founding Companies were S Corporations during the
period ended June 30, 1995 and, accordingly, were not subject to corporate
income taxes. The unaudited pro forma information is presented for the purpose
of reflecting a provision for income taxes as if all of the Combined Founding
Companies had been subject to income tax for all periods presented, calculated
in accordance with FAS 109, Accounting for Income Taxes based on tax laws that
were in effect during the respective periods.
F-22
<PAGE>
UNITED TRANSNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- EARNINGS PER COMMON SHARE
Earnings per common share for the three and six month periods ending June
29, 1996 for the Company were computed based on the weighted average of common
and common equivalent shares outstanding during the period. Pro forma earnings
per common share for the three and six months ending June 30, 1995 for the
Combined Founding Companies were computed based on common equivalent shares
outstanding as if the Mergers and Offering had been consummated at the
beginning of the respective periods. The pro forma earnings per common share
for the three and six months ending June 30, 1995 does not include the effect
of warrant accretion as the warrants were converted into common stock in
connection with the Offering.
NOTE 4 -- COMBINED FOUNDING COMPANIES
The Combined Founding Companies collectively are considered predecessors to
the Company. The following tables provide a reconciliation to the Combined
Founding Companies Consolidated Statement of Operations for the three and six
months ended June 30, 1995.
COMBINED FOUNDING COMPANIES
FOR THE THREE MONTHS ENDED JUNE 30, 1995
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THE
3D DISTRICTS
CDG DISTRIBUTION FILM OF LANTER SALMON TRICOR COMBINED
HOLDING SYSTEMS, TRANSIT COURIER ACQUISITION AMERICA FOUNDING
CORP. INC. INCORPORATED CORPORATION CORPORATION INC. COMPANIES
------- ------------ ------------ ----------- ----------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues ........... $34,529 $3,730 $5,991 $5,641 $4,260 $9,419 $63,570
Cost of delivery........ 25,618 2,568 3,899 4,147 3,351 6,598 46,181
------- ------ ------ ------ ------ ------ -------
Gross profit.......... 8,911 1,162 2,092 1,494 909 2,821 17,389
Selling, general and
administrative
expenses............... 7,568 1,117 1,888 983 561 1,683 13,800
Amortization of
intangible assets...... 630 -- -- 96 75 9 810
------- ------ ------ ------ ------ ------ -------
Operating income ..... 713 45 204 415 273 1,129 2,779
Other income (expense)
Interest expense...... (1,113) (17) (14) -- (107) (63) (1,314)
Interest income and
other, net........... -- -- 17 -- 8 41 66
------- ------ ------ ------ ------ ------ -------
Income before income
taxes.................. (400) 28 207 415 174 1,107 1,531
Provision (benefit) for
income taxes .......... 271 (22) 78 -- 87 -- 414
------- ------ ------ ------ ------ ------ -------
Net income (loss)....... (671) 50 129 415 87 1,107 1,117
Warrant accretion....... (3,430) -- -- -- -- -- (3,430)
------- ------ ------ ------ ------ ------ -------
Net income (loss)
available for common
stockholders........... $(4,101) $ 50 $ 129 $ 415 $ 87 $1,107 $(2,313)
======= ====== ====== ====== ====== ====== =======
United pro forma
information:
Net income before
income taxes......... $ (400) $ 28 $ 207 $ 415 $ 174 $1,107 $ 1,531
Provision (benefit)
for income taxes..... 271 (22) 78 165 87 437 1,016
------- ------ ------ ------ ------ ------ -------
Net income (loss)..... $ (671) $ 50 $ 129 $ 250 $ 87 $ 670 $ 515
======= ====== ====== ====== ====== ====== =======
</TABLE>
F-23
<PAGE>
UNITED TRANSNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- COMBINED FOUNDING COMPANIES (CONTINUED)
COMBINED FOUNDING COMPANIES
FOR THE SIX MONTHS ENDED JUNE 30, 1995
CONSOLIDATED STATEMENT OF OPERATIONS
(AUDITED)
<TABLE>
<CAPTION>
THE
3D DISTRICTS OF
CDG DISTRIBUTION FILM LANTER SALMON TRICOR COMBINED
HOLDING SYSTEMS, TRANSIT COURIER ACQUISITION AMERICA FOUNDING
CORP. INC. INCORPORATED CORP. CORP. INC. COMPANIES
------- ------------ ------------ ------------ ----------- ------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net revenues ........... $66,819 $7,422 $11,685 $11,170 $8,251 $18,323 $123,670
Cost of delivery........ 49,231 5,135 7,865 8,281 6,425 12,900 89,837
------- ------ ------- ------- ------ ------- --------
Gross profit.......... 17,588 2,287 3,820 2,889 1,826 5,423 33,833
Selling, general and
administrative
expenses............... 14,498 2,083 3,535 1,953 1,114 3,387 26,570
Amortization of
intangible assets...... 1,256 -- -- 191 150 18 1,615
------- ------ ------- ------- ------ ------- --------
Operating income ..... 1,834 204 285 745 562 2,018 5,648
Other income (expense)
Interest expense...... (2,145) (38) (25) -- (214) (106) (2,528)
Interest income and
other, net........... -- -- 25 -- 15 82 122
------- ------ ------- ------- ------ ------- --------
Income (loss) before
income taxes........... (311) 166 285 745 363 1,994 3,242
Provision for income
taxes ................. 369 36 111 -- 166 -- 682
------- ------ ------- ------- ------ ------- --------
Net income (loss)....... (680) 130 174 745 197 1,994 2,560
Warrant accretion..... (3,957) -- -- -- -- -- (3,957)
------- ------ ------- ------- ------ ------- --------
Net income (loss)
available for common
stockholders........... $(4,637) $ 130 $ 174 $ 745 $ 197 $ 1,994 $(1,397)
======= ====== ======= ======= ====== ======= ========
Unaudited pro forma
information:
Net income (loss)
before income taxes.. $ (311) $ 166 $ 285 $ 745 $ 363 $ 1,994 $ 3,242
Provision (benefit)
for income taxes..... 369 36 111 303 166 810 1,795
------- ------ ------- ------- ------ ------- --------
Net income (loss)..... $ (680) $ 130 $ 174 $ 442 $ 197 $ 1,184 $ 1,447
======= ====== ======= ======= ====== ======= ========
</TABLE>
NOTE 5 -- BUSINESS COMBINATIONS
During the second quarter of 1996, the Company completed the acquisition of
Statewide Delivery Service, Inc. ("Statewide"), M&R Express, Inc. ("M&R"),
Carl Messenger Service, Inc. ("Carl"), and Eddy Messenger Service, Inc.
("Eddy").
Effective April 30, 1996, the Company acquired certain assets and assumed
certain liabilities of Statewide. The acquisition was accounted for under the
purchase method; as such, the results of operations of Statewide are included
in the Company's consolidated financial statements for the period subsequent
to its acquisition date. The excess of the purchase price over the estimated
fair value of the tangible and identifiable intangible assets acquired is
amortized over a period of twenty-five years using the straight-line method.
F-24
<PAGE>
UNITED TRANSNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5 -- BUSINESS COMBINATIONS (CONTINUED)
Effective as of April 30, 1996, the Company acquired certain assets and
assumed certain liabilities of M&R. Under the terms of the purchase agreement,
the Company may be required to make additional payments beginning in 1997
based on revenues obtained by M&R for services provided to a certain business
not previously served by M&R during the four year period ending April 30,
2000. The acquisition was accounted for under the purchase method; as such,
the results of operations of M&R are included in the Company's consolidated
financial statements for the period subsequent to its acquisition date. The
excess of the purchase price over the estimated fair value of the tangible and
identifiable intangible assets acquired is amortized over a period of twenty-
five years using the straight-line method. Any future amounts earned by M&R
under the terms of the agreement will be recorded as additional cost in excess
of the assets acquired.
Effective May 10, 1996, the Company acquired all of the outstanding stock of
Carl. The acquisition of Carl was accounted for as a pooling-of-interest;
however, the Company's previously reported consolidated financial results have
not been restated to include the effect of the acquisition prior to its
acquisition date, since the effect is not material.
Effective May 14, 1996, the Company acquired all of the outstanding stock of
Eddy. Under the terms of the purchase agreement, the Company may be required
to make additional payments beginning in 1997 contingent upon Eddy achieving
certain revenue levels during the three-year period ending May 14, 1999. The
acquisition was accounted for under the purchase method; as such, the results
of operations of Eddy's are included in the Company's consolidated financial
statements for the period subsequent to its acquisition date. The excess of
the purchase price over the estimated fair value of the tangible and
identifiable intangible assets acquired is amortized over a period of twenty-
five years using the straight-line method. Any future payments earned under by
Eddy the terms of the agreement will be recorded as additional costs in excess
of the assets acquired.
Consideration for all acquisitions during the second quarter of 1996
aggregated approximately $6.90 million in cash and 285,173 shares of the
Company's common stock with a total market value at the time of issuance of
approximately $7.4 million with contingent consideration of up to $4.25
million. Total intangible assets recognized in these transactions were
approximately $12.3 million.
Set forth below are pro forma combined revenue and income data reflecting the
effect of these acquisitions on the Company's results of operations for the
six months ended June 29, 1996 and June 30, 1995. The data presented below
consist of the income statement data as presented in the Consolidated
Statements of Operations and the income data of the companies acquired in the
second quarter of 1996, as if the acquisition of such companies were effective
as of the first day of the year being reported.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
-------------------------
JUNE 29, JUNE 30,
1996 1995
------------ ------------
(IN THOUSANDS EXCEPT
SHARE DATA)
<S> <C> <C>
Net revenues..................................... $ 145,860 $134,989
Net income....................................... 944 1,088
Earnings per share............................... .10 .13
</TABLE>
F-25
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of United TransNet, Inc.
In our opinion, the accompanying consolidated balance sheet and related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
United TransNet, Inc. and its subsidiaries at December 31, 1995 and the
results of their operations and their cash flows for the period from December
20 to December 31, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of the Company's
management; our responsibility is to express an opinion on these financial
statements based on our audit. We conducted our audit of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
Atlanta, Georgia
March 12, 1996
F-26
<PAGE>
UNITED TRANSNET, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
ASSETS
Current assets
Cash and cash equivalents....................................... $ 2,330
Accounts receivable, less allowance of $654..................... 20,512
Short-term investments.......................................... 2
Prepaids and other assets....................................... 2,644
Income taxes receivable......................................... 198
-------
Total current assets.......................................... 25,686
Property and equipment, net....................................... 10,332
Goodwill, net..................................................... 16,429
Other intangible assets, net...................................... 8,340
Other assets...................................................... 5,661
Deferred tax assets............................................... 3,982
-------
$70,430
=======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term debt................................................. $ 1,500
Dividends payable............................................... 402
Accounts payable................................................ 9,105
Accrued liabilities............................................. 13,644
Income taxes payable............................................ 727
Deferred tax liabilities........................................ 76
-------
Total current liabilities..................................... 25,454
Long-term debt, net of current maturities......................... 24,811
Deferred compensation............................................. 487
Other liabilities................................................. 3,501
-------
54,253
-------
Stockholders' equity
Preferred Stock, $.001 par value; 1,000,000 authorized; no
shares issued and outstanding.................................. --
Common Stock, $.001 par value; 25,000,000 authorized; 8,617,222
issued and outstanding......................................... 9
Paid-in capital................................................. 14,664
Retained earnings............................................... 1,504
-------
Total stockholders' equity.................................... 16,177
-------
Commitments and contingencies..................................... --
-------
$70,430
=======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-27
<PAGE>
UNITED TRANSNET, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE PERIOD FROM DECEMBER 20 TO DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<S> <C>
Net revenues......................................................... $ 7,748
Cost of delivery..................................................... 5,462
-------
Gross profit....................................................... 2,286
Selling, general and administrative expenses......................... 1,585
Amortization of intangible assets.................................... 92
-------
Operating income................................................... 609
Other income (expense):
Interest expense................................................... (137)
Interest income and other, net..................................... 5
-------
Income before income taxes........................................... 477
Provision (benefit) for income taxes................................. (2,231)
-------
Income before extraordinary item..................................... 2,708
Extraordinary item -- loss on early extinguishment of debt, net of
income tax benefit of $803.......................................... 1,204
-------
Net income........................................................... $ 1,504
=======
Earnings per common share
Income before extraordinary item................................... $ .31
Extraordinary item................................................. .14
-------
Net income......................................................... $ .17
=======
Weighted average number of common and common equivalent shares ...... 8,799
=======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-28
<PAGE>
UNITED TRANSNET, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM DECEMBER 20 TO DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
---------------- PAID-IN RETAINED
SHARES AMOUNT CAPITAL EARNINGS TOTAL
--------- ------ -------- -------- --------
<S> <C> <C> <C> <C> <C>
Issuance of Common Stock to
Founding Company stockholders.. 4,692,222 $ 5 $ 3,309 $ -- $ 3,314
Issuance of Common Stock........ 3,925,000 4 47,175 -- 47,179
Distribution to Founding Company
stockholders................... -- -- (35,820) -- (35,820)
Net income...................... -- -- -- 1,504 1,504
--------- --- -------- ------ --------
Balance at December 31, 1995.... 8,617,222 $ 9 $ 14,664 $1,504 $ 16,177
========= === ======== ====== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-29
<PAGE>
UNITED TRANSNET, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM DECEMBER 20 TO DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<S> <C>
Cash flows from operating activities
Net income.......................................................... $ 1,504
Adjustments to reconcile net income to net cash used in operating
activities
Depreciation and amortization...................................... 103
Provision for bad debts............................................ (25)
Amortization of goodwill and other intangible assets............... 92
Deferred income taxes.............................................. (2,572)
Change in operating assets and liabilities
Accounts receivable............................................... 460
Other assets...................................................... 188
Accrued interest-related party.................................... 91
Accounts payable.................................................. (3,343)
Accrued liabilities............................................... 1,269
Income taxes payable.............................................. 426
--------
Net cash used in operating activities............................ (1,807)
--------
Cash flows from investing activities
Capital expenditures, net of disposals.............................. (22)
--------
Net cash used in investing activities............................ (22)
--------
Cash flows from financing activities
Increase in revolving line of credit................................ 23,434
Decrease in revolving line of credit................................ (6,495)
Payments of debt.................................................... (27,473)
Proceeds from sale of common stock.................................. 47,179
Distribution to Founding Company stockholders....................... (35,820)
--------
Net cash provided by financing activities........................ 825
--------
Net decrease in cash and cash equivalents............................ (1,004)
Cash and cash equivalents
Beginning of period................................................. 3,334
--------
End of period....................................................... $ 2,330
========
Supplemental disclosure of cash flow information
Cash paid during the year for
Interest........................................................... $ 34
Income taxes....................................................... 8
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-30
<PAGE>
UNITED TRANSNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. BUSINESS AND ORGANIZATION
United TransNet, Inc. (the "Company") provides scheduled and unscheduled
ground and air delivery services for local, regional, national, and
international shipments and offers same-day and next-day delivery options.
Primary customers of the Company are financial institutions, pharmaceutical
companies and automotive parts suppliers.
The Company was formed by the merger of CDG Holding Corp. and its operating
subsidiary, Courier Dispatch Group, Inc. (collectively "Courier Dispatch");
Tricor America, Inc. ("Tricor"); Film Transit, Incorporated ("Film Transit");
Lanter Courier Corporation ("Lanter"); Salmon Acquisition Corporation and its
operating subsidiary, Sunbelt Courier, Inc. (collectively "Sunbelt"); and 3D
Distribution Systems, Inc. and its affiliated corporations and subsidiaries
(collectively "3D") (collectively the "Founding Companies"). Under the merger
agreements, all outstanding shares of the Founding Companies' capital stock
were converted into shares of the Company's Common Stock concurrent with the
consummation of the initial public offering (the "Offering") of such Common
Stock. The Founding Companies are considered predecessor companies to the
Company. The Mergers were accounted for in a manner similar to poolings-of-
interest and, accordingly, the assets and liabilities of the Founding
Companies were transferred at their historical amounts. Prior to the Mergers,
the Company had no significant transactions or operations.
2. BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period, the most significant of which are
related to insurance accruals. Actual results could differ from those
estimates.
Disclosures About Fair Value of Financial Instruments
In preparing disclosures about the fair value of financial instruments, the
Company has assumed that the carrying amount approximates fair value for cash
and cash equivalents, accounts receivable, short-term investments, short-term
debt, and accounts payable. The fair value of long-term debt instruments is
based upon the current interest rate environment and remaining term to
maturity (see Note 6). The Company feels that the carrying value of long-term
debt approximates the fair value.
The more significant accounting policies followed by the Company are
described below:
Cash and Cash Equivalents and Short-Term Investments
The Company considers all highly liquid investments with original maturities
of three months or less to be cash equivalents. Short-term investments consist
of certificates with original maturities of less than one year.
Property and Equipment
Property and equipment is recorded at cost. Additions and improvements are
capitalized while maintenance and repair costs are charged to expense as
incurred. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets, which range from three to thirty-one and
a half years. The cost and
F-31
<PAGE>
UNITED TRANSNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
accumulated depreciation of property retired or otherwise disposed of are
removed from the account balances and any gain or loss is included in other
income. Assets subject to capital leases are amortized using the straight-line
method over the terms of the leases.
Goodwill and Other Intangible Assets
Goodwill and intangible assets are currently amortized on a straight-line
basis over periods ranging from 1 to 20 years. The carrying value of
intangible assets is evaluated for indications of possible impairment whenever
events or changes in circumstances indicate that the carrying value of an
intangible asset may not be recoverable. Events or changes in circumstances
which may indicate impairment include a significant adverse change in legal
factors, business climate or government regulation and current cash flow
losses combined with a history of cash flow losses or forecasted continuing
cash flow losses associated with an acquired company. The review is based on
comparing the carrying amount to the undiscounted estimated cash flows before
interest charges from operations over the remaining amortization period. No
impairment is indicated as of December 31, 1995.
Goodwill was $20,589 at December 31, 1995. Related accumulated amortization
totaled $4,160 at December 31, 1995.
Other Assets
Other assets consist principally of prepayments, other receivables, supply
items and advances to employees.
Insurance Claims
The Company is self-insured with respect to certain aspects of its workers'
compensation, general liability, automobile and physical damage on vehicles
and group health insurance. The accompanying financial statements include an
insurance accrual based upon third party administrator's and management's
evaluations of estimated future ultimate costs of outstanding claims and an
estimated liability for claims incurred but not reported on an undiscounted
basis. The ultimate cost of these claims will depend on the outcome of
individual claims given the potential for these claims to increase or decrease
over time.
Revenue Recognition
Revenue is recognized when the delivery is completed or the services are
rendered to customers.
Income Taxes
The Company determines taxes on income by using the liability method as
prescribed by Statement of Financial Accounting Standards No. 109 ("FAS 109"),
"Accounting for Income Taxes." This approach requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences
of events that have been recognized in the Company's consolidated financial
statements or tax returns. In estimating future tax consequences, FAS 109
requires the consideration of all expected future events other than enactments
of changes in the tax laws or rates.
Earnings per Common Share
Earnings per share of common stock was computed based on the weighted
average number of common and common equivalent shares (if dilutive)
outstanding during the period from December 20 to December 31, 1995.
New Accounting Standards
The Company currently accounts for stock related compensation using
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" and therefore the Company does not expect the
F-32
<PAGE>
UNITED TRANSNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
adoption of Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" to have a material impact on the Company's
financial position or results of operations. This statement is effective for
the Company's year ending December 31, 1996.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Land............................................................ $ 577
Buildings....................................................... 2,904
Delivery vehicles............................................... 15,144
Equipment and furnishings....................................... 6,290
Leasehold improvements.......................................... 2,567
--------
27,482
Less accumulated depreciation and amortization.................. (17,150)
--------
$ 10,332
========
</TABLE>
4. OTHER INTANGIBLE ASSETS
Other intangible assets consists of the following:
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZABLE
LIVES DECEMBER 31,
(YEARS) 1995
----------- ------------
<S> <C> <C>
Customer lists...................................... 5-12 $ 7,524
Noncompete agreements............................... 1-8 7,207
Other intangible assets............................. 6 1,061
-------
15,792
Less accumulated amortization....................... (7,452)
-------
$ 8,340
=======
</TABLE>
5. ACCRUED LIABILITIES
Accrued liabilities consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Accrued payroll and related benefits............................ $ 3,454
Accrued insurance............................................... 8,748
Other accrued liabilities....................................... 4,943
-------
17,145
Less current portion............................................ 13,644
-------
$ 3,501
=======
</TABLE>
F-33
<PAGE>
UNITED TRANSNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
6. SHORT-TERM AND LONG-TERM DEBT
Short-term and long-term obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Term loans payable in varying monthly installments, plus
interest varying from 6% to 16%.............................. $ 147
Revolving line of credit with interest at the prime rate (8.5%
at December 31, 1995) plus 0.25%............................. 23,434
Acquisition loans payable in varying monthly installments,
plus interest at 9%; final payment due March 1999............ 2,300
Notes payable, net of imputed interest of approximately $2 at
December 31, 1995............................................ 179
Contracts payable in monthly installments of $2, plus interest
at 8.5%...................................................... 16
Other notes payable........................................... 232
Other non-compete agreements.................................. 3
-------
26,311
Less current portion.......................................... (1,500)
-------
$24,811
=======
</TABLE>
The Company maintains a line of credit aggregating $35 million which expires
on January 15, 1997. The Company is required to pay a commitment fee of .25%
on the unused portion of the line of credit. At December 31, 1995, $23,434 was
outstanding under this agreement. The estimated fair market value of the line
of credit approximates the carrying value included in the balance sheet at
December 31, 1995 due to its varying interest rate.
Debt maturities are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1996................................................................ $ 1,500
1997................................................................ 24,686
1998................................................................ 45
1999................................................................ 74
2000 and thereafter................................................. 6
-------
$26,311
=======
</TABLE>
In December 1995, the Company repaid all of the subordinated notes of
Courier Dispatch which were assumed in the Mergers and generated an
extraordinary loss of $2,007, net of a tax benefit of $803.
7. INCOME TAXES
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 20
TO
DECEMBER 31,
1995
------------
<S> <C>
Current tax expense
Federal........................................................ $ 278
State.......................................................... 68
Deferred tax benefit
Federal........................................................ (2,187)
State.......................................................... (390)
-------
Total provision (benefit)................................... $(2,231)
=======
</TABLE>
F-34
<PAGE>
UNITED TRANSNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The differences in income taxes provided and the amounts determined by
applying the federal statutory tax rate to income before income taxes result
from the following:
<TABLE>
<CAPTION>
PERIOD FROM
DECEMBER 20
TO
DECEMBER 31,
1995
------------
<S> <C>
Tax at federal statutory rate................................... $ 163
State income taxes, net of federal income tax benefit........... 23
Decrease in valuation allowance................................. (2,164)
Nondeductible expenses.......................................... 1
Change in corporate tax status.................................. (243)
Other........................................................... (11)
-------
$(2,231)
=======
</TABLE>
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
Deferred tax assets
Insurance accrual.............................................. $2,430
Deferred compensation.......................................... 248
Vacation accrual............................................... 410
Accounts receivable allowance.................................. 259
Net operating loss carryforwards............................... 1,918
Other.......................................................... 84
------
5,349
------
Deferred tax liabilities
Accumulated depreciation....................................... (940)
Non-compete agreements......................................... (101)
Other.......................................................... (402)
------
(1,443)
------
$3,906
======
</TABLE>
The valuation allowance of $2,164 at December 20, 1995 related to the
deferred tax assets of Courier Dispatch was reversed because the consolidated
earnings of the Company have caused realization to become probable.
At December 31, 1995, the Company has net operating loss carryforwards
available for tax purposes of approximately $4 million to offset future
taxable income through 2010.
F-35
<PAGE>
UNITED TRANSNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
8. COMMITMENTS AND CONTINGENCIES
Lease Commitments
Rent expense related to operating leases amounted to approximately $477 for
the period from December 20 to December 31, 1995.
The following are the approximate future minimum lease payments required by
operating leases:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1996................................................................. $3,531
1997................................................................. 2,706
1998................................................................. 1,422
1999................................................................. 666
2000 and thereafter.................................................. 1,463
------
$9,788
======
</TABLE>
Litigation
The Company is, from time to time, party to litigation arising in the normal
course of its business, most of which involve claims for personal injury and
property damage incurred in connection with its operations. Management
believes that none of these actions will have a material adverse effect on the
financial position, results of operations, or cash flows of the Company.
Self-Insurance Program
The Company is self-insured with respect to certain aspects of its workers'
compensation, general liability and automobile insurance and physical damage
on vehicles claims. In accordance with the terms of the insurance policy, the
Company maintains a $1,240 letter of credit with a commercial bank in favor of
the insurer. Management believes that any claims as of December 31, 1995,
arising under this self-insurance program will not have a material adverse
effect on the financial position, results of operations, or cash flows of the
Company.
9. RELATED PARTY TRANSACTIONS
A board member of the Company is an officer of a bank, an affiliate of which
is a significant customer of the Company. At December 31, 1995, the Company
had an accounts receivable balance of $565 from this customer. Sales to this
customer approximated $201 for the period from December 20 to December 31,
1995.
Sunbelt uses two facilities owned by a related party for which no rent is
charged. Sunbelt shares one of its facilities with this entity at no charge to
the entity.
Film Transit leases two facilities from a partnership of which the partners
are two stockholders of the Company. Rent paid to the partnership for the
period from December 20 to December 31, 1995 was $6.
10. EMPLOYEE BENEFIT PLANS
Several of the Company's subsidiaries have qualified defined contribution
plans which allow for voluntary pretax contributions by the employees. The
Company pays all general and administrative expenses of the plans and in some
cases makes matching contributions on behalf of the employees.
F-36
<PAGE>
UNITED TRANSNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
One subsidiary of the Company has a noncontributory profit sharing plan for
the benefit of qualifying employees. Contributions to the plan are calculated
at graduated percentages of the subsidiary's net income before taxes and
employee bonuses.
11. CONCENTRATION OF CREDIT RISK
During the period ended December 31, 1995, no one customer represented
greater than 10% of total revenue of the Company. The Company's revenues are
primarily derived from services to financial institutions, pharmaceutical
companies, automotive and farm implement companies. Although the Company is
affected by the creditworthiness of its customers, management does not believe
significant credit risk exists at December 31, 1995. The Company generally
does not require collateral, and maintains reserves for potential credit
losses.
12. STOCK OPTION PLAN
The Company has in place a stock option plan whereby selected members of
management have been granted options to purchase shares of common stock.
Transactions related to stock options for the period from December 20 to
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
OPTION PRICE
SHARES PER SHARE
------- ------------
<S> <C> <C>
Outstanding at December 20, 1995........................ 216,110 $2.06-4.42
Granted................................................. -- --
Exercised............................................... -- --
Cancelled or expired.................................... -- --
------- ----------
Outstanding at December 31, 1995........................ 216,110 $2.06-4.42
======= ==========
</TABLE>
13. UNAUDITED PRO FORMA INFORMATION
The following table presents the unaudited results of operations of the
Company for the years ended December 31, 1994 and 1995 as if the mergers had
occurred on January 1, 1994. The pro forma information below reflects certain
adjustments, including the elimination of interest expense on debt paid off
with proceeds from the initial public offering and taxation as if Tricor and
Lanter, subchapter S corporations, had been subject to federal and state
income taxes throughout the periods presented.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-------------------
1994 1995
--------- ---------
<S> <C> <C>
Net revenues............................................ $ 214,099 $ 254,274
Net income.............................................. 4,703 4,085
Net income per common share............................. 0.53 0.46
Weighted average shares outstanding..................... 8,798,963 8,798,963
</TABLE>
14. SUBSEQUENT EVENTS
Sale of common stock
On January 16, 1996, the Company sold 458,400 shares of Common Stock
pursuant to an exercise of the underwriters' over-allotment option. The
proceeds from the exercise of the over-allotment option, net of underwriting
discounts and commissions and after deducting expenses related to the
exercise, were approximately $6.2 million.
F-37
<PAGE>
UNITED TRANSNET, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1995 Stock Incentive Plan
On January 16, 1996, options to purchase 110,000 shares of Common Stock were
granted pursuant to the 1995 Stock Incentive Plan (the "1995 Plan") with an
exercise price of $14.75 per share, the market value of the Common Stock on
the date of grant. On March 6, 1996 the Board of Directors authorized
increasing the total number of shares subject to the 1995 Plan to an aggregate
of 625,000 shares, subject to approval of that increase by stockholders of the
Company.
1996 Stock and Option Plan
On March 6, 1996, the Board of Directors of the Company established the 1996
Stock and Option Plan (the "1996 Plan") for non-employee directors, subject to
approval of this plan by stockholders of the Company. Under the 1996 Plan,
50,000 shares of common stock are reserved for issuance. The initial grants of
stock and options may not occur before January 1, 1997.
F-38
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-39
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Boards of Directors and Stockholders of the Combined Founding Companies
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, of stockholders' equity and of cash flows
present fairly, in all material respects, the combined financial position of
the Combined Founding Companies at December 31, 1993 and 1994 and the results
of their operations and their cash flows for each of the two years in the
period ended December 31, 1994 and for the period ended December 19, 1995, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Combined Founding Companies'
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
Atlanta, Georgia
March 12, 1996
F-40
<PAGE>
COMBINED FOUNDING COMPANIES
(PREDECESSORS TO UNITED TRANSNET, INC. -- SEE NOTE 1)
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1993 1994
------- -------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.................................. $ 1,918 $ 4,019
Accounts receivable, less allowance of $572 and $676....... 13,114 18,868
Short-term investments..................................... -- 900
Prepaids and other assets.................................. 2,343 1,560
Deferred tax assets........................................ 91 306
------- -------
Total current assets.................................... 17,466 25,653
Property and equipment, net................................. 13,224 15,165
Goodwill, net............................................... 8,121 15,502
Other intangible assets, net................................ 5,463 9,004
Other assets................................................ 1,307 1,653
Restricted certificates of deposit.......................... 1,037 837
Deferred tax assets, net.................................... 512 609
------- -------
$47,130 $68,423
======= =======
LIABILITIES, COMMON STOCK WARRANTS
AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term debt............................................ $ 3,510 $10,057
Short-term debt -- related parties......................... 575 575
Accrued interest -- related parties........................ 1,401 1,837
Accounts payable........................................... 3,668 7,515
Accrued liabilities........................................ 8,566 10,347
Income taxes payable....................................... 153 284
------- -------
Total current liabilities............................... 17,873 30,615
Long-term debt, net of current maturities................... 5,158 13,666
Long-term debt -- related parties, net of current
maturities................................................. 8,548 12,301
Deferred compensation....................................... 768 619
Other liabilities........................................... 2,939 2,294
------- -------
35,286 59,495
------- -------
Common stock warrants....................................... 4,692 5,872
------- -------
Stockholders' equity
Common stock............................................... 93 93
Paid-in capital............................................ 2,713 2,572
Retained earnings.......................................... 12,812 9,367
Treasury stock............................................. (7,050) (7,050)
Common stock -- subscriptions receivable................... -- (510)
Predecessor basis adjustment............................... (1,416) (1,416)
------- -------
7,152 3,056
------- -------
Commitments and contingencies............................... -- --
------- -------
$47,130 $68,423
======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-41
<PAGE>
COMBINED FOUNDING COMPANIES
(PREDECESSORS TO UNITED TRANSNET, INC. -- SEE NOTE 1)
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
------------------ ------------
1993 1994 1995
-------- -------- ------------
<S> <C> <C> <C>
Net revenues................................. $171,901 $214,099 $246,526
Cost of delivery............................. 122,110 156,323 181,217
-------- -------- --------
Gross profit................................ 49,791 57,776 65,309
Selling, general and administrative
expenses.................................... 41,095 48,395 53,444
Amortization of intangible assets............ 2,258 3,667 3,204
-------- -------- --------
Operating income............................ 6,438 5,714 8,661
Other income (expense)
Interest expense-- related party............ (1,591) (2,146) (2,575)
Interest expense............................ (796) (1,612) (2,713)
Interest income and other, net ............. 127 2,245 264
-------- -------- --------
Income before income taxes .................. 4,178 4,201 3,637
Provision for income taxes .................. 1,067 336 1,021
-------- -------- --------
Net income................................... 3,111 3,865 2,616
Warrant accretion .......................... (131) (527) (19,430)
-------- -------- --------
Net income (loss) available for common
stockholders................................ $ 2,980 $ 3,338 $(16,814)
======== ======== ========
Unaudited pro forma information (Note 15):
Net income before income taxes ............. $ 4,178 $ 4,201 $ 3,637
Provision for income taxes.................. 2,278 1,754 2,750
-------- -------- --------
Net income.................................. 1,900 2,447 887
Warrant accretion .......................... (131) (527) (19,430)
-------- -------- --------
Net income (loss) available for common
stockholders................................ $ 1,769 $ 1,920 $(18,543)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-42
<PAGE>
COMBINED FOUNDING COMPANIES
(PREDECESSORS TO UNITED TRANSNET, INC. -- SEE NOTE 1)
COMBINED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK PREDECESSOR
----------------- TREASURY PAID IN SUBSCRIPTIONS RETAINED BASIS
SHARES AMOUNT STOCK CAPITAL RECEIVABLE EARNINGS ADJUSTMENT TOTAL
--------- ------ -------- ------- ------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1992 .................. 1,272,445 $ 93 $(7,050) $ 3,477 $ -- $ 11,769 $(1,416) $ 6,873
Distributions to
stockholders........... -- -- -- -- -- (608) -- (608)
Issuance of common
stock.................. 2,950 -- -- 38 -- -- -- 38
Net transactions with
Lanter ................ -- -- -- (2,119) -- -- -- (2,119)
Warrant accretion....... -- -- -- -- -- (131) -- (131)
3D net loss for two
months ended December
31, 1993............... -- -- -- -- -- (12) -- (12)
Net income.............. -- -- -- 1,317 -- 1,794 -- 3,111
--------- ---- ------- ------- ----- -------- ------- --------
Balance at December 31,
1993 .................. 1,275,395 93 (7,050) 2,713 -- 12,812 (1,416) 7,152
Distributions to
stockholders........... -- -- -- -- -- (1,580) -- (1,580)
Issuance of common
stock.................. 300,952 1 -- 716 (556) -- -- 161
Retirement of treasury
stock ................. (954,098) (1) -- -- -- (3,772) -- (3,773)
Subscription payment.... -- -- -- -- 46 -- -- 46
Net transactions with
Lanter ................ -- -- -- (2,288) -- -- -- (2,288)
Warrant accretion ...... -- -- -- -- -- (527) -- (527)
Net income.............. -- -- -- 1,431 -- 2,434 -- 3,865
--------- ---- ------- ------- ----- -------- ------- --------
Balance at December 31,
1994 .................. 622,249 93 (7,050) 2,572 (510) 9,367 (1,416) 3,056
Distributions to
stockholders........... -- -- -- -- -- (7,850) -- (7,850)
Contributions from
stockholder............ -- -- -- 586 -- -- -- 586
Issuance of common
stock.................. 22,506 -- -- 726 -- -- -- 726
Purchase and retirement
of stock............... (85,331) -- -- (782) -- -- -- (782)
Retirement of treasury
stock ................. (33,688) (1) 59 (59) -- -- -- (1)
Subscription payments... -- -- -- -- 510 -- -- 510
Warrant accretion....... -- -- -- -- -- (19,430) -- (19,430)
Exercise of common stock
warrants............... 2,636,439 2 -- 25,969 -- -- -- 25,971
Net transactions with
Lanter................. -- -- -- (2,088) -- -- -- (2,088)
Net income.............. -- -- -- 1,095 -- 1,521 -- 2,616
--------- ---- ------- ------- ----- -------- ------- --------
Balance at December 19,
1995 .................. 3,162,175 $ 94 $(6,991) $28,019 $ -- $(16,392) $(1,416) $ 3,314
========= ==== ======= ======= ===== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-43
<PAGE>
COMBINED FOUNDING COMPANIES
(PREDECESSORS TO UNITED TRANSNET, INC. -- SEE NOTE 1)
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
----------------- ------------
1993 1994 1995
------- -------- ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income.................................... $ 3,111 $ 3,865 $ 2,616
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization................. 2,949 3,358 3,458
Provision for bad debts....................... 270 288 8
Amortization of goodwill and other intangible
assets....................................... 2,258 2,859 3,204
Amortization of discount on long-term debt.... 421 707 999
Deferred income taxes......................... 516 (312) 383
Write-off of intangible assets................ -- 808 --
Loss (gain) on sale of assets................. 38 27 (69)
Non-cash employee compensation................ 38 154 1,199
Change in operating assets and liabilities
Accounts receivable.......................... (1,971) (3,626) (2,121)
Other assets................................. (323) 199 (6,930)
Accrued interest-related party............... 372 352 (323)
Accounts payable............................. 1,702 3,483 4,795
Accrued liabilities.......................... (595) (1,089) 58
Dividend payable............................. -- -- 402
Income taxes payable......................... (218) 134 2,670
Deferred compensation........................ (202) (149) (260)
------- -------- -------
Net cash provided by operating activities... 8,366 11,058 10,089
------- -------- -------
Cash flows from investing activities
Capital expenditures, net of disposals........ (3,305) (2,001) (2,265)
(Purchase) sale of short-term investments..... -- (900) 900
Sale of restricted certificates of deposit.... -- 200 837
Purchase of companies, net of cash acquired... (3,123) (14,391) (3,502)
------- -------- -------
Net cash used in investing activities....... (6,428) (17,092) (4,030)
------- -------- -------
Cash flows from financing activities
Net increase in revolving line of credit...... 1,535 4,913 347
Payments of debt.............................. (2,599) (6,217) (5,897)
Proceeds from issuance of debt................ -- 15,208 7,045
Distributions to stockholder.................. (608) (1,580) (5,424)
Payments on long-term debt-- related party.... (110) (160) --
Proceeds from long-term debt-- related party.. 428 650 --
Net transactions with Lanter.................. (2,200) (2,274) (2,062)
Purchase and retirement of common stock....... -- (2,961) (782)
Sale of common stock.......................... -- 556 --
Exercise of stock options..................... -- -- 27
Exercise of stock warrants.................... -- -- 2
------- -------- -------
Net cash (used in) provided by financing ac-
tivities................................... (3,554) 8,135 (6,744)
------- -------- -------
Net (decrease) increase in cash and cash equiv-
alents........................................ (1,616) 2,101 (685)
Cash and cash equivalents
Beginning of the year......................... 3,483 1,918 4,019
------- -------- -------
End of the year............................... $ 1,867 $ 4,019 $ 3,334
======= ======== =======
Supplemental disclosure of cash flow informa-
tion
Cash paid during the year for
Interest...................................... $ 1,418 $ 2,202 $ 4,320
Income taxes.................................. 747 707 758
Disclosure of noncash investing and financing
activities
Net transfers of property..................... 81 (14)
Workers compensation premiums financed through
issuance of notes payable.................... 738
Acquisition of property and equipment through
issuance of notes payable.................... 624 149 121
Stock grants to key employees................. 38 315 960
Non-cash distributions to stockholders........ 2,024
Other non-cash transactions:
Consulting agreement.......................... 75
Supplemental schedule of noncash investing and
financing activities
In conjunction with Courier Dispatch's acqui-
sitions, liabilities were assumed as follows:
Fair value of assets acquired................. $ 3,095 $ 13,540 $ 3,150
Cash paid for capital stock and assets........ (2,115) (12,127) (2,881)
------- -------- -------
Liabilities assumed........................... $ 980 $ 1,413 $ 269
======= ======== =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-44
<PAGE>
COMBINED FOUNDING COMPANIES
(PREDECESSORS TO UNITED TRANSNET, INC. -- SEE NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. BUSINESS AND ORGANIZATION
Each of CDG Holding Corp. and its operating subsidiary, Courier Dispatch
Group, Inc. (collectively "Courier Dispatch"); Tricor America, Inc.
("Tricor"); Film Transit, Incorporated ("Film Transit"); Lanter Courier
Corporation ("Lanter"); Salmon Acquisition Corporation and its operating
subsidiary, Sunbelt Courier, Inc. (collectively "Sunbelt"); and 3D
Distribution Systems, Inc. and its affiliated corporations and subsidiaries
(collectively "3D") (collectively the "Founding Companies") entered into
definitive merger agreements with United TransNet, Inc. (the "Company")
pursuant to which wholly-owned subsidiaries of the Company were, in separate
transactions, merged with each of the Founding Companies (the "Mergers").
Under the merger agreements, all outstanding shares of the Founding Companies'
capital stock were converted into shares of the Company's Common Stock
concurrently with the consummation of the initial public offering (the
"Offering") of such Common Stock. The Founding Companies are considered
predecessor companies to the Company.
The Founding Companies are in the business of providing scheduled and non-
scheduled ground and air courier services.
2. BASIS OF PRESENTATION
The accompanying combined financial statements and related notes to combined
financial statements are presented on a combined basis without giving effect
to the Mergers or the Offering. The assets and liabilities of the Combined
Founding Companies are reflected at their historical amounts.
3D changed its fiscal year end from October 31 to December 31 effective for
the year ended December 31, 1993. Accordingly, its accounts for the year ended
October 31, 1993 have been combined with the accounts of the other Founding
Companies for the year ended December 31, 1993. 3D's results of operations for
the two months ended December 31, 1993 have been reflected as an adjustment to
retained earnings.
On June 30, 1995, Lanter agreed to include its Iowa, Nebraska and Wisconsin
operations (the "Districts") in the Mergers. Lanter provided certain selling,
general and administrative services to the Districts including cash
management, accounting and finance, legal services, employee benefits
administration, and shared sales and distribution support. All cash,
investments and borrowings for Lanter's Districts (including Lanter) are
maintained on a consolidated basis; accordingly, amounts specifically related
to Lanter are accounted for in the equity section of Lanter's balance sheets.
For purposes of consolidation, the balance of Lanter's equity investment
account is reflected as additional paid-in capital.
Estimates
The preparation of combined financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period, the most significant of which are
related to insurance accruals. Actual results could differ from those
estimates.
Disclosures About Fair Value of Financial Instruments
In preparing disclosures about the fair value of financial instruments, the
Combined Founding Companies have assumed that the carrying amount approximates
fair value for cash and cash equivalents, accounts receivable, short-term
investments, short-term debt and accounts payable. The fair values of long-
term debt instruments are based upon the current interest rate environment and
remaining term to maturity (see Note 7). The Combined Founding Companies feel
that the carrying value of long-term debt approximates the fair value.
F-45
<PAGE>
COMBINED FOUNDING COMPANIES
(PREDECESSORS TO UNITED TRANSNET, INC. -- SEE NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Business Combinations
In May 1993, Courier Dispatch acquired the outstanding capital stock of a
delivery service in Alabama in exchange for $1,964, which included notes of
$500 for the acquisition of a non-compete agreement with the company's
stockholder. The acquired company provides statewide ground courier service
for customers. The allocation of purchase price included the assignment of
approximately $1,964 to intangible assets.
In October 1992 and April 1993, Courier Dispatch acquired all the customer
agreements and certain other records and the air banking division of delivery
services in Minnesota and Missouri in exchange for $320 and $1,131,
respectively, which included notes of $100 and $480, respectively, for non-
compete agreements entered into with certain stockholders and employees of
these companies. The allocation of purchase price included the assignment of
approximately $320 and $1,131 to intangible assets.
Effective March 28, 1994, Courier Dispatch acquired all of the outstanding
common stock of a delivery service in Florida and non-compete agreements
entered into with certain stockholders of the company in exchange for $2,575
in cash plus the issuance of $1,103 in notes in consideration of the non-
compete agreements. The allocation of purchase price included the assignment
of approximately $2,657 to intangible assets.
Effective June 30, 1994, Courier Dispatch acquired all of the outstanding
common stock of two delivery services in North Carolina and Minnesota in
exchange for $9,700 and $1,265, respectively, which includes the issuance of
$300 and $10 in notes, respectively, for the entry into non-compete agreements
with certain stockholders and employees of these companies. The allocation of
purchase price included the assignment of approximately $8,525 and $1,045,
respectively, to intangible assets.
In April 1995, Courier Dispatch acquired the outstanding capital stock of a
delivery service in Minnesota in exchange for $150 in cash and $350 in notes.
Courier Dispatch also acquired all of the assets of a related delivery service
in Minnesota in exchange for $2,650, of which $400 was paid in cash, and the
balance of which was paid by delivery of a 9% promissory note payable in
quarterly installments until maturity on March 31, 1999, and the assumption of
$269 of the company's liabilities. As part of these acquisitions, Courier
Dispatch entered into non-compete agreements with certain stockholders of each
of the companies. The allocation of purchase price for these purchases
included the assignment of approximately $448 and $1,992, respectively, to
intangible assets.
These acquisitions were accounted for under the purchase method of
accounting which requires allocation of the acquisition cost to assets
acquired and liabilities assumed based upon their fair values at the date of
acquisition. Under purchase accounting, the excess of the acquisition costs
over the fair value of the acquired assets less assumed liabilities is
recorded as goodwill. The intangible assets acquired in the business
combinations above are amortized over periods ranging from 1 to 15 years,
depending on the life of the asset. The results of these combinations are
included in the consolidated statements from the date of acquisition.
The following table presents the unaudited results of operations of the
Combined Founding Companies for the years ended December 31, 1993 and 1994 as
if the June 30, 1994 North Carolina acquisition had occurred on January 1,
1994. The pro forma information below also includes certain adjustments,
including the effects of amortization of intangible assets and interest
expense related to additional borrowings to fund the acquisition. The impact
of other acquisitions made by the Combined Founding Companies in 1993, 1994
and 1995 is not reflected in the accompanying pro forma information because it
is not material.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1993 1994
-------- --------
(UNAUDITED)
<S> <C> <C>
Net revenues............................................... $198,543 $227,458
Net income................................................. 3,166 3,250
</TABLE>
F-46
<PAGE>
COMBINED FOUNDING COMPANIES
(PREDECESSORS TO UNITED TRANSNET, INC. -- SEE NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The more significant accounting policies followed by the Combined Founding
Companies are described below:
Cash and Cash Equivalents and Short-Term Investments
The Combined Founding Companies consider all highly liquid investments with
original maturities of three months or less to be cash equivalents. Cash
equivalents are carried at cost, which approximates fair market value. Short-
term investments, which consist of certificates with original maturities of
less than one year, are accounted for at fair market value which approximates
cost.
Property and Equipment
Property and equipment is recorded at cost. Additions and improvements are
capitalized while maintenance and repair costs are charged to expense as
incurred. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets, which range from three to thirty-one and
a half years. The cost and accumulated depreciation of property retired or
otherwise disposed of are removed from the amounts and any gain or loss is
included in other income. Assets subject to capital leases are amortized using
the straight-line method over the terms of the leases.
Goodwill and Other Intangible Assets
Goodwill and intangible assets are amortized on a straight-line basis over
periods ranging from 1 to 20 years. The carrying value of intangible assets is
evaluated for indications of possible impairment whenever events or changes in
circumstances indicate that the carrying value of an intangible asset may not
be recoverable. Events or changes in circumstances which may indicate
impairment include a significant adverse change in legal factors, business
climate or government regulation and current cash flow losses combined with a
history of cash flow losses or forecasted continuing cash flow losses
associated with an acquired company. The review is based on comparing the
carrying amount to the undiscounted estimated cash flows before interest
charges from operations over the remaining amortization period.
Goodwill was $9,754 and $18,075 at December 31, 1993 and 1994, respectively.
Related accumulated amortization totaled $1,633 and $2,573 at December 31,
1993 and 1994.
Restricted Certificates of Deposit
Sunbelt has two certificates of deposits pledged to its workers compensation
and auto liability carrier in accordance with the collateral requirements
specified by its insurer. The certificates total $637 and $200, respectively,
bear interest at a weighted average rate and mature on July 9, 1995 and August
12, 1995, respectively. Sunbelt is required to maintain this collateral
throughout the term of its relationship with this carrier.
Other Assets
Other assets consist principally of prepayments, other receivables, supply
items and advances to employees.
Insurance Claims
Certain of the Combined Founding Companies are self-insured with respect to
certain aspects of their workers' compensation, general liability, automobile
and physical damage on vehicles and group health insurance. The accompanying
financial statements include an insurance accrual based upon third party
F-47
<PAGE>
COMBINED FOUNDING COMPANIES
(PREDECESSORS TO UNITED TRANSNET, INC. -- SEE NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
administrators' and managements' evaluations of estimated future ultimate
costs of outstanding claims and an estimated liability for claims incurred but
not reported on an undiscounted basis. The ultimate cost of these claims will
depend on the outcome of individual claims given the potential for the claims
to increase or decrease over time.
Revenue Recognition
Revenue is recognized when the delivery is completed or the services are
rendered to customers.
Income Taxes
The Combined Founding Companies determine taxes on income by using the
liability method as prescribed by Statement of Financial Accounting Standards
No. 109 ("FAS 109"), "Accounting for Income Taxes," except for Tricor and
Lanter, which are organized as subchapter S corporations. This approach
requires the recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been recognized in the
Combined Founding Companies' financial statements or tax returns. In
estimating future tax consequences, FAS 109 requires the consideration of all
expected future events other than enactments of changes in the tax laws or
rates. See Note 15 for pro forma income tax information.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current presentation.
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------
1993 1994
-------- --------
<S> <C> <C>
Land..................................................... $ 1,777 $ 1,924
Buildings................................................ 4,598 4,610
Delivery vehicles........................................ 11,376 15,936
Equipment and furnishings................................ 5,648 7,305
Leasehold improvements................................... 1,849 2,206
-------- --------
25,248 31,981
Less accumulated depreciation and amortization........... (12,024) (16,816)
-------- --------
$ 13,224 $ 15,165
======== ========
</TABLE>
5. OTHER INTANGIBLE ASSETS
Other intangible assets consists of the following:
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZABLE DECEMBER 31,
LIVES ----------------
(YEARS) 1993 1994
----------- ------- -------
<S> <C> <C> <C>
Customer lists................................. 5-12 $ 2,036 $ 6,566
Noncompete agreements.......................... 1-8 5,406 6,833
Operating certificates......................... 5-11 812 --
Other intangible assets........................ 6 1,070 1,070
------- -------
9,324 14,469
Less accumulated amortization.................. (3,861) (5,465)
------- -------
$ 5,463 $ 9,004
======= =======
</TABLE>
F-48
<PAGE>
COMBINED FOUNDING COMPANIES
(PREDECESSORS TO UNITED TRANSNET, INC. -- SEE NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
6. ACCRUED LIABILITIES
Accrued liabilities consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1993 1994
------ -------
<S> <C> <C>
Accrued payroll and related benefits......................... $2,589 $ 3,217
Accrued insurance............................................ 2,105 2,180
Other accrued liabilities.................................... 3,872 4,950
------ -------
$8,566 $10,347
====== =======
</TABLE>
7. SHORT-TERM AND LONG-TERM DEBT
Short-term and long-term obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1993 1994
------- --------
<S> <C> <C>
Term loans payable in varying monthly installments, plus
interest varying from 6% to 16%........................ $ 5,019 $ 3,857
Revolving lines of credit with interest varying from 9%
to 16% including $500 and $500 due to a related party.. 1,885 6,648
Series A Senior Subordinated Notes, due to related par-
ties, net of imputed interest of approximately $544 at
December 31, 1994, due February 1999; interest payable
quarterly at 10%....................................... -- 2,656
Series B Amended and Restated Junior Subordinated Notes,
due to a related party, net of imputed interest of ap-
proximately $1,477 and $1,088 at December 31, 1993 and
1994, respectively, due September 1996; interest pay-
able quarterly at 11.5%................................ 2,173 2,562
Series C Amended and Restated Junior Subordinated Notes,
due to a related party, net of imputed interest of ap-
proximately $920 and $702 at December 31, 1993 and
1994, respectively, due September 1996; interest pay-
able quarterly at 15%.................................. 1,080 1,298
Term note payable to related party due October 31, 1999;
with interest at 3.5%.................................. 5,295 5,785
Acquisition loans payable in varying monthly install-
ments, plus interest at the prime rate (8.5% at Decem-
ber 31, 1994) plus 1/2%................................ -- 11,708
Guarantee of term promissory note for management's pur-
chase of common stock payable in varying annual in-
stallments plus interest at the rate of prime (8.5% at
December 31, 1994) plus 1%; final payment due February
1997................................................... -- 510
Notes payable, net of imputed interest of approximately
$67 and $10 at December 31, 1993 and 1994, respective-
ly..................................................... 657 426
Premium loan, Workers' Compensation Insurance, payable
in varying monthly installments, plus interest payable
at 6%.................................................. 693 312
Contracts payable in varying monthly installments, plus
interest ranging from 6.5% to 16.88%................... 299 189
Other notes payable including $75 and $75 due to a re-
lated party............................................ 439 521
Other non-compete agreements............................ 251 127
------- --------
17,791 36,599
Less current portion.................................... (3,510) (10,057)
Less current portion -- related parties................. (575) (575)
------- --------
13,706 25,967
Long-term debt -- related parties....................... (8,548) (12,301)
------- --------
$ 5,158 $ 13,666
======= ========
</TABLE>
F-49
<PAGE>
COMBINED FOUNDING COMPANIES
(PREDECESSORS TO UNITED TRANSNET, INC. -- SEE NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Debt maturities are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1995................................................................ $10,632
1996................................................................ 13,568
1997................................................................ 4,005
1998................................................................ 1,625
1999 and thereafter................................................. 6,769
-------
$36,599
=======
</TABLE>
8. COMMON STOCK WARRANTS
In connection with the issuance of the subordinated notes, warrants for the
purchase of common stock of Courier Dispatch were issued to the lenders as
follows:
<TABLE>
<CAPTION>
NUMBER ASSIGNED
OF WARRANTS VALUE
----------- --------
<S> <C> <C>
Series A Senior Notes 4 through 6....................... 666,666 $ 667
Series A Senior Notes 1 through 3....................... 653,146 653
Series B Junior Notes................................... 752,381 1,731
Series C Junior Notes................................... 551,746 1,269
</TABLE>
These warrants are exercisable in whole or in part at any time and expire
upon the earliest of September 30, 2002 or the sixth anniversary of the
prepayment in full of the related subordinated note. The warrants provide for
various rights, including the right to require Courier Dispatch to purchase
the warrants after September 30, 1996 for the warrants issued in connection
with the Series B and C Notes and February 18, 1999 for the warrants issued in
connection with the Series A Notes or upon the occurrence of an event of
default, at the greater of a formula price as defined in the securities
purchase agreement ("formula price") or fair market value (as determined by
negotiation or appraisal). At any time after the later of September 30, 1998,
for the warrants issued in connection with the Series B and C Notes, and
February 18, 2001, for the warrants issued in connection with the Series A
Notes, or, in either case, payment in full of all subordinated notes issued
pursuant to the securities purchase agreement, Courier Dispatch may purchase,
at its option, all of the warrants at the greater of the formula price or fair
market value. The warrants are exercisable at a nominal exercise price. The
valuation of these warrants resulted in an original issue discount on the
related debt which is being amortized using the interest method over the term
of the related debt.
In connection with the restructuring of certain of its bank debt in July
1995, 12,500 warrants for the purchase of common stock of Courier Dispatch
were issued to the lender.
Transactions related to common stock warrants for each of the two years
ended December 31, 1994 and the period ended December 19, 1995 are as follows:
<TABLE>
<CAPTION>
NUMBER OF ASSIGNED
WARRANTS VALUE
---------- --------
<S> <C> <C>
Balance at December 31, 1992........................... 1,304,127 $ 4,561
Issuance............................................. -- --
Accretion............................................ -- 131
---------- --------
Balance at December 31, 1993........................... 1,304,127 4,692
Issuance............................................. 653,146 653
Accretion............................................ -- 527
---------- --------
Balance at December 31, 1994........................... 1,957,273 5,872
Issuance............................................. 679,166 667
Accretion............................................ -- 19,430
Exercise............................................. (2,636,439) (25,969)
---------- --------
Balance at December 19, 1995........................... -- $ --
========== ========
</TABLE>
F-50
<PAGE>
COMBINED FOUNDING COMPANIES
(PREDECESSORS TO UNITED TRANSNET, INC. -- SEE NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
9. INCOME TAXES
The Combined Founding Companies will file a consolidated federal income tax
return for periods subsequent to the Mergers described in Notes 1 and 2. Each
Combined Founding Company will file a "short-period" federal tax return
through the date of the Mergers.
The Combined Founding Companies have implemented FAS 109 for all periods.
This statement provides for a liability approach to accounting for income
taxes.
Combined federal and state income taxes are as follows:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
------------ ------------
1993 1994 1995
------ ----- ------------
<S> <C> <C> <C>
Current tax expense
Federal............................................ $ 374 $ 483 $ 522
State.............................................. 170 165 116
Deferred tax expense (benefit)
Federal............................................ 450 (274) 320
State.............................................. 73 (38) 63
------ ----- ------
Total provision.................................. $1,067 $ 336 $1,021
====== ===== ======
</TABLE>
The differences in income taxes provided and the amounts determined by
applying the federal statutory tax rate to income before income taxes result
from the following:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
---------------- ------------
1993 1994 1995
------- ------- ------------
<S> <C> <C> <C>
Tax at federal statutory rate.................. $ 1,421 $ 1,429 $ 1,237
State income taxes, net of federal income tax
benefit....................................... 153 105 84
Effect of valuation allowance.................. 160 (18) 276
Nondeductible expenses......................... 352 685 960
Income not subject to corporate level
taxation...................................... (1,028) (1,890) (1,445)
Other.......................................... 9 25 (91)
------- ------- -------
$ 1,067 $ 336 $ 1,021
======= ======= =======
</TABLE>
The components of deferred income taxes are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1993 1994
------- -------
<S> <C> <C>
Deferred tax assets
Insurance accrual........................................... $ 2,545 $ 2,732
Deferred compensation....................................... 403 293
Vacation accrual............................................ 212 261
Accounts receivable allowance............................... 163 164
Other....................................................... 336 418
------- -------
3,659 3,868
------- -------
Deferred tax liabilities
Accumulated depreciation.................................... (973) (832)
Other....................................................... (98) (154)
------- -------
(1,071) (986)
------- -------
Valuation allowance........................................... (1,985) (1,967)
------- -------
$ 603 $ 915
======= =======
</TABLE>
F-51
<PAGE>
COMBINED FOUNDING COMPANIES
(PREDECESSORS TO UNITED TRANSNET, INC. -- SEE NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Tricor and Lanter are organized as subchapter S corporations and, as a
result, the tax on each company's income is the responsibility of the
individual stockholders. See the combined statements of operations for
unaudited pro forma income tax information.
In 1993 and 1994, the Combined Founding Companies utilized approximately
$128 and $125 of alternative minimum tax credits which were generated in 1991
and 1992, respectively, to reduce their current federal income tax expense.
10. STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1993 1994
------ ------
<S> <C> <C>
COURIER DISPATCH
Class A Common Stock; $.001 par value; 3,750,000 shares
authorized; 550,664 issued and outstanding.................... $ 1 $ 1
Class B Common Stock; $.001 par value; 3,750,000 shares
authorized; 0 shares issued and outstanding................... -- --
TRICOR
Tricor California, Inc. -- Common Stock; no par value; 10,000
shares authorized; 22.5 shares issued and outstanding......... -- --
Tricor International -- Common Stock; no par value; 10,000
shares authorized; 225 shares issued and outstanding.......... 43 43
Tricor America, Inc. -- Common Stock; no par value; 10,000
shares authorized; 75 shares issued and outstanding........... 21 21
Tricor Nevada, Inc. -- Common Stock; no par value; 2,500 shares
authorized; 45 shares issued and outstanding.................. 1 1
FILM TRANSIT
Class A Common Stock; $50 par value; 500 shares authorized;
197.33 shares issued and outstanding.......................... 10 10
Class B Common Stock; $50 par value; 500 shares authorized; 308
shares issued and outstanding................................. 15 15
SUNBELT
Common Stock; no par value; 1,000 shares authorized; 400 shares
issued and outstanding........................................ 1 1
3D
Common Stock; $.01 par value; 100,000,000 shares authorized;
70,875 shares issued and outstanding.......................... 1 1
------ ------
$ 93 $ 93
====== ======
</TABLE>
11. COMMITMENTS AND CONTINGENCIES
Lease Commitments
Rent expense related to operating leases amounted to approximately $10,218,
$12,959, and $14,044 for the years ended December 31, 1993 and 1994 and the
period ended December 19, 1995, respectively.
The following are the approximate future minimum lease payments required by
operating leases:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1995.............................................................. $2,657
1996.............................................................. 2,281
1997.............................................................. 1,635
1998.............................................................. 1,042
1999 and thereafter............................................... 1,689
------
$9,304
======
</TABLE>
F-52
<PAGE>
COMBINED FOUNDING COMPANIES
(PREDECESSORS TO UNITED TRANSNET, INC. -- SEE NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Litigation
The Combined Founding Companies are, from time to time, parties to
litigation arising in the normal course of their business, most of which
involve claims for personal injury and property damage incurred in connection
with their respective operations. Management believes that none of these
actions will have a material adverse effect on the financial position or
results of operations of the Combined Founding Companies.
Self-Insurance Program
The Combined Founding Companies are self-insured with respect to workers'
compensation, general liability and automobile insurance and physical damage
on vehicles claims. In accordance with the terms of the insurance policy,
Courier Dispatch maintains a $1,240 letter of credit with a commercial bank in
favor of the insurer. Management believes that any claims as of December 19,
1995, arising under this self-insurance program will not have a material
adverse effect on the financial position or results of operations of the
Combined Founding Companies.
12. RELATED PARTY TRANSACTIONS
At December 31, 1993 and 1994, Courier Dispatch had outstanding $2,173 and
$3,890 of its subordinated notes, net of imputed interest, with a bank. In
connection with the notes, the bank acquired warrants to purchase 1,412,287
shares of common stock of Courier Dispatch. A managing director of the bank is
a director of Courier Dispatch.
At December 31, 1993 and 1994, Courier Dispatch had outstanding $1,080 and
$2,626 of its subordinated notes, net of imputed interest, with another bank.
In connection with the notes, the bank acquired warrants to purchase 1,211,652
shares of the common stock of Courier Dispatch. An executive vice president of
the bank is a director of Courier Dispatch. An affiliate of the bank is a
significant customer of Courier Dispatch. At December 31, 1993 and 1994,
Courier Dispatch had an accounts receivable balance of approximately $250 and
$1,184, respectively, from this customer. Sales to this customer approximated
$4,972, $5,513 and $6,458 for the years ended December 31, 1993 and 1994 and
the period ended December 19, 1995, respectively.
In April 1992, Sunbelt began maintaining workers' compensation and auto
liability coverage through a captive insurance company owned by relatives of
Sunbelt's stockholders. The accounts between Sunbelt and the insurance carrier
are settled in the ordinary course of business and are governed by state
insurance regulations. Sunbelt has pledged two certificates of deposit to the
insurance carrier in accordance with collateral requirements specified in the
above policies. Sunbelt is required to maintain the collateral throughout the
term of its relationship with the insurance carrier. Premiums paid to the
insurance carrier were approximately $698, $827 and $932 during the years
ended December 31, 1993 and 1994 and the period ended December 19, 1995.
Lanter Company, an affiliate of Lanter, provides certain administrative
services to Lanter and therefore allocates and charges a portion of its
corporate service expenses to Lanter. These expenses are allocated to Lanter
based upon estimated time incurred. These allocations were $700, $646 and $630
for the years ended December 31, 1993 and 1994 and the period ended December
19, 1995, respectively.
At December 31, 1993 and 1994, 3D had a revolving line of credit with a
former stockholder and officer of 3D of approximately $500 and $500,
respectively. Additionally, 3D had notes payable to this officer at
December 31, 1993 and 1994 of $75 and $75, respectively.
Sunbelt had an unsecured note payable of $5,295 and $5,785 at December 31,
1993 and 1994, respectively, to a related party. The note matures on December
31, 1999. Accrued interest on these notes was $1,217 and $1,569 as of December
31, 1993 and 1994, respectively.
F-53
<PAGE>
COMBINED FOUNDING COMPANIES
(PREDECESSORS TO UNITED TRANSNET, INC. -- SEE NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Sunbelt uses two facilities owned by a related party for which no rent is
charged. Sunbelt shares one of its facilities with this entity at no charge to
the entity.
Film Transit leases two facilities from a partnership consisting of two
stockholders of Film Transit. Rent paid to the partnership for the years ended
December 31, 1993 and 1994 and the period ended December 19, 1995 were $186,
$207, and $193, respectively.
13. EMPLOYEE BENEFIT PLANS
Several of the Combined Founding Companies have qualified defined
contribution plans, which allow for voluntary pretax contributions by the
employees. The Combined Founding Companies pay all general and administrative
expenses of the plans and in some cases make matching contributions on behalf
of the employees. For the years ended December 31, 1993 and 1994, and the
period ended December 19, 1995, the Combined Founding Companies had expenses
totaling $116, $152 and $832, respectively, related to these plans.
Courier Dispatch, Lanter and Tricor have defined contribution 401(k) Plans
which allow for voluntary pretax contributions by their employees. Each
company may also contribute an additional amount at its discretion. Employer
contributions totaled $129, $116 and $194 during the years ended December 31,
1993 and 1994 and the period ended December 19, 1995, respectively, for these
three companies.
Film Transit has a noncontributory profit sharing plan for the benefit of
qualifying employees. Contributions by Film Transit are calculated at
graduated percentages of net income before taxes and employee bonuses. During
the years ended December 31, 1993 and 1994 and the period ended December 19,
1995, Film Transit contributed $752, $904 and $591 to the plan.
14. STOCK OPTION PLAN
Courier Dispatch has in place a stock option plan whereby selected members
of Courier Dispatch's management have been granted options to purchase shares
of Courier Dispatch's common stock. Transactions related to stock options for
each of the two years ended December 31, 1994 and the period ended December
19, 1995 are as follows:
<TABLE>
<CAPTION>
OPTION PRICE
SHARES PER SHARE
------- ------------
<S> <C> <C>
Outstanding at December 31, 1992........................ 29,343 $ 1.40
Granted................................................. 48,163 1.40
Exercised............................................... -- --
Cancelled or expired.................................... -- --
------- -----------
Outstanding at December 31, 1993........................ 77,506 1.40
Granted................................................. 94,535 1.40--3.00
Exercised............................................... -- --
Cancelled or expired.................................... -- --
------- -----------
Outstanding at December 31, 1994........................ 172,041 1.40--3.00
Granted................................................. 167,503 1.40--3.00
Exercised............................................... 19,669 1.40
Cancelled or expired.................................... -- --
------- -----------
Outstanding at December 19, 1995........................ 319,875 $1.40--3.00
======= ===========
</TABLE>
Compensation expense related to the stock options for the years ended
December 31, 1993, 1994 and the period ended December 19, 1995 approximately
$0, $154, and $500, respectively.
F-54
<PAGE>
COMBINED FOUNDING COMPANIES
(PREDECESSORS TO UNITED TRANSNET, INC. -- SEE NOTE 1)
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
15. UNAUDITED PRO FORMA INFORMATION
Income Taxes
The following unaudited pro forma tax information is presented in accordance
with FAS 109, as if Tricor and Lanter, each subchapter S corporations, had
been subject to federal and state income taxes throughout the periods
presented.
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
------------- ------------
1993 1994 1995
------ ------ ------------
<S> <C> <C> <C>
Earnings before pro forma adjustments, per combined
statements of operations.......................... $4,178 $4,201 $3,637
Pro forma provision for income taxes .............. 2,278 1,754 2,750
------ ------ ------
Pro forma earnings as above ....................... $1,900 $2,447 $ 887
====== ====== ======
</TABLE>
16. SUBSEQUENT EVENTS
On December 20, 1995, in exchange for shares of Common Stock and cash,
wholly-owned subsidiaries of the Company, in separate transactions, merged
with each of the Founding Companies.
F-55
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-56
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders ofCDG Holding Corp.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' deficit and of cash
flows present fairly, in all material respects, the financial position of CDG
Holding Corp. and its subsidiary, Courier Dispatch Group, Inc. (collectively,
"Courier Dispatch") at December 31, 1993 and 1994, and the results of their
operations and their cash flows for each of the two years in the period ended
December 31, 1994 and for the period ended December 19, 1995 in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of Courier Dispatch's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Atlanta, Georgia
March 12, 1996
F-57
<PAGE>
CDG HOLDING CORP.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1993 1994
------- -------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................................... $ 329 $ 1,122
Accounts receivable, less allowance of $223 and $331........ 4,286 9,160
Prepaids and other assets................................... 603 780
------- -------
Total current assets..................................... 5,218 11,062
Property and equipment, net................................. 4,348 5,558
Goodwill, net............................................... 5,902 13,442
Intangible assets, net...................................... 4,061 8,096
Other assets................................................ 99 712
Deferred tax assets......................................... 936 1,090
------- -------
$20,564 $39,960
======= =======
LIABILITIES, COMMON STOCK WARRANTS
AND STOCKHOLDERS' DEFICIT
Current liabilities
Short-term debt............................................. $ 1,819 $ 8,725
Accrued interest-related parties............................ 184 268
Accounts payable............................................ 1,986 5,731
Accrued liabilities......................................... 2,850 3,993
Income taxes payable........................................ 115 17
------- -------
Total current liabilities................................ 6,954 18,734
Long-term debt, net of current maturities
Senior...................................................... 2,029 11,855
Subordinated -- related parties............................. 3,253 6,516
Deferred compensation........................................ 768 619
Long-term portion of accrued insurance....................... 2,879 2,236
------- -------
15,883 39,960
------- -------
Common stock warrants........................................ 4,692 5,872
------- -------
Stockholders' equity (deficit)
Class A common stock, $.001 par value; 3,750,000 shares
authorized; 550,664 shares issued and outstanding.......... 1 1
Class B common stock, $.001 par value; 3,750,000 shares
authorized; 0 shares issued and outstanding................ -- --
Paid-in capital............................................. 1,159 1,875
Retained earnings (deficit)................................. 245 (5,822)
Common stock -- subscriptions receivable.................... -- (510)
Predecessor basis adjustment................................ (1,416) (1,416)
------- -------
(11) (5,872)
------- -------
Commitments and contingencies................................ -- --
------- -------
$20,564 $39,960
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-58
<PAGE>
CDG HOLDING CORP.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
----------------- ------------
1993 1994 1995
------- -------- ------------
<S> <C> <C> <C>
Net revenues................................... $70,631 $104,614 $133,701
Cost of delivery............................... 49,960 76,685 99,796
------- -------- --------
Gross profit .............................. 20,671 27,929 33,905
Selling, general and administrative expenses... 17,443 24,060 28,533
Amortization of intangible assets.............. 1,454 2,722 2,538
------- -------- --------
Operating income........................... 1,774 1,147 2,834
Other income (expense)
Interest expense-related party................ (1,151) (1,728) (2,147)
Interest expense.............................. (372) (1,219) (2,421)
Interest income and other, net ............... 22 2 1
------- -------- --------
Income (loss) before income taxes.............. 273 (1,798) (1,733)
Provision (benefit) for income taxes........... 592 (30) 343
------- -------- --------
Net loss....................................... (319) (1,768) (2,076)
Warrant accretion.............................. (131) (527) (19,430)
------- -------- --------
Net loss available for common stockholders..... $ (450) $ (2,295) $(21,506)
======= ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-59
<PAGE>
CDG HOLDING CORP.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
-----------------
PREDECESSOR
PAID-IN SUBSCRIPTIONS RETAINED BASIS
SHARES AMOUNT CAPITAL RECEIVABLE EARNINGS ADJUSTMENT TOTAL
--------- ------ ------- ------------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1992................... 1,203,810 $ 1 $ 1,159 $ -- $ 695 $(1,416) $ 439
Warrant accretion....... -- -- -- -- (131) -- (131)
Net loss................ -- -- -- -- (319) -- (319)
--------- --- ------- ----- -------- ------- --------
Balance at December 31,
1993................... 1,203,810 1 1,159 -- 245 (1,416) (11)
Issuance of common
stock.................. 300,952 1 716 (556) -- -- 161
Purchase and retirement
of stock............... (954,098) (1) -- -- (3,772) -- (3,773)
Subscription payment.... -- -- -- 46 -- -- 46
Warrant accretion....... -- -- -- -- (527) -- (527)
Net loss................ -- -- -- -- (1,768) -- (1,768)
--------- --- ------- ----- -------- ------- --------
Balance at December 31,
1994................... 550,664 1 1,875 (510) (5,822) (1,416) (5,872)
Exercise of common stock
options................ 19,669 -- 27 -- -- -- 27
Warrant accretion....... -- -- -- -- (19,430) -- (19,430)
Exercise of common stock
warrants............... 2,636,439 2 25,969 -- -- -- 25,971
Subscription payment.... -- -- -- 510 -- -- 510
Purchase and retirement
of stock............... (85,331) -- (782) -- -- -- (782)
Net loss................ -- -- -- -- (2,076) -- (2,076)
--------- --- ------- ----- -------- ------- --------
Balance at December 19,
1995................... 3,121,441 $ 3 $27,089 $ -- $(27,328) $(1,416) $ (1,652)
========= === ======= ===== ======== ======= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-60
<PAGE>
CDG HOLDING CORP.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
----------------- ------------
1993 1994 1995
------- -------- ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss..................................... $ (319) $ (1,768) $(2,076)
Adjustments to reconcile net loss to net cash
provided by operating activities
Depreciation and amortization.............. 775 1,101 1,090
Provision for bad debts.................... 126 119 (85)
Amortization of goodwill and other
intangible assets......................... 1,454 2,068 2,538
Amortization of discount on long-term
debt...................................... 421 707 999
Deferred income taxes...................... 386 (154) 509
Write-off of operating certificates........ -- 654 --
Noncash employee compensation.............. -- 154 500
Change in operating assets and liabilities
Accounts receivable....................... (722) (2,577) (1,415)
Other assets.............................. 115 (738) (6,248)
Accounts payable.......................... 1,506 3,381 3,210
Accrued liabilities....................... (1,036) (1,725) 2,444
Income taxes payable...................... (101) (95) (447)
Deferred compensation..................... (202) (149) (260)
------- -------- -------
Net cash provided by operating
activities............................. 2,403 978 759
------- -------- -------
Cash flows from investing activities
Capital expenditures, net of disposals....... (1,132) 880 (616)
Purchase of companies, net of cash acquired.. (3,123) (14,391) (3,502)
------- -------- -------
Net cash used in investing activities... (4,255) (13,511) (4,118)
------- -------- -------
Cash flows from financing activities
Net increase in revolving line of credit..... 1,385 4,763 347
Payments of debt............................. (865) (4,240) (2,705)
Proceeds from issuance of debt............... -- 15,208 6,551
Purchase/retirement of common stock.......... -- (2,961) (782)
Proceeds from sale of common stock........... -- 556 --
Exercise of stock options.................... -- -- 27
Exercise of stock warrants................... -- -- 2
------- -------- -------
Net cash provided by financing
activities............................. 520 13,326 3,440
------- -------- -------
Net (decrease) increase in cash and cash
equivalents.................................. (1,332) 793 81
Cash and cash equivalents
Beginning of the period...................... 1,661 329 1,122
------- -------- -------
End of the period............................ $ 329 $ 1,122 $ 1,203
======= ======== =======
Supplemental disclosure of cash flow
information
Cash paid during the period for
Interest.................................... $ 925 $ 1,733 $ 3,795
Income taxes................................ 297 501 224
Disclosure of noncash investing and financing
activities
Non-cash employee compensation............... 315 500
Supplemental schedule of noncash investing and
financing activities
In conjunction with the Courier Dispatch's
acquisitions, liabilities were assumed as
follows:
Fair value of assets acquired................ $ 3,095 $ 13,540 $ 3,150
Cash paid for capital stock and assets....... (2,115) (12,127) (2,881)
------- -------- -------
Liabilities assumed......................... $ 980 $ 1,413 $ 269
======= ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-61
<PAGE>
CDG HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. BUSINESS AND ORGANIZATION
CDG Holding Corp. ("Holding") and its subsidiary, Courier Dispatch Group,
Inc. ("CDG"), collectively, "Courier Dispatch", provide air and ground courier
services for customers requesting delivery of time-sensitive documents.
Courier Dispatch operates in the southeast, northeast, and midwest.
Courier Dispatch and its stockholders entered into a definitive merger
agreement with United TransNet, Inc. (the "Company") pursuant to which a
wholly-owned subsidiary of the Company merged with Courier Dispatch. Under the
merger agreement, all outstanding shares of Courier Dispatch's capital stock
were converted into shares of the Company's Common Stock concurrently with the
consummation of an initial public offering of such Common Stock.
Simultaneously with the entry by Courier Dispatch into such merger agreement,
five other companies, Tricor America, Inc. ("Tricor"); Film Transit,
Incorporated ("Film Transit"); Lanter Courier Corporation ("Lanter"); Salmon
Acquisition Corporation and its operating subsidiary, Sunbelt Courier, Inc.
(collectively, "Sunbelt"); and 3D Distribution Systems, Inc. and its
affiliated corporations and subsidiaries (collectively, "3D") (collectively
with Courier Dispatch, the "Founding Companies") entered into substantially
similar merger agreements with the Company, pursuant to which wholly-owned
subsidiaries of the Company merged with such Founding Companies (the
"Mergers").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The more significant accounting policies followed by Courier Dispatch are
summarized below:
Basis of Presentation
The consolidated financial statements include the accounts of Courier
Dispatch and its subsidiary. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period, the most significant of which are
related to insurance accruals. Actual results could differ from those
estimates.
Disclosures About Fair Value of Financial Instruments
In preparing disclosures about the fair value of financial instruments,
Courier Dispatch has assumed that the carrying amount approximates fair value
for cash and cash equivalents, accounts receivable, short-term debt and
accounts payable. The fair value of long-term debt instruments is based upon
the current interest rate environment and remaining term to maturity (see Note
6). Courier Dispatch feels that the carrying value of long-term debt
approximates the fair value.
Cash and Cash Equivalents
Courier Dispatch considers all highly liquid investments with original
maturities of three months or less to be cash equivalents. Cash equivalents
are carried at cost, which approximates fair market value.
Property and Equipment
Property and equipment is recorded at cost. Additions and improvements are
capitalized while maintenance and repair costs are charged to expense as
incurred. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets, which range from three to twenty-five
years. The cost and accumulated depreciation of property retired or otherwise
disposed of are removed from the accounts and any gain or loss is included in
income.
F-62
<PAGE>
CDG HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Other Assets
Other assets consist principally of prepayments, other receivables, supply
items and advances to employees.
Goodwill and Intangible Assets
Goodwill and intangible assets are amortized on a straight-line basis over
periods ranging from 1 to 15 years. The carrying value of intangible assets is
evaluated for indications of possible impairment whenever events or changes in
circumstances indicate that the carrying value of an intangible asset may not
be recoverable. Events or changes in circumstances which may indicate
impairment include a significant adverse change in legal factors, business
climate or government regulation and current cash flow losses combined with a
history of cash flow losses or forecasted continuing cash flow losses
associated with an acquired company. The review is based on comparing the
carrying amount to the undiscounted estimated cash flows before interest
charges from operations over the remaining amortization period.
Goodwill was $6,874 and $15,195 at December 31, 1993 and 1994. Related
accumulated amortization totaled $972 and $1,753, respectively.
Insurance Claims
Courier Dispatch is self-insured with respect to certain aspects of its
workers' compensation, general liability and automobile and physical damage on
vehicles. The accompanying financial statements include an insurance accrual
based upon the third party administrator's and management's evaluations of
estimated future ultimate costs of outstanding claims and an estimated
liability for claims incurred but not reported on an undiscounted basis. The
ultimate cost of these claims will depend on the outcome of individual claims
given the potential for these claims to increase or decrease over time.
Deferred Compensation
Courier Dispatch has an agreement with its former chairman that provides for
minimum specified annual payments until his death. The accrual for these
payments at December 31, 1993 and 1994 was approximately $1,090 and $732,
respectively.
Revenue
Revenue is recognized when the delivery is completed or the services are
rendered to customers.
Income Taxes
Taxes on income are determined by using the liability method as prescribed
by Statement of Financial Accounting Standards No. 109 ("FAS 109"),
"Accounting for Income Taxes." This approach requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences
of events that have been recognized in Courier Dispatch's financial statements
or tax returns. In estimating future tax consequences, FAS 109 requires the
consideration of all expected future events other than enactments of changes
in the tax laws or rates.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current presentation.
Business Combinations
In May 1993, Courier Dispatch acquired the outstanding capital stock of a
delivery service in Alabama in exchange for $1,964, which included notes of
$500 for the acquisition of a non-compete agreement with the company's
stockholder. The acquired company provides statewide ground courier service
for customers. The allocation of purchase price included the assignment of
approximately $1,964 to intangible assets.
F-63
<PAGE>
CDG HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
In October 1992 and April 1993, Courier Dispatch acquired all the customer
agreements and certain other records and the air banking division of delivery
services in Minnesota and Missouri in exchange for $320 and $1,131,
respectively, which included notes of $100 and $480, respectively, for non-
compete agreements entered into with certain stockholders and employees of
these companies. The allocation of purchase price included the assignment of
approximately $320 and $1,131 to intangible assets.
Effective March 28, 1994, Courier Dispatch acquired all of the outstanding
common stock of a delivery service in Florida and non-compete agreements
entered into with certain stockholders of the acquired company in exchange for
$2,575 in cash plus the issuance of $1,103 in notes in consideration of the
non-compete agreements. The allocation of purchase price included the
assignment of approximately $2,657 to intangible assets.
Effective June 30, 1994, Courier Dispatch acquired all of the outstanding
common stock of two delivery services in North Carolina and Minnesota in
exchange for $9,700 and $1,265, respectively, which includes the issuance of
$300 and $10 in notes, respectively, for the entry into non-compete agreements
with certain stockholders and employees of these companies. The allocation of
purchase price included the assignment of approximately $8,525 and $1,045,
respectively, to intangible assets.
In April 1995, Courier Dispatch acquired the outstanding capital stock of a
delivery service in Minnesota in exchange for $150 in cash and $350 in notes.
Courier Dispatch also acquired all of the assets of a related delivery service
in Minnesota in exchange for $2,650, of which $400 was paid in cash and the
balance of which was paid by delivery of a 9% promissory note, payable in
quarterly installments until maturity on March 31, 1999, plus the assumption
of $269 of the company's liabilities. As part of these acquisitions, Courier
Dispatch entered into non-compete agreements with certain stockholders of each
of the acquired companies. The allocation of purchase price for these
purchases included the assignment of approximately $448 and $1,992,
respectively, to intangible assets.
These acquisitions were accounted for under the purchase method of
accounting which requires allocation of the acquisition cost to assets
acquired and liabilities assumed based upon their fair values at the date of
acquisition. Under purchase accounting, the excess of the acquisition costs
over the fair value of the acquired assets less assumed liabilities is
recorded as goodwill. The intangible assets acquired in the business
combinations above are amortized over periods ranging from 3 to 15 years,
depending on the life of the asset. The results of these combinations are
included in the consolidated statements from the date of acquisition.
The following presents the unaudited results of operations of Courier
Dispatch for the years ended December 31, 1993 and 1994 as if the June 30,
1994 North Carolina acquisition had occurred on January 1, 1994. The pro forma
information below also includes certain adjustments, including the effects of
amortization of intangible assets and interest expense related to additional
borrowings to fund the acquisition. The impact of other acquisitions made by
Courier Dispatch in 1993, 1994 and 1995 is not reflected in the accompanying
pro forma information because it is not material.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1993 1994
------- --------
(UNAUDITED)
<S> <C> <C>
Net revenues ............................................ $97,284 $117,985
Net (loss)............................................... (263) (2,583)
</TABLE>
F-64
<PAGE>
CDG HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1993 1994
------- -------
<S> <C> <C>
Land....................................................... $ 577 $ 577
Buildings.................................................. 1,995 2,007
Delivery vehicles.......................................... 173 2,921
Equipment and furnishings.................................. 2,355 3,740
Leasehold improvements..................................... 916 1,269
------- -------
6,016 10,514
Less accumulated depreciation and amortization............. (1,668) (4,956)
------- -------
$ 4,348 $ 5,558
======= =======
</TABLE>
4. INTANGIBLE ASSETS
Intangible assets consists of the following:
<TABLE>
<CAPTION>
ESTIMATED
AMORTIZABLE DECEMBER 31,
LIVES ----------------
(YEARS) 1993 1994
----------- ------- -------
<S> <C> <C> <C>
Customer lists................................. 5-12 $ 2,036 $ 6,566
Noncompete agreements.......................... 1-7 2,515 3,942
Operating certificates......................... 5-11 812 --
Other intangibles.............................. 6 1,070 1,070
------- -------
6,433 11,578
Less accumulated amortization.................. (2,372) (3,482)
------- -------
$ 4,061 $ 8,096
======= =======
</TABLE>
5. ACCRUED LIABILITIES
Accrued liabilities consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1993 1994
------ ------
<S> <C> <C>
Accrued payroll and related benefits........................... $ 942 $1,503
Accrued vacation............................................... 387 440
Accrued insurance.............................................. 793 498
Other accrued liabilities...................................... 728 1,552
------ ------
$2,850 $3,993
====== ======
</TABLE>
F-65
<PAGE>
CDG HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
6. SHORT-TERM AND LONG-TERM DEBT
Short-term and long-term debt consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1993 1994
------- -------
<S> <C> <C>
Term loan payable in varying monthly installments, plus
interest at the prime rate (8.5% at December 31, 1994)
plus 1/2%............................................... $ 1,676 $ 1,552
Revolving line of credit with interest payable monthly at
the prime rate (8.5% at December 31, 1994) plus 1/2%.... 1,385 6,148
Series A Senior Subordinated Notes, due to related
parties, net of imputed interest of approximately $544
at December 31, 1994, due February 1999; interest
payable quarterly at 10%................................ -- 2,656
Series B Amended and Restated Junior Subordinated Notes,
due to a related party, net of imputed interest of
approximately $1,477 and $1,088 at December 31, 1993 and
1994, respectively, due September 1996; interest payable
quarterly at 11.5%...................................... 2,173 2,562
Series C Amended and Restated Junior Subordinated Notes,
due to a related party, net of imputed interest of
approximately $920 and $702 at December 31, 1993 and
1994, respectively, due September 1996, interest payable
quarterly at 15%........................................ 1,080 1,298
Acquisition loans payable in varying monthly
installments, plus interest at the prime rate (8.5% at
December 31, 1994) plus 1/2%............................ -- 11,708
Guarantee of term promissory note for management's
purchase of common stock payable in varying annual
installments, plus interest at the rate of prime (8.5%
at December 31, 1994) plus 1%; final payment due
February 1997........................................... -- 510
Notes payable, net of imputed interest of approximately
$67 and $10 at December 31, 1993 and 1994,
respectively............................................ 657 426
Other notes payable...................................... 66 201
Other non-compete agreements............................. 64 35
------- -------
7,101 27,096
Less current portion..................................... (1,819) (8,725)
------- -------
5,282 18,371
Less subordinated debt to related parties................ (3,253) (6,516)
------- -------
$ 2,029 $11,855
======= =======
</TABLE>
Term Loan
On September 30, 1991, Courier Dispatch entered into a loan agreement (the
"Agreement") with a bank. The Agreement provides Courier Dispatch with a
$5,400 credit facility consisting of a $3,000 revolving line of credit, a $600
senior term loan and a $1,800 senior term loan. During 1992, the $600 senior
term loan was paid. The revolving line of credit expires in March 1997, and is
revocable upon the occurrence of certain events. At December 31, 1994, the
balance outstanding under the line of credit was approximately $6,148. During
1993, Courier Dispatch entered into a second loan agreement (the "Amendment")
with the bank. The Amendment provides Courier Dispatch with an additional $500
under the revolving line of credit, amends the original amortization period of
the $1,800 term loan, changes its maturity date and amends certain financial
loan covenants.
F-66
<PAGE>
CDG HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
During 1994, Courier Dispatch entered into two loan agreements (the
"Restated Agreement" and the "New Agreement") with the bank. Together these
agreements provided Courier Dispatch with an additional $1,500 under the
revolving line of credit, extended the term of the revolving line of credit
three years, provided for acquisition loans in the aggregate amount of $12,500
for the purchases of the Florida, North Carolina and Minnesota entities and
amended certain financial loan covenants.
Borrowings under the line of credit averaged approximately $1,131 and
$3,869, respectively, with corresponding average interest rates of 6.25% and
7.29% for the years ended December 31, 1993 and 1994. Maximum borrowings were
approximately $1,600 and $6,148, respectively for the years ended December 31,
1993 and 1994.
Borrowings under the line of credit are subject to certain percentage
limitations of eligible accounts receivable as specified in the Restated
Agreement and the New Agreement. Courier Dispatch may elect on any October 1
through loan maturity to pay interest at a fixed rate as set by the lender for
any one-year period beginning October 1 for the term loan. Borrowings under
the facility are secured by substantially all of the assets of Courier
Dispatch. The Restated Agreement and the New Agreement also provide for the
issuance of standby letters of credit in the amount of approximately $1,600.
The letters of credit expire at various dates through March 1997.
The Restated Agreement and the New Agreement contain numerous covenants,
including but not limited to, the maintenance of specified financial ratios,
limitations on capital additions and disposals and limitations on additional
borrowings. At December 31, 1994, Courier Dispatch was in compliance with or
had obtained waivers for noncompliance of all of the financial ratio
covenants.
During 1995, Courier Dispatch restructured certain of its existing debt with
a bank by combining certain of its acquisition loans into one instrument.
Courier Dispatch also borrowed an additional $1,300 under this new facility.
The new note bears interest at the rate of prime plus 1% and matures on
January 15, 1997.
Subordinated Notes
The Series B Amended and Restated Junior Subordinated and C Amended and
Restated Junior Subordinated Notes ("Series B and C Notes") of $2,452 and
$1,235, respectively, are payable in full on September 30, 1996 or upon the
occurrence of certain capital transactions as specified in the loan
agreements, as amended. The Series A Senior Subordinated Notes ("Series A
Notes") of $2,626 related to Courier Dispatch's repurchase and retirement of
common stock in 1994 and is payable in full on February 18, 1999. During 1995,
Courier Dispatch issued additional Series A Senior Subordinated Notes ("Series
A Notes Four, Five and Six"). The Series A Notes Four, Five and Six are
payable in full on February 18, 1999. The Series A Note, and Series A Notes
Four, Five and Six and Series B and Series C Notes are secured by a priority
interest in substantially all of the assets of Courier Dispatch.
Debt maturities are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1995............................................................. $ 8,725
1996............................................................. 12,243
1997............................................................. 3,862
1998............................................................. 1,515
1999 and thereafter.............................................. 751
-------
$27,096
=======
</TABLE>
F-67
<PAGE>
CDG HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
7. COMMON STOCK WARRANTS
In connection with the issuance of the Subordinated Notes, warrants for the
purchase of common stock of Courier Dispatch were issued to the lenders as
follows:
<TABLE>
<CAPTION>
NUMBER ASSIGNED
OF WARRANTS VALUE
----------- --------
<S> <C> <C>
Series A Senior Notes 4 through 6...................... 666,666 $ 667
Series A Senior Notes 1 through 3...................... 653,146 653
Series B Junior Notes.................................. 752,381 1,731
Series C Junior Notes.................................. 551,746 1,269
</TABLE>
These warrants are exercisable in whole or in part at any time and expire
upon the earliest of September 30, 2002 or the sixth anniversary of the
prepayment in full of the related subordinated debt. The warrants provide for
various rights, including the right to require Courier Dispatch to purchase
the warrants after September 30, 1996 for the warrants issued in connection
with the Series B and C Notes and February 18, 1999 for the warrants issued in
connection with the Series A Notes or upon the occurrence of an event of
default, at the greater of a formula price as defined in the securities
purchase agreement ("formula price") or fair market value (as determined by
negotiation or appraisal). At any time after the later of September 30, 1998
for the warrants issued in connection with the Series B and C Notes and
February 18, 2001 for the warrants issued in connection with the Series A
Notes, or, in either case, payment in full of all subordinated notes issued
pursuant to the securities purchase agreement, Courier Dispatch may purchase,
at its option, all of the warrants at the greater of the formula price or fair
market value. The warrants are exercisable at a nominal exercise price. The
valuation of these warrants resulted in an original issue discount on the
related debt which is being amortized using the interest method over the term
of the related debt.
In connection with the restructuring of certain of its bank debt in July
1995, 12,500 warrants for the purchase of common stock of Courier Dispatch
were issued to the lender.
Transactions related to common stock warrants for each of the two years
ended December 31, 1994 and the period ended December 19, 1995 are as follows:
<TABLE>
<CAPTION>
NUMBER ASSIGNED
OF WARRANTS VALUE
----------- --------
<S> <C> <C>
Balance at December 31, 1992......................... 1,304,127 $ 4,561
Issuance............................................ -- --
Accretion........................................... -- 131
---------- --------
Balance At December 31, 1993......................... 1,304,127 4,692
Issuance............................................ 653,146 653
Accretion........................................... -- 527
---------- --------
Balance at December 31, 1994......................... 1,957,273 5,872
Issuance............................................ 679,166 667
Accretion........................................... -- 19,430
Exercise............................................ (2,636,439) (25,969)
---------- --------
Balance at December 19, 1995......................... -- $ --
========== ========
</TABLE>
8. STOCKHOLDERS' EQUITY
In February 1994, Courier Dispatch repurchased and retired 954,098 shares of
common stock from minority owners. Immediately upon completion of the purchase
of the common stock and the placement of the related indebtedness to fund such
purchase, Courier Dispatch sold 300,952 shares of common stock to certain
members of Courier Dispatch's management. After these transactions there were
550,664 shares of common stock issued and outstanding.
F-68
<PAGE>
CDG HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Management's purchase of common stock was financed through bank loans to
management which Courier Dispatch has guaranteed. Courier Dispatch has
recorded these loans in its accounts and the stock subscriptions receivable in
its equity. The loan and stock subscriptions receivable are reduced as
management makes principal payments.
In February 1994, Courier Dispatch recapitalized its existing equity
structure, resulting in a change in the authorized common stock from 3,000,000
shares authorized at December 31, 1993 to 3,750,000 shares of Class A voting
common stock authorized and 3,750,000 shares of Class B non-voting common
stock authorized. Subsequent to the recapitalization, total shares issued and
outstanding remained at 550,664 shares of Class A voting stock.
9. INCOME TAXES
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
------------ ------------
1993 1994 1995
------------ ------------
<S> <C> <C> <C>
Current tax provision (benefit)
Federal............................................. $ 121 $ 30 $(166)
State............................................... 85 94 --
----- ------ -----
206 124 (166)
----- ------ -----
Deferred tax provision (benefit)
Federal............................................. 330 (131) 433
State............................................... 56 (23) 76
----- ------ -----
386 (154) 509
----- ------ -----
Total provision (benefit). .......................... $ 592 $ (30) $ 343
===== ====== =====
</TABLE>
In 1993 and 1994, Courier Dispatch utilized approximately $128 and $125,
respectively, of alternative minimum tax credits which were generated in 1991
and 1992 to reduce its current federal income tax expense.
The deferred tax assets (liabilities) consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1993 1994
------- -------
<S> <C> <C>
Deferred tax assets
Insurance accrual......................................... $ 2,545 $ 2,513
Deferred compensation..................................... 403 293
Vacation accrual.......................................... 118 139
Accounts receivable allowance............................. 137 132
Other..................................................... 290 349
------- -------
3,493 3,426
------- -------
Deferred tax liabilities
Accumulated depreciation.................................. (572) (448)
------- -------
(572) (448)
------- -------
Valuation allowance........................................ (1,985) (1,888)
------- -------
$ 936 $ 1,090
======= =======
</TABLE>
F-69
<PAGE>
CDG HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The differences in income taxes provided and the amounts determined by
applying the federal statutory tax rate to income before income taxes result
from the following:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
------------ ------------
1993 1994 1995
------------ ------------
<S> <C> <C> <C>
Tax provision (benefit) at federal statutory rate.. $ 93 $ (611) $(589)
State income taxes, net of federal income tax
benefit........................................... 71 63 --
Nondeductible expenses, primarily goodwill......... 268 615 656
Effect of valuation allowance...................... 160 (97) 276
----- ------ -----
$ 592 $ (30) $ 343
===== ====== =====
</TABLE>
10. STOCK OPTION PLAN
Courier Dispatch has in place a stock option plan whereby selected members
of Courier Dispatch's management have been granted options to purchase shares
of Courier Dispatch's common stock. Transactions related to stock options for
each of the two years ended December 31, 1994 and the period ended December
19, 1995 are as follows:
<TABLE>
<CAPTION>
OPTION PRICE
SHARES PER SHARE
------- ------------
<S> <C> <C>
Outstanding at December 31, 1992........................ 29,343 $ 1.40
Granted................................................. 48,163 1.40
Exercised............................................... -- --
Canceled or expired..................................... -- --
------- -----------
Outstanding at December 31, 1993........................ 77,506 1.40
Granted................................................. 94,535 1.40--3.00
Exercised............................................... -- --
Canceled or expired..................................... -- --
------- -----------
Outstanding at December 31, 1994........................ 172,041 1.40--3.00
Granted................................................. 167,503 1.40--3.00
Exercised............................................... 19,669 1.40
Canceled or expired..................................... -- --
------- -----------
Outstanding at December 19, 1995........................ 319,875 $1.40--3.00
======= ===========
</TABLE>
Compensation expense related to the stock options for the years ended
December 31, 1993, 1994 and the period ended December 19, 1995 was
approximately $0, $154, and $500, respectively.
F-70
<PAGE>
CDG HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
11. COMMITMENTS AND CONTINGENCIES
Lease Commitments
Courier Dispatch leases office and operating facilities and certain
equipment under noncancelable operating leases with terms in excess of one
year. Future minimum lease payments required by operating leases approximate
the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1995............................................................ $1,540
1996............................................................ 1,352
1997............................................................ 1,076
1998............................................................ 860
1999 and thereafter............................................. 617
------
$5,445
======
</TABLE>
Several operating lease agreements have provisions for escalation in rents
to approximate the change in the consumer price index. In addition, Courier
Dispatch leases office and operating facilities and certain vehicles and
equipment on a month-to-month basis. Lease expense for the years ended
December 31, 1993 and 1994 and for the period ended December 19, 1995 were
approximately $4,494, $7,061 and $8,322, respectively.
Litigation
Courier Dispatch is, from time to time, a party to litigation arising in the
normal course of its business, most of which involves claims for personal
injury and property damage incurred in connection with its operations.
Management believes that none of these actions will have a material adverse
effect on the financial position or results of operations of Courier Dispatch.
Self-Insurance Program
Courier Dispatch is self-insured with respect to certain aspects of its
workers' compensation, general liability and automobile and physical damage on
vehicles claims. The self-insured risk is $100 per general liability claim and
$250 per workers compensation and automobile and vehicle damage claims. In
accordance with the terms of the insurance policy, Courier Dispatch maintains
a $1,240 letter of credit with a commercial bank in favor of the insurer.
Management believes that any claims as of December 19, 1995 arising under this
self-insurance program will not have a material adverse effect on the
financial position or results of operations of Courier Dispatch.
12. RELATED PARTY TRANSACTIONS
At December 31, 1993 and 1994, Courier Dispatch had outstanding $2,173 and
$3,890 of its subordinated notes, net of imputed interest, with a bank. In
connection with the notes, the bank acquired warrants to purchase 1,412,287
shares of Courier Dispatch's common stock. A managing director of the bank is
a director of Courier Dispatch.
At December 31, 1993 and 1994, Courier Dispatch had outstanding $1,080 and
$2,626 of its subordinated notes, net of imputed interest, with another bank.
In connection with the notes, the bank acquired warrants to purchase 1,211,652
shares of Courier Dispatch's common stock. An executive vice president of the
bank is a director of Courier Dispatch. An affiliate of the bank is a
significant customer of Courier Dispatch. At December 31, 1993 and 1994,
Courier Dispatch had an account receivable balance of approximately $250 and
$1,184,
F-71
<PAGE>
CDG HOLDING CORP.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
respectively, from this customer. Sales to this customer approximated $4,972,
$5,513 and $6,458 for the years ended December 31, 1993 and 1994 and the
period ended December 19, 1995, respectively.
13. EMPLOYEE BENEFIT PLANS
Effective October 1, 1994, Courier Dispatch adopted a defined contribution
plan. Courier Dispatch pays all general and administrative expenses of the
plan and has the option to make contributions to the plan at its sole
discretion. For the year ended December 31, 1994 and the period ended December
19, 1995, Courier Dispatch made no contributions to the plan. General and
administrative expenses related to the plan for the year ended December 31,
1994 and the period ended December 19, 1995 were $23 and $47, respectively.
14. CONCENTRATION OF CREDIT RISK
During the years ended December 31, 1993 and 1994 and the period ended
December 19, 1995, no one customer represented greater than 10% of total sales
revenue of Courier Dispatch. Courier Dispatch operates primarily in the
southeast, northeast and midwest. Services to financial institutions comprised
approximately 55% of total sales for each of the years ended December 31, 1993
and 1994 and the period ended December 19, 1995, with the remainder of sales
primarily relating to pharmaceutical and other. Although Courier Dispatch is
affected by the creditworthiness of its customers, management does not believe
significant credit risk exists at December 19, 1995. Courier Dispatch
generally does not require collateral, and maintains reserves for potential
credit losses. Historically, such losses have been within management's
expectations.
15. SUBSEQUENT EVENTS
On December 20, 1995, in exchange for shares of Common Stock, Courier
Dispatch merged with a wholly-owned subsidiary of the Company.
F-72
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-73
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Boards of Directors and Stockholder
of Tricor America, Inc.
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, of stockholder's equity and of cash flows
present fairly, in all material respects, the financial position of Tricor
America, Inc. ("Tricor") at December 31, 1993 and 1994, and the results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1994, and for the period ended December 19, 1995, in conformity
with generally accepted accounting principles. These financial statements are
the responsibility of Tricor's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Sacramento, California
March 12, 1996
F-74
<PAGE>
TRICOR
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1993 1994
------- -------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents..................................... $ 834 $ 2,411
Accounts receivable, less allowance of $229 and $230.......... 3,988 4,421
Short-term investments........................................ -- 500
Prepaid workers' compensation................................. 685 --
Prepaids and other assets..................................... 368 206
------- -------
Total current assets....................................... 5,875 7,538
Property and equipment, net.................................... 3,902 3,808
Other assets................................................... 668 485
------- -------
$10,445 $11,831
======= =======
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities
Current maturities of long-term debt.......................... $ 975 $ 688
Accounts payable.............................................. 725 595
Accrued liabilities........................................... 1,552 1,523
Income taxes payable.......................................... 26 2
------- -------
Total current liabilities.................................. 3,278 2,808
Long-term debt, net of current maturities..................... 2,209 1,533
------- -------
5,487 4,341
------- -------
Stockholder's equity
Common stock.................................................. 65 65
Retained earnings............................................. 4,893 7,425
------- -------
4,958 7,490
------- -------
Commitments and contingencies.................................. -- --
------- -------
$10,445 $11,831
======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-75
<PAGE>
TRICOR
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
---------------- ------------
1993 1994 1995
------- ------- ------------
<S> <C> <C> <C>
Net revenues.................................... $32,504 $34,288 $37,252
Cost of delivery................................ 23,726 24,846 27,172
------- ------- -------
Gross profit................................... 8,778 9,442 10,080
Selling, general and administrative expenses.... 6,789 7,058 6,898
Amortization of intangible assets............... 100 172 --
------- ------- -------
Operating income............................... 1,889 2,212 3,182
Other income (expense)
Interest expense............................... (249) (276) (186)
Interest income and other, net................. 67 2,191 178
------- ------- -------
Income before income taxes...................... 1,707 4,127 3,174
Provision for income taxes...................... 41 15 18
------- ------- -------
Net income...................................... $ 1,666 $ 4,112 $ 3,156
======= ======= =======
Unaudited pro forma data (Note 9)
Income before income taxes..................... $ 1,707 $ 4,127 $ 3,174
Pro forma provision for income taxes........... 703 851 1,293
------- ------- -------
Net income...................................... $ 1,004 $ 3,276 $ 1,881
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-76
<PAGE>
TRICOR
COMBINED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
------ ------ -------- -------
<S> <C> <C> <C> <C>
Balance at December 31, 1992................... 368 $65 $ 3,835 $ 3,900
Distributions to stockholder................... -- -- (608) (608)
Net income..................................... -- -- 1,666 1,666
--- --- ------- -------
Balance at December 31, 1993................... 368 65 4,893 4,958
Distributions to stockholder................... -- -- (1,580) (1,580)
Net income..................................... -- -- 4,112 4,112
--- --- ------- -------
Balance at December 31, 1994................... 368 65 7,425 7,490
Distributions to stockholder................... -- -- (7,128) (7,128)
Net income..................................... -- -- 3,156 3,156
--- --- ------- -------
Balance at December 19, 1995................... 368 $65 $ 3,453 $ 3,518
=== === ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-77
<PAGE>
TRICOR
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
---------------- ------------
1993 1994 1995
------- ------- ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income..................................... $ 1,666 $ 4,112 $ 3,156
Adjustments to reconcile net income to net cash
provided by operating activities..............
Depreciation.................................. 541 574 543
Provision for bad debts....................... 23 79 --
Amortization of intangible assets............. 100 105 --
Write-off of intangible assets ............... -- 67 --
Change in operating assets and liabilities
Accounts receivable.......................... (832) (512) (331)
Prepaid workers' compensation................ -- 685 --
Deferred and other assets.................... (244) 173 (180)
Accounts payable............................. (217) (130) 1,271
Income taxes payable......................... -- (24) --
Accrued liabilities.......................... 443 (29) 199
Dividend payable............................. -- -- 402
------- ------- -------
Net cash provided by operating activities...... 1,480 5,100 5,060
------- ------- -------
Cash flows from investing activities
Net (purchases) sales of short-term
investments.................................. -- (500) 500
Capital expenditures, net of disposals........ (437) (348) (407)
------- ------- -------
Net cash (used in) provided by investing
activities.................................... (437) (848) 93
------- ------- -------
Cash flows from financing activities
Payments of debt.............................. (812) (1,095) (716)
Distributions to stockholder.................. (608) (1,580) (5,424)
------- ------- -------
Net cash used in financing activities.......... (1,420) (2,675) (6,140)
------- ------- -------
Net (decrease) increase in cash and cash
equivalents .................................. (377) 1,577 (987)
Cash and cash equivalents
Beginning of the period....................... 1,211 834 2,411
------- ------- -------
End of the period............................. $ 834 $ 2,411 $ 1,424
======= ======= =======
Supplemental disclosure of cash flow
information
Cash paid during the period for
Interest..................................... $ 249 $ 276 $ 186
Income taxes................................. 41 41
Disclosure of non-cash investing and financing
activities
Capital expenditures financed through issuance
of notes payable............................. 213 132
Workers' compensation premiums financed
through issuance of notes payable............ 738
Non-cash distributions to stockholder......... 1,302
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-78
<PAGE>
TRICOR
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. BUSINESS AND ORGANIZATION
Tricor America, Inc. ("Tricor") is engaged in interstate, intrastate and
international courier services for customers requiring delivery of time-
sensitive documents, using air and surface transportation. Tricor primarily
operates in the Western United States and Pacific Rim with the bulk of its
business concentrated with large banks and other financial services companies.
Tricor is closely held and commonly controlled by one individual, the
"stockholder." In October 1995, Tricor California, Inc. ("California"), Tricor
International ("International") and Tricor Nevada, Inc. ("Nevada") were merged
into and with Tricor America, Inc. Prior to this merger America, California,
and International were S corporations and Nevada was a C corporation.
California had authorized 10,000 shares of no par value common stock with 22.5
shares issued and outstanding, International had authorized 10,000 shares of
no par value common stock with 225 shares issued and outstanding, and Nevada
had authorized 2,500 shares of no par value common stock with 45 shares issued
and outstanding.
Tricor and its stockholder entered into a definitive merger agreement with
United TransNet, Inc. (the "Company") pursuant to which a wholly-owned
subsidiary of the Company merged with Tricor. Under the merger agreement, all
outstanding shares of Tricor's capital stock were converted into shares of the
Company's Common Stock and cash concurrently with the consummation of an
initial public offering of such Common Stock. Simultaneously with the entry by
Tricor into such merger agreement, five other companies, CDG Holding Corp. and
its operating subsidiary, Courier Dispatch Group, Inc. (collectively, "Courier
Dispatch"); Film Transit, Incorporated ("Film Transit"); Lanter Courier
Corporation ("Lanter"); Salmon Acquisition Corporation and its operating
subsidiary, Sunbelt Courier, Inc. (collectively, "Sunbelt"); and 3D
Distribution Systems, Inc. and its affiliated corporations and subsidiaries
(collectively, "3D") (collectively with Tricor, the "Founding Companies")
entered into substantially similar merger agreements with the Company,
pursuant to which wholly-owned subsidiaries of the Company merged with such
Founding Companies (the "Mergers"). Prior to consummating the Mergers, Tricor
distributed certain assets with a book value of $2,791, net of related
indebtedness of $1,489, to its stockholder as a dividend.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The more significant accounting policies followed by Tricor are summarized
below:
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period, the most significant of which are
related to insurance accruals. Actual results could differ from those
estimates.
Disclosures About Fair Value of Financial Instruments
In preparing disclosures about the fair value of financial instruments,
Tricor has assumed that the carrying amount approximates fair value for cash
and cash equivalents, accounts receivable, short-term investments, short-term
debt and accounts payable. The fair value of long-term debt instruments is
based upon the current interest rate environment and remaining term to
maturity (see Note 5). Tricor feels that the carrying value of long-term debt
approximates the fair value.
Cash and Cash Equivalents and Short-Term Investments
Cash and equivalents include certificates of deposit and money market
accounts, all of which have original maturities of three months or less.
Short-term investments, which consist of certificates of deposit with original
maturities between three months and one year, are accounted for at fair market
value, which approximates cost.
F-79
<PAGE>
TRICOR
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Property and Equipment
Property and equipment are recorded at cost. Additions and improvements are
capitalized while maintenance and repair costs are charged to expense as
incurred. Tricor computes depreciation using the double-declining balance
method over the estimated useful lives of the assets, which range from 5--31.5
years. The cost and accumulated depreciation of property retired or otherwise
disposed of are removed from the accounts and any gain or loss is included in
income.
Other Assets
Other assets is comprised primarily of prepaid expenses, other receivables
and a non-compete agreement with a stockholder which was written off in 1994.
Insurance Claims
Tricor is self-insured with respect to group health coverage and automobile
and physical damage on vehicles up to specified per claim and aggregate
amounts. The accompanying financial statements include an insurance accrual
based upon a third party administrator's and management's evaluations of
estimated future ultimate costs of outstanding claims and an estimated
liability for claims incurred but not reported on an undiscounted basis. The
ultimate cost of these claims will depend on the outcome of individual claims
given the potential for these claims to increase or decrease over time.
Revenue
Revenue is recognized when the delivery is completed.
Income Taxes
America, California, and International elected S corporation status for
federal and state tax purposes. Under S corporation rules, all income tax
liability flows through to Tricor's stockholder with the exception of certain
state taxes. Effective January 1, 1994, the state tax rate applicable to
Tricor changed from 2.5% to 1.5%. Nevada accounts for federal and state income
taxes in accordance with Statement of Financial Standards No. 109 (SFAS 109),
"Accounting for Income Taxes". See Note 9 for pro forma income tax
information.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current presentation.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1993 1994
------- -------
<S> <C> <C>
Land....................................................... $ 846 $ 846
Buildings.................................................. 1,728 1,728
Delivery vehicles.......................................... 1,776 1,915
Equipment and furnishings.................................. 1,280 1,392
Leasehold improvements..................................... 722 722
------- -------
6,352 6,603
Less accumulated depreciation and amortization............. (2,450) (2,795)
------- -------
$ 3,902 $ 3,808
======= =======
</TABLE>
F-80
<PAGE>
TRICOR
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
4. ACCRUED LIABILITIES
Accrued liabilities consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1993 1994
------ ------
<S> <C> <C>
Accrued payroll and related benefits.......................... $ 775 $ 697
Accrued insurance............................................. 479 414
Other accrued liabilities..................................... 298 412
------ ------
$1,552 $1,523
====== ======
</TABLE>
5. LONG-TERM DEBT
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1993 1994
------ ------
<S> <C> <C>
Long-term debt consists of the following:
Note payable, secured by land and building in Los Angeles,
California; payable in monthly principal and interest
installments of $3 to $5; bearing interest based on the
cost of funds for the 11th District savings institutions
plus a margin of 2.25%; interest at December 31, 1994 was
7.26%..................................................... $ 398 $ 361
Note payable, secured by land and building in Irving,
Texas; payable in monthly principal installments of $2
plus interest at an adjustable rate indexed to prime rate;
interest at December 31, 1994 was 9.75%................... 178 135
Contracts payable, secured by property and equipment
payable in monthly installments ranging from $22 to $23
including principal and interest at rates from 6.5% to
16.88%.................................................... 299 189
Note payable, secured by land and building in South San
Francisco, California, repaid in 1994..................... 236 --
Note payable, secured by land and building in South San
Francisco, California, payable in monthly installments of
$8 including principal and interest; bearing interest at
9.1%; payable in full at January 1, 1996.................. 899 890
Premium loan, Workers' Compensation Insurance, payable in
monthly installments ranging from $26 to $79 including
principal and interest, bearing interest at 6%............ 693 312
Note payable to former stockholder, in connection with
covenant not to compete, secured by a pledge of 25% of
Tricor's stock, payable in monthly installments of $8,
non-interest bearing...................................... 187 92
Note payable to former stockholder, in connection with
stock redemption, secured by the pledge of 25% of the
Tricor's stock, payable in monthly installments of $6 to
$14; bearing interest at 12%; payable in full at
January 1, 1996........................................... 280 238
Other notes payable........................................ 14 4
------ ------
3,184 2,221
Less -- current portion.................................... (975) (688)
------ ------
$2,209 $1,533
====== ======
</TABLE>
F-81
<PAGE>
TRICOR
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Debt maturities are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1995............................................................ $ 688
1996............................................................ 1,057
1997............................................................ 133
1998............................................................ 110
1999 and thereafter............................................. 233
------
$2,221
======
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
Lease Commitments
Tricor leases office and operating facilities from related parties and non-
related parties and certain equipment from non-related parties under
noncancelable operating leases with terms in excess of one year. Future
minimum lease payments required by operating leases approximate the following:
<TABLE>
<CAPTION>
YEAR ENDED RELATED NON-RELATED
DECEMBER 31, PARTIES PARTIES
------------ ------- -----------
<S> <C> <C>
1995............................................... $ 140 $203
1996............................................... 140 134
1997............................................... 50 64
1998............................................... 50 30
1999 and thereafter................................ 983 36
------ ----
$1,363 $467
====== ====
</TABLE>
Several operating lease agreements have provisions for escalation in rents
to approximate the change in the consumer price index and for Tricor's share
of real estate taxes and building operating expenses. Lease expense to related
parties for the years December 31, 1993, and 1994 and for the period ended
December 19, 1995 totaled approximately $115, $140 and $65, respectively.
Lease expense to non-related parties for the same periods totaled
approximately $244, $250 and $372, respectively.
Litigation
Tricor is, from time to time, a party to litigation arising in the normal
course of its business. Management believes that none of these actions will
have a material adverse effect on the financial position or results of
operations of Tricor.
7. EMPLOYEE RETIREMENT PLAN
Tricor has a Qualified 401(k) Employee Savings and Profit Sharing Plan for
the benefit of all eligible employees. Employees are eligible to participate
in the plan if they have been employed by Tricor for one year and work at
least 20 hours per week. Generally, employees can defer up to 15% of their
salary under the plan. Tricor can make a discretionary matching contribution
based on a percentage of the deferral up to 5% of the yearly compensation.
Employer contributions for the plan for the year ended December 31, 1993 and
1994, and for the period ended December 19, 1995, totaled approximately $101,
$103, and $165, respectively.
8. LIFE INSURANCE PROCEEDS
During 1994, Tricor received life insurance proceeds totaling approximately
$2,015 upon the death of a former officer of Tricor, which are recorded as
other income.
F-82
<PAGE>
TRICOR
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
9. UNAUDITED PRO FORMA INFORMATION
Income Taxes
Tricor has calculated the December 31, 1993 and 1994 and the December 19,
1995 pro forma provision for income taxes under Financial Accounting Standards
Board Statement No. 109 (SFAS 109).
The pro forma income tax provision is as follows:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
-------------- ------------
1993 1994 1995
------ ------ ------------
<S> <C> <C> <C>
Current tax provision
Federal......................................... $ 568 $ 649 $1,037
State........................................... 170 194 301
------ ------ ------
738 843 1,338
------ ------ ------
Deferred tax (benefit) provision
Federal......................................... (28) 4 (43)
State........................................... (7) 4 (2)
------ ------ ------
(35) 8 (45)
------ ------ ------
Total provision.............................. $ 703 $ 851 $1,293
====== ====== ======
</TABLE>
The differences in pro forma income taxes provided and the amounts
determined by applying the federal statutory tax rate to income before income
taxes result from the following:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
------------- ------------
1993 1994 1995
------------- ------------
<S> <C> <C> <C>
Tax at federal statutory rate.................. $ 581 $ 1,403 $1,079
State income taxes, net of federal income tax
benefit....................................... 108 133 193
Life insurance proceeds........................ -- (685) --
Other.......................................... 14 -- 21
----- ------- ------
$ 703 $ 851 $1,293
===== ======= ======
</TABLE>
Pro forma deferred income taxes result from temporary differences in the
recognition of certain expenses for financial and income tax reporting
purposes.
Deferred taxes would be provided for the temporary differences between the
financial reporting basis and the tax basis of Tricor's assets and
liabilities. Pro forma deferred tax assets would consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1993 1994
------ ------
<S> <C> <C>
Compensated absence accrual................................... $ 132 $ 144
Self-insurance accrual........................................ 208 179
State income taxes............................................ 25 35
Other......................................................... 104 103
------ ------
$ 469 $ 461
====== ======
</TABLE>
10. SUBSEQUENT EVENTS
On December 20, 1995, in exchange for shares of Common Stock and cash,
Tricor merged with a wholly-owned subsidiary of the Company.
F-83
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-84
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Film Transit, Incorporated
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of Film
Transit, Incorporated and its subsidiary (collectively, "Film Transit") at
December 31, 1993 and 1994, and the results of their operations and their cash
flows for each of the two years in the period ended December 31, 1994 and for
the period ended December 19, 1995, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of
Film Transit's management; our responsibility is to express an opinion on
these financial statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Memphis, Tennessee
March 12, 1996
F-85
<PAGE>
FILM TRANSIT, INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1993 1994
------- -------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.................................. $ 425 $ 101
Short-term investments..................................... -- 400
Accounts receivable, less allowance of $60 and $60......... 1,476 1,559
Deferred tax assets........................................ 55 229
Prepaids and other assets.................................. 417 416
------- -------
Total current assets..................................... 2,373 2,705
Property and equipment, net.................................. 2,190 2,082
Intangibles and other assets, net............................ 256 187
------- -------
$ 4,819 $ 4,974
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short-term debt............................................ $ 527 $ 470
Accounts payable........................................... 435 438
Accrued liabilities........................................ 2,235 2,656
Income taxes payable....................................... 12 79
------- -------
Total current liabilities................................ 3,209 3,643
Long-term debt, net of current maturities.................... 624 141
Deferred tax liabilities..................................... 364 317
Other liabilities............................................ 60 58
------- -------
4,257 4,159
------- -------
Stockholders' equity
Class "A" common stock, $50 par value; 500 shares
authorized; 197 shares issued and outstanding............. 10 10
Class "B" common stock, $50 par value; 500 shares
authorized; 308 shares issued and outstanding............. 15 15
Paid-in capital............................................ 100 100
Retained earnings.......................................... 7,428 7,681
Treasury stock (144 Class "A" Shares and 308 Class "B"
Shares)................................................... (6,991) (6,991)
------- -------
562 815
------- -------
Commitments and contingencies................................ -- --
------- -------
$ 4,819 $ 4,974
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-86
<PAGE>
FILM TRANSIT, INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, PERIOD ENDED
---------------- DECEMBER 19,
1993 1994 1995
------- ------- ------------
<S> <C> <C> <C>
Net revenues.................................... $24,692 $24,717 $22,352
Cost of delivery................................ 16,079 16,829 14,566
------- ------- -------
Gross profit.................................. 8,613 7,888 7,786
Selling, general and administrative expenses.... 7,348 7,351 7,155
Amortization of intangible assets............... 37 91 --
------- ------- -------
Operating income.............................. 1,228 446 631
Other income (expense)..........................
Interest expense.............................. (97) (62) (43)
Interest income and other, net................ 7 19 49
------- ------- -------
Income before income taxes...................... 1,138 403 637
Provision for income taxes...................... 450 150 241
------- ------- -------
Net income...................................... $ 688 $ 253 $ 396
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-87
<PAGE>
FILM TRANSIT, INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CLASS "A" CLASS "B"
COMMON STOCK COMMON STOCK
------------- ------------- PAID-IN RETAINED TREASURY
SHARES AMOUNT SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL
------ ------ ------ ------ ------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1992................... 197 $10 308 $15 $100 $6,740 $(6,991) $(126)
Net income.............. -- -- -- -- -- 688 -- 688
--- --- --- --- ---- ------ ------- -----
Balance at December 31,
1993................... 197 10 308 15 100 7,428 (6,991) 562
Net income.............. -- -- -- -- -- 253 -- 253
--- --- --- --- ---- ------ ------- -----
Balance at December 31,
1994................... 197 10 308 15 100 7,681 (6,991) 815
Distributions to
stockholders........... -- -- -- -- -- (519) -- (519)
Net income.............. -- -- -- -- -- 396 -- 396
--- --- --- --- ---- ------ ------- -----
Balance at December 19,
1995................... 197 $10 308 $15 $100 $7,558 $(6,991) $ 692
=== === === === ==== ====== ======= =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-88
<PAGE>
FILM TRANSIT, INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
-------------- ------------
1993 1994 1995
------ ------ ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income...................................... $ 688 $ 253 $ 396
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization................. 498 483 462
Provision for bad debts....................... 14 43 61
Amortization of intangible assets............. 33 -- --
Loss (gain) on sale of assets................. 18 15 (3)
Amortization/write off of authority licenses.. 4 91 --
Deferred income taxes......................... 131 (221) 64
Change in operating assets and liabilities
Accounts receivable......................... 138 (126) (78)
Other assets................................ (101) (20) (346)
Accounts payable............................ 127 3 60
Accrued liabilities......................... (281) 421 (162)
Income taxes payable........................ (90) 67 (111)
Other liabilities........................... 4 (2) --
------ ------ -----
Net cash provided by operating
activities............................... 1,183 1,007 343
------ ------ -----
Cash flows from investing activities..............
(Purchases) sales of short-term investments..... -- (400) 400
Capital expenditures, net of disposals.......... (529) (391) (441)
------ ------ -----
Net cash used in investing activities..... (529) (791) (41)
------ ------ -----
Cash flows from financing activities..............
Payments of debt................................ (502) (540) (879)
Proceeds from issuance of debt.................. -- -- 494
------ ------ -----
Net cash used in financing activities..... (502) (540) (385)
------ ------ -----
Net increase (decrease) in cash and cash
equivalents...................................... 152 (324) (83)
Cash and cash equivalents.........................
Beginning of the period......................... 273 425 101
------ ------ -----
End of the period............................... $ 425 $ 101 $ 18
====== ====== =====
Supplemental disclosure of cash flow information
Cash paid during the period for
Interest...................................... $ 97 $ 62 $ 32
Income taxes.................................. 408 303 288
Disclosure of non-cash investing and financing
activities.......................................
Non-cash distributions to stockholder........... $ 519
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-89
<PAGE>
FILM TRANSIT, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. BUSINESS AND ORGANIZATION
Film Transit, Incorporated, including its subsidiary, (collectively, "Film
Transit") is a Class I common carrier specializing in the transportation of
motion picture film and theater supplies, magazines, surface movement of air
freight and general commodities. A large proportion of Film Transit's revenues
are developed from the transportation of small package shipments. Film Transit
operates in the mid-south.
Film Transit and its stockholders entered into a definitive merger agreement
with United TransNet, Inc. (the "Company") pursuant to which a wholly-owned
subsidiary of the Company merged with Film Transit. Under the merger
agreement, all outstanding shares of Film Transit's capital stock were
converted into shares of the Company's Common Stock concurrently with the
consummation of an initial public offering of such Common Stock.
Simultaneously with the entry by Film Transit into such merger agreement, five
other companies, CDG Holding Corp. and its operating subsidiary, Courier
Dispatch Group, Inc. (collectively "Courier Dispatch"); Tricor America, Inc.
("Tricor"); Salmon Acquisition Corporation and its operating subsidiary,
Sunbelt Courier, Inc. (collectively, "Sunbelt"); and 3D Distribution Systems,
Inc. and its affiliated corporations and subsidiaries (collectively, "3D")
(collectively with Film Transit, the "Founding Companies") entered into
substantially similar merger agreements with the Company, pursuant to which
wholly-owned subsidiaries of the Company merged with such Founding Companies
(the "Mergers"). Prior to consummating the agreement, Film Transit distributed
certain assets to its stockholders as a dividend.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The more significant accounting policies followed by Film Transit are
summarized below:
Basis of Presentation
The consolidated financial statements include the accounts of Film Transit,
Incorporated and its wholly-owned subsidiary, Commonwealth Associates. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period, the most significant of which are
related to insurance accruals. Actual results could differ from those
estimates.
Disclosures About Fair Value of Financial Instruments
In preparing disclosures about the fair value of financial instruments, Film
Transit has assumed that the carrying amount approximates fair value for cash
and cash equivalents, accounts receivable, short-term investments, short-term
debt and accounts payable. The fair value of long-term debt instruments is
based upon the current interest rate environment and remaining term to
maturity (see Notes 5 and 6). Film Transit feels that the carrying value of
long-term debt approximates the fair value.
Cash and Cash Equivalents and Short-Term Investments
Cash on hand, amounts due from banks and certificates of deposit and
repurchase agreements having original maturities of three months or less are
classified as cash and cash equivalents by Film Transit. Short-term
investments consist of certificates of deposit with original maturities of
less than one year and are recorded at market which approximates cost.
F-90
<PAGE>
FILM TRANSIT, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Property and Equipment
Property and equipment are recorded at cost. Additions and improvements are
capitalized while maintenance and repair costs are charged to expense as
incurred. Film Transit computes depreciation using the straight-line method
over the estimated useful life of the assets. Average depreciable lives are:
building and improvements 31.5 years; fixtures and equipment 7-15 years; and
vehicles and accessories 3-5 years. The cost and accumulated depreciation of
property retired or otherwise disposed of are removed from the accounts and
any gain or loss is included in income.
Insurance Claims
Film Transit is self-insured with respect to workers' compensation up to the
deductible of $200 a claim and $950 in aggregate at December 19, 1995. The
aggregate deductible at December 31, 1993 and 1994 was $1,550 and $1,450,
respectively. The accompanying financial statements include an insurance
accrual based upon the third party administrator's and management's
evaluations of estimated future ultimate costs outstanding claims and an
estimated liability for claims incurred but not reported on an undiscounted
basis.
Revenue
Revenue is recognized when the delivery is completed.
Income Taxes
Taxes on income are determined by using the liability method as prescribed
by Statement of Financial Accounting Standards No. 109 ("FAS 109"),
"Accounting for Income Taxes." This approach requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences
of events that have been recognized in Film Transit's financial statements or
tax returns. In estimating future tax consequences, FAS 109 requires the
consideration of all expected future events other than enactments of changes
in the tax laws or rates.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current presentation.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1993 1994
------- -------
<S> <C> <C>
Land....................................................... $ 56 $ 56
Buildings.................................................. 232 232
Delivery vehicles.......................................... 5,827 5,731
Equipment and furnishings.................................. 1,297 1,343
Leasehold improvements..................................... 54 53
------- -------
7,466 7,415
Less accumulated depreciation and amortization............. (5,276) (5,333)
------- -------
$ 2,190 $ 2,082
======= =======
</TABLE>
F-91
<PAGE>
FILM TRANSIT, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
4. ACCRUED LIABILITIES
Accrued liabilities consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1993 1994
------ ------
<S> <C> <C>
Accrued payroll and related benefits.......................... $1,002 $1,154
Accrued vacation.............................................. 175 175
Accrued insurance ............................................ 686 805
Other accrued liabilities..................................... 372 522
------ ------
$2,235 $2,656
====== ======
</TABLE>
5. SHORT-TERM DEBT
On September 8, 1988, Film Transit and a bank entered into a note, amended
November 1, 1992, which provides Film Transit with an available line of credit
of $1,700 and bears interest at the bank's prime (8.5% at December 31, 1994).
The note matures May 1, 1996. Borrowings under the note are cross
collateralized with the long-term note described below and are secured by
accounts receivable, inventory and property and equipment.
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1993 1994
------ -----
<S> <C> <C>
Note payable to a financial institution, payable in monthly
installments of $45 including principal and interest at
6.65% with a final payment in March 1996. Secured by
substantially all assets of Film Transit and certain
stockholder guarantees...................................... $1,151 $ 611
Less current portion......................................... (527) (470)
------ -----
$ 624 $ 141
====== =====
</TABLE>
Under the most restrictive covenants of this note, Film Transit cannot pay
dividends or incur losses for two consecutive quarters.
Debt maturities are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1995............................................................... $470
1996............................................................... 141
----
$611
====
</TABLE>
F-92
<PAGE>
FILM TRANSIT, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
7. INCOME TAXES
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
------------ ------------
1993 1994 1995
------------ ------------
<S> <C> <C> <C>
Current tax provision
Federal......................................... $ 275 $ 319 $149
State........................................... 44 52 28
----- ------ ----
319 371 177
----- ------ ----
Deferred tax provision (benefit)..................
Federal......................................... 113 (189) 56
State........................................... 18 (32) 8
----- ------ ----
131 (221) 64
----- ------ ----
Total provision............................... $ 450 $ 150 $241
===== ====== ====
</TABLE>
Deferred tax assets (liabilities) consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1993 1994
------ ------
<S> <C> <C>
Deferred tax assets
Insurance accrual......................................... $ -- $ 140
Vacation accrual.......................................... 66 66
Accounts receivable allowance............................. 23 23
Authority rights/permits ................................. 22 57
------ ------
111 286
------ ------
Deferred tax liabilities
Accumulated depreciation.................................. (386) (374)
Other..................................................... (34) --
------ ------
(420) (374)
------ ------
$ (309) $ (88)
====== ======
</TABLE>
The differences in income taxes provided and the amounts determined by the
federal statutory tax rate to income before income taxes result from the
following:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
------------- ------------
1993 1994 1995
------ ------ ------------
<S> <C> <C> <C>
Tax at federal statutory rate................... $ 387 $ 137 $217
State income taxes, net of federal income tax
benefit........................................ 40 13 18
Nondeductible expenses.......................... 11 -- 4
Other........................................... 12 -- 2
------ ------ ----
$ 450 $ 150 $241
====== ====== ====
</TABLE>
F-93
<PAGE>
FILM TRANSIT, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
8. COMMITMENTS AND CONTINGENCIES
Lease Commitments
Film Transit leases office and operating facilities and certain equipment
under noncancelable operating leases with terms in excess of one year. Future
minimum lease payments required by operating leases approximate the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1995............................................................... $267
1996............................................................... 205
1997............................................................... 137
1998............................................................... 18
----
$627
====
</TABLE>
In addition, Film Transit leases office and operating facilities, and
certain vehicles and equipment on a month-to-month basis. Film Transit leases
automotive equipment furnished by employees contracting for the delivery
service of the Film Transit. Lease expense for the years ended December 31,
1993 and 1994 and for the period ended December 19, 1995, was $3,542, $3,415
and $3,069, respectively.
Litigation
Film Transit is, from time to time, a party to litigation arising in the
normal course of its business. Management believes that none of these actions
will have a material adverse effect on the financial position or results of
operations of Film Transit.
Contingencies
At December 19, 1995, Film Transit was contingently liable for $320 as
endorser of employee notes from Film Transit, Incorporated Employees Profit
Sharing Plan and Trust (the "Plan"). The notes are secured by the vested
interest in the Plan and/or chattel mortgage where applicable.
A standby letter of credit is outstanding at December 19, 1995 for $672 as
security for the insurance carrier in connection with Film Transit's workers'
compensation policy.
9. RELATED PARTY TRANSACTIONS
Film Transit leases two facilities from a partnership consisting of two
stockholders of Film Transit. Monthly rent expense is $15 plus an allocated
portion of the real estate tax, insurance and maintenance expense. Rent
expense paid to the partnership for the years ended December 31, 1993 and 1994
and for the period ended December 19, 1995, was $186, $207 and $193,
respectively.
10. EMPLOYEE PROFIT SHARING PLAN AND TRUST
Film Transit has a noncontributory profit sharing plan for the benefit of
qualifying employees who have completed six months of service and attained the
age of 18. Contributions by Film Transit are calculated at graduated
percentages of net income before taxes and employee bonuses, as specified in
the Plan. During the years ended December 31, 1993 and 1994, and the period
ended December 19, 1995, Film Transit's profit sharing expense was $752, $904,
and $591, respectively.
F-94
<PAGE>
FILM TRANSIT, INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
11. CONCENTRATION OF CREDIT RISK
During the years ended December 31, 1993 and 1994, and the period ended
December 19, 1995, no one customer represented greater than 10% of the total
sales revenue of Film Transit. Film Transit operates primarily in Alabama,
Arkansas, Louisiana, Mississippi, Oklahoma, Tennessee and Texas. Services to
the automotive and farm implement industry comprise approximately 65% of total
sales for the three year period ended December 31, 1994 and the period ended
December 19, 1995. Although Film Transit is affected by the creditworthiness
of its customers, management does not believe significant credit risk exists
at December 19, 1995. Film Transit maintains reserves for potential credit
losses, and historically, such losses have been within management's
expectations.
12. SUBSEQUENT EVENT
On December 20, 1995, in exchange for shares of Common Stock and cash, Film
Transit merged with a wholly-owned subsidiary of the Company.
F-95
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-96
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To Board of Directors and Stockholders of
Lanter Courier Corporation
In our opinion, the accompanying combined balance sheets and the related
combined statements of operations, of Lanter Courier Corporation ("Lanter")
equity investment and of cash flows present fairly, in all material respects,
the financial position of the Iowa, Nebraska and Wisconsin operations (the
"Districts") of Lanter as described in Note 1 to the combined financial
statements, at December 31, 1993 and 1994, and the results of their operations
and their cash flows for each of the two years in the period ended December
31, 1994 and for the period ended December 19, 1995, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of Lanter's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
St. Louis, Missouri
March 12, 1996
F-97
<PAGE>
THE DISTRICTS OF LANTER COURIER CORPORATION
COMBINED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1993 1994
------ ------
<S> <C> <C>
ASSETS
Current assets
Accounts receivable, less allowance of $41 and $31............. $1,163 $1,103
Prepaids and other assets...................................... 82 54
------ ------
Total current assets......................................... 1,245 1,157
Property and equipment, net...................................... 265 204
Intangibles, net................................................. 851 498
Other assets..................................................... 248 220
------ ------
$2,609 $2,079
====== ======
LIABILITIES AND LANTER EQUITY INVESTMENT
Current liabilities
Accounts payable............................................... $ 172 $ 369
Accrued liabilities............................................ 1,021 1,151
------ ------
Total current liabilities.................................... 1,193 1,520
------ ------
Lanter equity investment......................................... 1,416 559
------ ------
Commitments and contingencies.................................... -- --
------ ------
$2,609 $2,079
====== ======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-98
<PAGE>
THE DISTRICTS OF LANTER COURIER CORPORATION
COMBINED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
--------------- ------------
1993 1994 1995
------- ------- ------------
<S> <C> <C> <C>
Net revenues...................................... $19,647 $21,431 $21,777
Cost of delivery.................................. 14,452 15,802 16,468
------- ------- -------
Gross profit.................................. 5,195 5,629 5,309
Selling, general and administrative expenses...... 3,511 3,816 3,845
Amortization of intangible assets................. 367 382 369
------- ------- -------
Net income...................................... $ 1,317 $ 1,431 $ 1,095
======= ======= =======
Unaudited pro forma data (Note 10)
Income before income taxes...................... $ 1,317 $ 1,431 $ 1,095
Pro forma provision for income taxes............ 534 582 454
------- ------- -------
Pro forma net income.......................... $ 783 $ 849 $ 641
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-99
<PAGE>
THE DISTRICTS OF LANTER COURIER CORPORATION
COMBINED STATEMENTS OF LANTER EQUITY INVESTMENT
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<S> <C>
Balance at December 31, 1992........................................... $ 2,218
Net income............................................................. 1,317
Net cash transactions with Lanter...................................... (2,200)
Net non-cash transactions with Lanter.................................. 81
-------
Balance at December 31, 1993........................................... 1,416
Net income............................................................. 1,431
Net cash transactions with Lanter...................................... (2,274)
Net non-cash transactions with Lanter.................................. (14)
-------
Balance at December 31, 1994........................................... 559
Distributions to stockholder........................................... (143)
Contributions from stockholder......................................... 586
Net cash transactions with Lanter...................................... (2,062)
Net non-cash transactions with Lanter.................................. (26)
Net income............................................................. 1,095
-------
Balance at December 19, 1995........................................... $ 9
=======
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-100
<PAGE>
THE DISTRICTS OF LANTER COURIER CORPORATION
COMBINED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERIOD
YEAR ENDED ENDED
DECEMBER 31, DECEMBER 19,
---------------- ------------
1993 1994 1995
------- ------- ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income..................................... $ 1,317 $ 1,431 $ 1,095
Adjustments to reconcile net income to net cash
provided by operating activities..............
Depreciation and amortization................. 290 158 116
Provision for bad debts....................... 65 20 --
Amortization of intangible assets............. 367 382 369
Loss on sale of property...................... -- -- (14)
Change in operating assets and liabilities....
Accounts receivable ......................... (125) 40 (80)
Other assets................................. (122) 28 (120)
Accounts payable............................. 49 197 235
Accrued liabilities ......................... 462 130 585
------- ------- -------
Net cash provided by operating activities... 2,303 2,386 2,186
------- ------- -------
Cash flows from investing activities............
Capital expenditures, net of disposals ........ (103) (112) (24)
------- ------- -------
Net cash used in investing activities ...... (103) (112) (24)
------- ------- -------
Cash flows from financing activities............
Net transactions with Lanter .................. (2,200) (2,274) (2,062)
------- ------- -------
Net cash used in financing activities ...... (2,200) (2,274) (2,062)
------- ------- -------
Net increase in cash and cash equivalents....... -- -- 100
Cash and cash equivalents.......................
Beginning of the period....................... -- -- --
------- ------- -------
End of the period............................. $ -- $ -- $ 100
======= ======= =======
Disclosure of non-cash investing and financing
activities.....................................
Net transfers of property with Lanter. ........ $ 81 $ (14) $ (26)
Other non-cash transactions:
Addition of consulting agreement............... 75
Non-cash distributions to stockholder. ........ (143)
Non-cash contribution from stockholder ........ 586
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-101
<PAGE>
THE DISTRICTS OF LANTER COURIER CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. BUSINESS AND ORGANIZATION
Lanter Courier Corporation ("Lanter") has operations in Iowa, Nebraska and
Wisconsin (collectively referred to as the "Districts"). The Districts are
engaged in the business of providing courier and delivery services to
customers primarily within Iowa, Nebraska and Wisconsin. Other Lanter
operations were to be transferred to another company owned by Lanter
stockholders in connection with the merger discussed below. The transferred
operations were not a part of the planned Mergers.
Lanter and its stockholders entered into a definitive merger agreement with
United TransNet, Inc. (the "Company") pursuant to which a wholly-owned
subsidiary of the Company will merge with Lanter. Under the merger agreement,
all outstanding shares of Lanter's capital stock were converted into cash and
shares of the Company's Common Stock concurrently with the consummation of an
initial public offering of such Common Stock. Simultaneously with the entry by
Lanter into such merger agreement, five other companies, CDG Holding Corp. and
its operating subsidiary, Courier Dispatch Group, Inc. (collectively, "Courier
Dispatch"); Tricor America, Inc. ("Tricor"); Film Transit, Incorporated ("Film
Transit"); Salmon Acquisition Corporation and its operating subsidiary,
Sunbelt Courier, Inc. (collectively, "Sunbelt"); and 3D Distribution Systems,
Inc. and its affiliated corporations and subsidiaries (collectively, "3D")
(collectively with Lanter, the "Founding Companies") entered into
substantially similar merger agreements with the Company pursuant to which
wholly-owned subsidiaries of the Company merged with such Founding Companies
(the "Mergers"). Prior to the closing of the agreement, Lanter distributed
certain assets to its stockholders as a dividend in conjunction with the
transfer of other Lanter operations discussed above.
The combined statements of income and cash flows of the Districts were
derived from the accounting records of Lanter and include the revenue,
expenses and cash flows directly attributable to the Districts' operations, as
well as an allocation of Lanter corporate expenses (see Note 7). The combined
balance sheets include assets and liabilities at Lanter's historical cost
basis which are specifically identifiable to the Districts. All cash,
investments and borrowings were maintained on a consolidated basis for all of
Lanter's districts; accordingly, cash, investments and borrowings and related
interest income and expense are not reflected in the combined financial
statements of the Districts for the years ended December 31, 1993 and 1994 and
for the period ended December 19, 1995. All debt and certain other obligations
of Lanter will be included with the transferred operations discussed above.
The Company has received indemnification from Lanter's stockholders for all
debt and certain other obligations of Lanter. Accordingly, such amounts will
not be obligations of the Districts included in the Mergers.
The accompanying combined financial statements have been prepared on a
historical basis. The financial information in these combined financial
statements is not necessarily indicative of results that would have occurred
if the Districts had been a separate stand-alone entity during the periods
presented or of future results of the Districts.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The District's significant accounting policies which conform to generally
accepted accounting principles and are applied on a consistent basis among
years are described below:
Basis of Presentation
These combined financial statements include the historical accounts of the
Districts. The Districts do not have intercompany transactions.
F-102
<PAGE>
THE DISTRICTS OF LANTER COURIER CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period, the most significant of which are
related to insurance accruals. Actual results could differ from those
estimates.
Disclosures About Fair Value of Financial Instruments
In preparing disclosures about the fair value of financial instruments, the
Districts have assumed that the carrying amount approximates fair value for
accounts receivable and accounts payable.
Property and Equipment
Property and equipment are recorded at cost. Additions and improvements are
capitalized while maintenance and repair costs are charged to expense as
incurred. Lanter computes depreciation using the straight-line method over the
estimated useful lives of the assets, which range from three to thirty-one and
a half years. The cost and accumulated depreciation of property retired or
otherwise disposed of are removed from the accounts and any gain or loss is
included in income.
Intangible Assets
On each of December 31, 1990 and June 30, 1992, Lanter entered into separate
non-compete agreements with third parties. Pursuant to such agreements, such
third parties agreed not to compete with Lanter's courier and delivery service
for a period of five years. The non-compete agreements were allocated to the
Districts based upon the geographic areas involved. Non-compete agreements are
amortized on a straight-line basis over the term of each agreement.
Accumulated amortization of non-compete agreements was $915 and $1,268 at
December 31, 1993 and 1994, respectively.
The carrying value of intangible assets is evaluated for indications of
possible impairment. The review is based on comparing the carrying amount to
the undiscounted estimated cash flows from operations over the remaining
amortization period.
Consulting Agreement
On June 30, 1992, Lanter entered into a consulting agreement with a third
party pursuant to which the third party agreed to provide advisory and
consulting services to Lanter in connection with its operations for a period
of 124 months. The consulting agreement has been allocated to the Districts
based upon the geographic location involved. The consulting agreement is
amortized on a straight-line basis over the 124 month term of the agreement.
Accumulated amortization of the consulting agreement was $7 and $29 at
December 31, 1993 and 1994, respectively.
Insurance Claims
The Districts are self-insured with respect to workers' compensation,
general liability and automobile claims and medical benefits. Prior to 1993
and 1994, the Districts were fully insured by an insurance company for
workers' compensation and automobile claims, respectively. The accompanying
financial statements include an insurance accrual for automobile, workers'
compensation and medical claims based upon the third-party administrator's and
management's evaluations of estimated future ultimate costs of outstanding
claims and an estimated liability for claims incurred but not reported on an
undiscounted basis. The ultimate cost of these claims will depend on the
outcome of individual claims given the potential for these claims to increase
or decrease over time.
F-103
<PAGE>
THE DISTRICTS OF LANTER COURIER CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenue
Revenue is recognized when the delivery is completed.
Income Taxes
Lanter is a subchapter S corporation. Therefore, the Districts' income is
included in Lanter's stockholders' income for federal income tax purposes.
While the Districts are not subject to federal income tax, they are subject to
certain state and local taxes. See Note 10 for unaudited pro forma income tax
information.
Reclassifications
Certain prior year amounts have been reclassified to conform with the current
presentation.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1993 1994
------ ------
<S> <C> <C>
Delivery vehicles............................................ $ 735 $ 879
Machinery, equipment and furnishings......................... 66 105
Leasehold improvements....................................... 10 15
------ ------
811 999
Less accumulated depreciation and amortization............... (546) (795)
------ ------
$ 265 $ 204
====== ======
</TABLE>
4. OTHER ASSETS
Other assets consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1993 1994
------ ------
<S> <C> <C>
Consulting agreement........................................... $ 218 $ 196
Other.......................................................... 30 24
------ ------
$ 248 $ 220
====== ======
</TABLE>
5. ACCRUED LIABILITIES
Accrued liabilities consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1993 1994
------ ------
<S> <C> <C>
Accrued payroll and related benefits.......................... $ 329 $ 390
Accrued insurance............................................. 436 670
Accrued sales and use taxes................................... 100 --
Other accrued liabilities..................................... 156 91
------ ------
$1,021 $1,151
====== ======
</TABLE>
F-104
<PAGE>
THE DISTRICTS OF LANTER COURIER CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
6. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Districts lease certain office and warehouse space in various locations
throughout Iowa, Nebraska and Wisconsin and certain vehicles for use in
operations. Future minimum lease payments required by noncancellable operating
leases approximate the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1995............................................................. $157
1996............................................................. 275
1997............................................................. 216
1998............................................................. 75
1999............................................................. 53
----
Total minimum lease payments..................................... $776
====
</TABLE>
Lease expense for all operating leases was $1,211, $1,500 and $1,706 for the
years ended December 1993 and 1994 and the period ended December 19, 1995,
respectively.
Receivables of the Districts of $1,204 and $1,134 at December 31, 1993 and
1994 are pledged as collateral on Lanter's term loan with a financial
institution.
Litigation
Lanter is, from time to time, a party to litigation arising in the normal
course of its business. Management believes that none of these actions will
have a material adverse effect on the financial position or results of
operations of Lanter. The Company has received indemnification from Lanter's
stockholders for damages and expenses related to certain liabilities of the
Districts.
7. RELATED PARTY TRANSACTIONS
Lanter uses a centralized cash management system to finance its operations.
Cash receipts related to the Districts' operations are received by Lanter and
cash disbursements of the Districts are paid by Lanter. No interest has been
charged on transactions with Lanter.
As part of the merger agreement, Lanter was required to maintain a minimum
equity investment. In order to meet this requirement at December 19, 1995,
Lanter contributed $443, net of distributions, in the form of a note
receivable which is payable to the Districts by Lanter upon demand.
The net intercompany balance with Lanter resulting from the funding of all
financial transactions will not be settled. As a result, the net intercompany
balance has been included as a Lanter Equity Investment in the combined
balance sheets of the Districts.
Lanter provides certain selling, general and administrative services to the
Districts including cash management, accounting and finance, legal services,
employee benefits administration, and shared sales and distribution support.
These expenses were allocated to the Districts primarily based on estimated
time incurred which management believes to be reasonable. These allocations
were $428, $377 and $630, for the years ended December 31, 1993 and 1994, and
the period ended December 19, 1995, respectively. Such allocations are
included in selling, general and administrative expenses in the combined
statements of operations of the Districts.
F-105
<PAGE>
THE DISTRICTS OF LANTER COURIER CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Lanter Company, an affiliate of Lanter, provides certain administrative
services to Lanter and therefore allocates and charges a portion of its
corporate service expenses to Lanter. These expenses are allocated to the
Districts primarily based upon estimated time incurred which management
believes to be reasonable. These allocations were $272, $269 and $18 for the
years ended December 31, 1993 and 1994 and the period ended December 19, 1995,
respectively. Such allocations are included in selling, general and
administrative expenses in the combined statements of operations of the
Districts.
8. EMPLOYEE RETIREMENT PLANS
The Districts participate in Lanter's voluntary defined contribution 401(k)
Plan (the "Plan") which is available to substantially all employees of the
Districts. Prior to January 1, 1995, the Plan was jointly sponsored by Lanter
Company, an affiliate of Lanter. On January 1, 1995, the assets related to
Lanter employees were transferred to a new plan sponsored solely by Lanter.
The cost of these benefits has historically been allocated to the Districts as
incurred. Lanter matches up to 50% of the employees' contribution and may
contribute a discretionary amount and/or a profit sharing amount to the Plan.
The Districts have been allocated expenses of $15, $26 and $29 for 401(k)
expenses related to employees of the Districts during the years ended December
31, 1993 and 1994 and the period ended December 19, 1995, respectively.
9. SALES TO MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
During the years ended December 31, 1993 and 1994 and the period ended
December 19, 1995, no one customer represented greater than 10% of total sales
revenue of the Districts. The Districts operate primarily in Iowa, Nebraska
and Wisconsin. Services to financial institutions comprised approximately 40%,
38% and 36% of total sales for the years ended December 31, 1993 and 1994 and
the period ended December 19, 1995, respectively, with the remainder relating
to parcel service. Although the Districts are affected by the creditworthiness
of its customers, management does not believe significant credit risk exists
at December 19, 1995. The Districts generally do not require collateral. The
Districts maintain reserves for potential credit losses and historically such
losses have been within management's expectations.
10. UNAUDITED PRO FORMA INFORMATION
Income Taxes
The Districts have calculated the December 31, 1993 and 1994 and the
December 19, 1995 pro forma provision for income taxes under Statement of
Financial Accounting Standards No. 109 ("FAS 109") "Accounting for Income
Taxes."
The pro forma income tax provision is as follows:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
-------------- ------------
1993 1994 1995
------ ------ ------------
<S> <C> <C> <C>
Current tax provision
Federal.......................................... $ 528 $ 511 $375
State............................................ 168 163 118
------ ------ ----
696 674 493
------ ------ ----
Deferred tax provision (benefit)
Federal.......................................... (123) (70) (30)
State............................................ (39) (22) (9)
------ ------ ----
(162) (92) (39)
------ ------ ----
Total provision................................ $ 534 $ 582 $454
====== ====== ====
</TABLE>
F-106
<PAGE>
THE DISTRICTS OF LANTER COURIER CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The differences in pro forma income taxes provided and the amounts
determined by applying the federal statutory tax rate to income before income
taxes result from the following:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
------------- ------------
1993 1994 1995
------ ------ ------------
<S> <C> <C> <C>
Tax at federal statutory rate...................... $ 448 $ 487 $372
State income taxes, net of federal income tax
benefit........................................... 85 93 72
Other.............................................. 1 2 10
------ ------ ----
$ 534 $ 582 $454
====== ====== ====
</TABLE>
Pro forma deferred income taxes result from temporary differences in the
recognition of certain expenses for financial and income tax reporting
purposes.
Deferred taxes would be provided for the temporary differences between the
financial reporting basis and the tax basis of the Districts' assets and
liabilities. Pro forma deferred tax assets (liabilities) would consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1993 1994
------ ------
<S> <C> <C>
Self-insurance accrual....................................... $ 178 $ 275
Accounts receivable allowance................................ 18 14
Other........................................................ (33) (21)
------ ------
Total.................................................... $ 163 $ 268
====== ======
</TABLE>
11. SUBSEQUENT EVENTS
On December 20, 1995, in exchange for shares of Common Stock and cash, the
Districts merged with a wholly-owned subsidiary of the Company.
F-107
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-108
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Salmon Acquisition Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity (deficit) and
of cash flows present fairly, in all material respects, the financial position
of Salmon Acquisition Corporation and its subsidiary (collectively, "Sunbelt")
at December 31, 1993 and 1994 and the results of their operations and their
cash flows for each of the two years in the period ended December 31, 1994,
and for the period ended December 19, 1995, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of Sunbelt's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
Price Waterhouse LLP
Memphis, Tennessee
March 12, 1996
F-109
<PAGE>
SALMON ACQUISITION CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1993 1994
------ ------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents..................................... $ 276 $ 382
Accounts receivable, less allowance of $19 and $24............ 1,086 1,308
Income taxes refundable....................................... 87 --
Deferred tax assets........................................... 31 65
Prepaids and other assets..................................... 15 52
------ ------
Total current assets....................................... 1,495 1,807
Property and equipment, net.................................... 1,890 3,078
Goodwill, net.................................................. 2,219 2,060
Intangible assets, net......................................... 551 410
Restricted certificates of deposit............................. 1,037 837
Other assets................................................... 7 15
------ ------
$7,199 $8,207
====== ======
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accrued interest -- related party............................. $1,217 $1,569
Accounts payable.............................................. 64 103
Accrued liabilities........................................... 442 438
Obligations under non-compete agreement....................... 206 --
Income taxes payable.......................................... -- 177
------ ------
Total current liabilities.................................. 1,929 2,287
Long-term debt -- related party................................ 5,295 5,785
Deferred tax liabilities....................................... 50 156
------ ------
7,274 8,228
------ ------
Stockholders' deficit
Common stock, no par value; 1,000 shares authorized; 400
shares issued and outstanding................................ 1 1
Retained deficit.............................................. (76) (22)
------ ------
(75) (21)
------ ------
Commitments and contingencies.................................. -- --
------ ------
$7,199 $8,207
====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-110
<PAGE>
SALMON ACQUISITION CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
---------------- ------------
1993 1994 1995
------- ------- ------------
<S> <C> <C> <C>
Net revenues.................................... $11,882 $14,187 $16,629
Cost of delivery................................ 9,266 11,203 13,087
------- ------- -------
Gross profit................................ 2,616 2,984 3,542
Selling, general and administrative expenses.... 2,135 2,096 2,320
Amortization of intangible assets............... 300 300 297
------- ------- -------
Operating income............................ 181 588 925
Other income (expense)
Interest expense -- related party.............. (403) (373) (428)
Interest income and other, net................. 31 33 35
------- ------- -------
Income (loss) before income taxes............... (191) 248 532
Provision (benefit) for income taxes............ (15) 194 260
------- ------- -------
Net (loss) income........................... $ (176) $ 54 $ 272
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-111
<PAGE>
SALMON ACQUISITION CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
------------- (DEFICIT)
SHARES AMOUNT EARNINGS TOTAL
------ ------ --------- -----
<S> <C> <C> <C> <C>
Balance at December 31, 1992..................... 400 $ 1 $ 100 $ 101
Net loss......................................... -- -- (176) (176)
--- ---- ----- -----
Balance at December 31, 1993..................... 400 1 (76) (75)
Net income....................................... -- -- 54 54
--- ---- ----- -----
Balance at December 31, 1994..................... 400 1 (22) (21)
Distributions to stockholders.................... -- -- (59) (59)
Net income....................................... -- -- 272 272
--- ---- ----- -----
Balance at December 19, 1995..................... 400 $ 1 $ 191 $ 192
=== ==== ===== =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-112
<PAGE>
SALMON ACQUISITION CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
---------------- ------------
1993 1994 1995
------- ------- ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net (loss) income.............................. $ (176) $ 54 $ 272
Adjustments to reconcile net (loss) income to
net cash provided by operating activities
Depreciation and amortization................. 553 754 1,009
Provision for bad debts....................... 25 25 11
Amortization of goodwill and other intangible
assets....................................... 300 300 297
Loss on sale of assets........................ 20 12 5
Deferred income taxes......................... 10 72 (95)
Change in operating assets and liabilities
Accounts receivable.......................... (183) (247) (236)
Other assets................................. 34 (45) 32
Income taxes refundable...................... -- 87 146
Accrued interest -- related party............ 372 352 (232)
Accounts payable............................. (33) 39 119
Accrued liabilities.......................... 45 (4) --
Obligations under non-compete agreement...... (225) (206) --
Income taxes payable......................... (27) 177 --
------- ------- -------
Net cash provided by operating activities... 715 1,370 1,328
------- ------- -------
Cash flows from investing activities
Sale of restricted certificates of deposit..... -- 200 837
Capital expenditures, net of disposals......... (1,092) (1,954) (791)
------- ------- -------
Net cash (used in) provided by investing
activities................................. (1,092) (1,754) 46
------- ------- -------
Cash flows from financing activities
Payments on long-term debt -- related party.... (110) (160) (1,249)
Proceeds from long-term debt -- related party.. 428 650 --
------- ------- -------
Net cash provided by (used in) financing
activities................................. 318 490 (1,249)
------- ------- -------
Net (decrease) increase in cash and cash
equivalents.................................... (59) 106 125
Cash and cash equivalents
Beginning of the period........................ 335 276 382
------- ------- -------
End of the period.............................. $ 276 $ 382 $ 507
======= ======= =======
Supplemental disclosure of cash flow information
Cash paid during the period for
Interest...................................... $ 32 $ 20 $ 221
Income taxes.................................. 1 (140) 199
Supplemental schedule of non-cash investing and
financing activities
Distribution of assets for payment of
interest...................................... $ 1,337
Distribution of assets for payment of
dividends..................................... 59
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-113
<PAGE>
SALMON ACQUISITION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. BUSINESS AND ORGANIZATION
Salmon Acquisition Corporation, including its subsidiary (collectively,
"Sunbelt") is a contract courier service providing ground courier services for
customers requiring delivery of time-sensitive documents. The Company operates
in the Mid-South.
Sunbelt and its stockholders entered into a definitive merger agreement with
United TransNet, Inc. (the "Company") pursuant to which a wholly-owned
subsidiary of the Company merged with Sunbelt. Under the merger agreement, all
outstanding shares of Sunbelt's capital stock were converted into shares of
the Company's Common Stock concurrently with the consummation of an initial
public offering of such Common Stock. Simultaneously with the entry by Sunbelt
into such merger agreement, five other companies, CDG Holding Corp. and its
operating subsidiary, Courier Dispatch Group, Inc. (collectively "Courier
Dispatch"); Tricor America, Inc. ("Tricor"); Film Transit, Incorporated ("Film
Transit"); Lanter Courier Corporation ("Lanter"); and 3D Distribution Systems,
Inc. and its affiliated corporations and subsidiaries (collectively, "3D")
(collectively with Sunbelt, the "Founding Companies") entered into
substantially similar merger agreements with the Company, pursuant to which
wholly-owned subsidiaries of the Company merged with such Founding Companies
(the "Mergers"). Prior to consummating the agreement, Sunbelt distributed
certain assets to its stockholders as a dividend.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The more significant accounting policies followed by the Company are
summarized below:
Basis of Presentation
The consolidated financial statements include the accounts of Salmon
Acquisition Corporation and its wholly-owned subsidiary, Sunbelt Courier, Inc.
All significant intercompany accounts and transactions have been eliminated in
consolidation.
Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period, the most significant of which are
related to insurance accruals. Actual results could differ from those
estimates.
Disclosures About Fair Value of Financial Instruments
In preparing disclosures about the fair value of financial instruments,
Sunbelt has assumed that the carrying amount approximates fair value for cash
and cash equivalents, accounts receivable and accounts payable. The fair value
of long-term debt instruments is based upon the current interest rate
environment and remaining term to maturity (see Note 5). Sunbelt feels that
the carrying value of long-term debt approximates the fair value.
Cash and Cash Equivalents
Cash on hand, amounts due from banks and certificates of deposit and
repurchase agreements having original maturities of three months or less are
classified as cash and cash equivalents by Sunbelt.
Property and Equipment
Property and equipment is recorded at cost. Additions and improvements are
capitalized while maintenance and repair costs are charged to expense as
incurred. Sunbelt computes depreciation using the straight-line method
F-114
<PAGE>
SALMON ACQUISITION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
over the estimated useful lives of the assets. Average depreciable lives are:
building and improvements 31.5 years; fixtures and equipment 7-15 years; and
vehicles and accessories 3-5 years. The cost and accumulated depreciation of
property retired or otherwise disposed of are removed from the accounts and
any gain or loss is included in income.
Goodwill and Other Intangible Assets
Goodwill in connection with a business acquired in October 1989 aggregated
approximately $2,880 and is being amortized over 20 years. Accumulated
amortization totaled $661 and $820 at December 31, 1993 and 1994,
respectively. The carrying value of intangible assets is evaluated for
indications of possible impairment whenever events or changes in circumstances
indicate that the carrying value of an intangible asset may not be
recoverable. Events or changes in circumstances which may indicate impairment
include a significant adverse change in legal factors, business climate or
government regulation and current cash flow losses combined with a history of
cash flow losses or forecasted continuing cash flow losses associated with an
acquired company. The review is based on comparing the carrying amount to the
undiscounted estimated cash flows before interest charges from operations over
the remaining amortization period.
In connection with the acquisition, Sunbelt entered into a non-compete
agreement for a period of eight years with the sellers. Sunbelt paid the
liability resulting from this agreement totaling $1,125 over a five-year
period. The related asset is being amortized over eight years, the life of the
agreement. Accumulated amortization totaled $574 and $715 at December 31, 1993
and 1994, respectively.
Revenue
Revenue is recognized when the delivery is completed.
Income Taxes
Taxes are provided on substantially all income and expense items included in
income, regardless of the period in which such items are recognized for tax
purposes. Taxes on income are determined by using the liability method as
prescribed by Statement of Financial Accounting Standards No. 109 ("FAS 109"),
"Accounting for Income Taxes." This approach requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences
of events that have been recognized in Sunbelt's financial statements or tax
returns. In estimating future tax consequences, FAS 109 requires the
consideration of all expected future events other than enactments of changes
in the tax laws or rates.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current presentation.
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1993 1994
------ ------
<S> <C> <C>
Land......................................................... $ 298 $ 445
Buildings.................................................... 643 643
Delivery vehicles............................................ 1,997 3,548
Equipment and furnishings.................................... 347 384
Construction in progress..................................... -- 26
------ ------
3,285 5,046
Less accumulated depreciation and amortization............... (1,395) (1,968)
------ ------
$1,890 $3,078
====== ======
</TABLE>
F-115
<PAGE>
SALMON ACQUISITION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
4. ACCRUED LIABILITIES
Accrued liabilities consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1993 1994
------ ------
<S> <C> <C>
Accrued payroll and related benefits.......................... $ 145 $ 194
Accrued vacation.............................................. 150 150
Accrued insurance............................................. 147 94
------ ------
$ 442 $ 438
====== ======
</TABLE>
5. LONG-TERM DEBT -- RELATED PARTY
Sunbelt has an unsecured note payable with a company owned by relatives of
Sunbelt's stockholders. This agreement, as amended, has no specific repayment
terms and provides for a maturity date of October 31, 1999. The balance has
been classified long term based on the agreement from the related party that
no payment will be demanded during the next twelve months; however, the note
is payable immediately upon a change in ownership. The accrued interest-
related party is associated with this outstanding debt, and the related
interest expense associated with these notes totaled $403, $373 and $428
during 1993 and 1994, and the period ended December 19, 1995, respectively.
6. INCOME TAXES
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
-------------- ------------
1993 1994 1995
------ ------ ------------
<S> <C> <C> <C>
Current tax (benefit) provision
Federal........................................... $ (25) $ 118 $308
State............................................. -- 4 47
------ ------ ----
(25) 122 355
Deferred tax provision (benefit)
Federal........................................... 11 55 (81)
State............................................. (1) 17 (14)
------ ------ ----
10 72 (95)
------ ------ ----
Total (benefit) provision....................... $ (15) $ 194 $260
====== ====== ====
</TABLE>
F-116
<PAGE>
SALMON ACQUISITION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Deferred tax assets (liabilities) consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1993 1994
------ ------
<S> <C> <C>
Deferred tax assets
Accounts receivable allowance.............................. $ 3 $ 9
Vacation accrual........................................... 28 56
Accumulated depreciation................................... 1 --
Net operating loss carryforward............................ 13 --
----- ------
45 65
----- ------
Deferred tax liabilities
Accumulated depreciation................................... -- (2)
Non-compete agreement...................................... (64) (154)
----- ------
(64) (156)
----- ------
$ (19) $ (91)
===== ======
</TABLE>
The differences in income taxes provided and the amounts determined by
applying the federal statutory tax rate to income before income taxes result
from the following:
<TABLE>
<CAPTION>
YEAR ENDED PERIOD ENDED
DECEMBER 31, DECEMBER 19,
-------------- ------------
1993 1994 1995
------ ------ ------------
<S> <C> <C> <C>
Tax at federal statutory rate.................. $ (65) $ 84 $181
State income taxes, net of federal income tax
benefit....................................... 1 14 31
Effect of goodwill amortization ............... 54 54 56
Change in effective rate used for deferred
taxes......................................... -- 33 --
Other.......................................... (5) 9 (8)
------ ------ ----
$ (15) $ 194 $260
====== ====== ====
</TABLE>
For the year ended December 31, 1993, Sunbelt was able to utilize the surtax
exemptions, whereby its federal tax expense (benefit) was based upon income
tax rates less than the maximum statutory income tax rates. Likewise, the
deferred tax expense (benefit) was based upon the lower rates at which the
temporary differences were expected to reverse. Beginning with the year ended
December 31, 1994, the rate was increased from the surtax to statutory rate
based on a change in earnings levels and the rate the temporary differences
were expected to reverse.
7. COMMITMENTS AND CONTINGENCIES
Lease Commitments
Sunbelt leases office and operating facilities and certain equipment under
noncancelable operating leases with terms in excess of one year. Future
minimum lease payments required by operating leases approximate the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1995................................................................ $16
1996................................................................ 4
---
$20
===
</TABLE>
F-117
<PAGE>
SALMON ACQUISITION CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
In addition, Sunbelt leases office and operating facilities, and certain
vehicles and equipment on a month-to-month basis. Lease expense for the years
ended December 31, 1993 and 1994 and the period ended December 19, 1995 was
$66, $62 and $150, respectively.
Litigation
Sunbelt is, from time to time, a party to litigation arising in the normal
course of its business. Management believes that none of these actions will
have a material adverse effect on the financial position or results of
operations of Sunbelt.
8. RELATED PARTY TRANSACTIONS
Sunbelt uses office space and maintenance facilities in buildings in three
locations owned by an entity which is owned by relatives of Sunbelt's
stockholders. Sunbelt stores delivery vehicles on the premises owned by this
related party and conducts daily operations at these facilities and does not
pay for these services. Sunbelt also shares its Baton Rouge facilities with
this entity in reciprocity. Additionally, Sunbelt allows this related party to
store its vehicles at the Baton Rouge site at no charge.
In April 1992, Sunbelt began maintaining its workers' compensation and auto
liability coverage through a captive insurance company owned by relatives of
Sunbelt's stockholders. The accounts between Sunbelt and the insurance carrier
are settled in the ordinary course of business and are governed by state
insurance regulations. Sunbelt has pledged two certificates of deposit of $200
and $637 which mature on August 12, 1995 and July 9, 1995, respectively, and
bear interest at a weighted average rate to the insurance carrier in
accordance with collateral requirements specified in the above policies.
Sunbelt is required to maintain this collateral throughout the term of their
relationship with the insurance carrier. Premiums paid to the insurance
carrier were approximately $698, $827 and $932 during 1993, 1994 and the
period ended December 19, 1995, respectively.
See Note 5 for additional related party disclosures of the long-term debt
and accrued interest.
9. CONCENTRATION OF CREDIT RISK
During the years ended December 31, 1993 and 1994, and the period ended
December 19, 1995, no one customer represented greater than 10% of total sales
revenue of Sunbelt. Sunbelt operates primarily in Alabama, Arkansas,
Louisiana, Mississippi and Tennessee. Services to the financial institutions
comprise approximately 77%, 74% and 63% of total sales for the years ended
December 31, 1993 and 1994, and the period ended December 19, 1995,
respectively. Although Sunbelt is affected by the creditworthiness of its
customers, management does not believe significant credit risk exists at
December 19, 1995. Sunbelt maintains reserves for potential credit losses, and
historically, such losses have been within management's expectations.
10. SUBSEQUENT EVENT
On December 20, 1995, in exchange for shares of Common Stock and cash,
Sunbelt merged with a wholly-owned subsidiary of the Company.
F-118
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-119
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
3D Distribution Systems, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of 3D
Distribution Systems, Inc. and its subsidiaries (collectively, "3D") at
December 31, 1993 and 1994 and the results of their operations and their cash
flows for the year ended October 31, 1993, for the two months ended December
31, 1993, for the year ended December 31, 1994 and for the period ended
December 19, 1995, in conformity with generally accepted accounting
principles. These financial statements are the responsibility of 3D's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
Price Waterhouse LLP
Dallas, Texas
March 12, 1996
F-120
<PAGE>
3D DISTRIBUTION SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1993 1994
------ ------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents..................................... $ 54 $ 3
Accounts receivable........................................... 1,115 1,317
Other receivables............................................. 5 10
Deferred tax assets........................................... 5 12
Prepaids and other assets..................................... 81 42
------ ------
Total current assets ....................................... 1,260 1,384
Property and equipment, net..................................... 629 435
Other assets.................................................... 29 34
------ ------
$1,918 $1,853
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt.......................... $ 189 $ 174
Accounts payable.............................................. 286 279
Accrued liabilities........................................... 260 586
Income taxes payable.......................................... -- 9
Notes payable to former stockholder........................... 575 575
------ ------
Total current liabilities .................................. 1,310 1,623
Long-term debt, net of current maturities....................... 296 137
Deferred tax liabilities........................................ 10 8
------ ------
1,616 1,768
Stockholders' equity
Common stock, $.01 par value; 100,000,000 shares
authorized; 70,312 shares issued and outstanding ............ 1 1
Paid-in capital............................................... 38 38
Retained earnings............................................. 322 105
Treasury stock at cost, 33,400 shares ........................ (59) (59)
------ ------
302 85
------ ------
Commitments and contingencies................................. -- --
------ ------
$1,918 $1,853
====== ======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-121
<PAGE>
3D DISTRIBUTION SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
TWO MONTHS
YEAR ENDED ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 19,
1993 1993 1994 1995
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net revenues............... $12,545 $2,202 $14,862 $14,815
Cost of delivery........... 8,627 1,460 10,958 10,128
------- ------ ------- -------
Gross profit........... 3,918 742 3,904 4,687
Selling, general and
administrative expenses... 3,869 733 4,014 4,693
------- ------ ------- -------
Operating (loss)
income................ 49 9 (110) (6)
Other income (expense)
Interest expense-related
party .................. (37) (5) (45) --
Interest expense......... (78) (13) (55) (63)
Interest income and
other, net ............. -- 11 -- 1
------- ------ ------- -------
(Loss) income before income
taxes..................... (66) 2 (210) (68)
Provision (benefit) for
income taxes.............. (1) 14 7 159
------- ------ ------- -------
Net loss................... $ (65) $ (12) $ (217) $ (227)
======= ====== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-122
<PAGE>
3D DISTRIBUTION SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK
--------------- PAID-IN RETAINED TREASURY
SHARES AMOUNT CAPITAL EARNINGS STOCK TOTAL
------- ------ ------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1992.. 67,362 $ 1 $-- $ 399 $(59) $ 341
Issuance of common stock..... 2,950 -- 38 -- -- 38
Net loss..................... -- -- -- (65) -- (65)
------- ---- ---- ----- ---- -----
Balance at October 31, 1993.. 70,312 1 38 334 (59) 314
Net loss for two months ended
December 31, 1993........... -- -- -- (12) -- (12)
------- ---- ---- ----- ---- -----
Balance at December 31,
1993........................ 70,312 1 38 322 (59) 302
Net loss..................... -- -- -- (217) -- (217)
------- ---- ---- ----- ---- -----
Balance at December 31,
1994........................ 70,312 1 38 105 (59) 85
Issuance of common stock..... 2,837 -- 699 -- -- 699
Retirement of treasury
stock....................... (33,688) (1) (59) -- 59 (1)
Net loss..................... -- -- -- (227) -- (227)
------- ---- ---- ----- ---- -----
Balance at December 19,1995.. 39,461 $-- $678 $(122) $-- $ 556
======= ==== ==== ===== ==== =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-123
<PAGE>
3D DISTRIBUTION SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
TWO MONTHS
YEAR ENDED ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, DECEMBER 31, DECEMBER 31, DECEMBER 19,
1993 1993 1994 1995
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Cash flows from operating
activities
Net loss................... $ (65) $ (12) $(217) $(227)
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities
Depreciation and
amortization............. 292 43 288 237
Provision for bad debts
......................... 17 -- 2 21
Gain from disposal of
assets................... -- -- -- (57)
Deferred income taxes..... (11) 1 (9) (95)
Noncash employee
compensation............. 38 -- -- 699
Change in operating assets
and liabilities
Accounts receivable...... (247) 183 (204) 20
Other receivables........ 4 -- (5) 8
Other assets............. (9) 15 34 (76)
Accounts payable......... 270 (290) (7) (191)
Accrued liabilities...... (7) 47 326 (117)
Income taxes payable..... -- -- 9 191
----- ----- ----- -----
Net cash provided by
(used in) operating
activities ............ 282 (13) 217 413
----- ----- ----- -----
Cash flows from investing
activities
Capital expenditures, net
of disposals.............. (12) (10) (76) 14
----- ----- ----- -----
Net cash (used in)
provided by investing
activities ............ (12) (10) (76) 14
----- ----- ----- -----
Cash flows from financing
activities
Net increase in revolving
line of credit............ 150 100 150 --
Payments of debt........... (420) (26) (342) (348)
----- ----- ----- -----
Net cash (used in)
provided by financing
activities ............ (270) 74 (192) (348)
----- ----- ----- -----
Net increase (decrease) in
cash and cash equivalents.. -- 51 (51) 79
Cash and cash equivalents
Beginning of the period.... 3 3 54 3
----- ----- ----- -----
End of the period.......... $ 3 $ 54 $ 3 $ 82
===== ===== ===== =====
Supplemental disclosure of
cash flow information
Cash paid during the period
for
Interest.................. $ 115 $ 19 $ 111 $ 86
Income taxes.............. 2 40
Disclosure of noncash
investing and financing
activities
Acquisition of property and
equipment for notes
payable................... 411 17 121
Stock grants to key
employees................. 38 699
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-124
<PAGE>
3D DISTRIBUTION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1. BUSINESS AND ORGANIZATION
3D Distribution Systems, Inc. and its subsidiary, MDH Couriers, Inc., and
its affiliates, Texas Package Express, Inc., 3D Consolidation and Distribution
Systems, Inc., 3D Freight, Inc. and 3D Package Express, Inc. (collectively,
"3D") provide air and ground courier services for customers requiring delivery
of time-sensitive documents. 3D operates in the southeast, midwest, and Texas.
3D and its stockholders entered into a definitive merger agreement with
United TransNet, Inc. (the "Company") pursuant to which a wholly-owned
subsidiary of the Company merged with 3D. Under the merger agreement, all
outstanding shares of 3D's capital stock were converted into shares of the
Company Common Stock concurrently with the consummation of an initial public
offering of such Common Stock. Simultaneously with the entry by 3D into such
merger agreement, five other companies, CDG Holding Corp. and its operating
subsidiary, Courier Dispatch Group, Inc. (collectively, "Courier Dispatch");
Tricor America, Inc. ("Tricor"); Film Transit, Incorporated ("Film Transit");
Lanter Courier Corporation ("Lanter"); and Salmon Acquisition Corporation and
its operating subsidiary, Sunbelt Courier, Inc. (collectively, "Sunbelt")
(collectively with 3D, the "Founding Companies") entered into substantially
similar merger agreements with the Company pursuant to which wholly-owned
subsidiaries of the Company merged with such Founding Companies (the
"Mergers").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The more significant accounting policies followed by 3D are summarized
below:
Basis of Presentation
The consolidated financial statements include the accounts of 3D
Distribution Systems, Inc., MDH Couriers, Inc., Texas Package Express, Inc.,
3D Consolidation and Distribution Systems, Inc., 3D Freight, Inc. and 3D
Package Express, Inc. All significant intercompany accounts and transactions
have been eliminated in consolidation. The Company changed its fiscal year end
from October 31 to December 31 effective for the year ended December 31, 1993.
Therefore, the results of operations for the period from November 1, 1993
through December 31, 1993 have been recorded to retained earnings at December
31, 1993.
The following table shows comparative information for the two months ended
December 31, 1992 and 1993:
<TABLE>
<CAPTION>
TWO MONTHS ENDED
DECEMBER 31,
------------------
1992 1993
----------- ------
(UNAUDITED)
<S> <C> <C>
Net revenues. .......................................... $1,948 $2,202
Gross profit. .......................................... 640 742
Provision (benefit) for income taxes.................... (11) 14
Net income (loss). ..................................... (24) (12)
</TABLE>
Estimates
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period, the most significant of which are
related to insurance accruals. Actual results could differ from those
estimates.
F-125
<PAGE>
3D DISTRIBUTION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Disclosures About Fair Value of Financial Instruments
In preparing disclosures about the fair value of financial instruments, 3D
has assumed that the carrying amount approximates fair value for cash and cash
equivalents, accounts receivable, short-term debt and accounts payable. The
fair value of long-term debt instruments is based upon the current interest
rate environment and remaining term to maturity (see Note 5). 3D feels that
the carrying value of long-term debt approximates the fair value.
Property and Equipment
Property and equipment is recorded at cost. Additions and improvements are
capitalized while maintenance and repair costs are charged to expense as
incurred. 3D computes depreciation using the straight-line method over the
estimated useful lives of the assets, which range from three to twenty-five
years. The cost and accumulated depreciation of property retired or otherwise
disposed of are removed from the accounts and any gain or loss is included in
income.
Other Assets
Other assets consist principally of deposits.
Insurance Claims
3D is self-insured with respect to workers' compensation in Texas. The
accompanying financial statements include an insurance accrual based upon
management's evaluations of estimated future ultimate costs of outstanding
claims and an estimated liability for claims incurred but not reported on an
undiscounted basis. The ultimate cost of these claims will depend on the
outcome of individual claims given the potential for these claims to increase
or decrease over time.
Revenue
Revenue is recognized when the delivery is completed.
Income Taxes
Taxes on income are determined by using the liability method as prescribed
by Statement of Financial Accounting Standards No. 109 ("FAS 109"),
"Accounting for Income Taxes." This approach requires the recognition of
deferred tax assets and liabilities for the expected future tax consequences
of events that have been recognized in 3D's financial statements or tax
returns. In estimating future tax consequences, FAS 109 requires the
consideration of all expected future events other than enactments of changes
in the tax laws or rates.
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current presentation.
F-126
<PAGE>
3D DISTRIBUTION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
3. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1993 1994
------ ------
<S> <C> <C>
Delivery vehicles........................................... $ 868 $ 942
Equipment and furnishings................................... 207 164
Computer equipment.......................................... 96 151
Leasehold improvements...................................... 147 147
------ ------
1,318 1,404
Less accumulated depreciation and amortization.............. (689) (969)
------ ------
$ 629 $ 435
====== ======
4. ACCRUED LIABILITIES
Accrued liabilities consists of the following:
<CAPTION>
DECEMBER 31,
--------------
1993 1994
------ ------
<S> <C> <C>
Accrued payroll and related benefits........................ $ 165 $ 222
Accrued insurance .......................................... -- 233
Other accrued liabilities................................... 95 131
------ ------
$ 260 $ 586
====== ======
5. DUE TO FORMER STOCKHOLDER AND LONG-TERM DEBT
Due to former stockholder consists of the following:
<CAPTION>
DECEMBER 31,
--------------
1993 1994
------ ------
<S> <C> <C>
Revolving line of credit with a variable rate of interest.
See Note 8................................................. $ 500 $ 500
Unsecured notes payable plus interest at prime rate (8.5% at
December 31, 1994) plus 2%. See Note 8..................... 75 75
------ ------
$ 575 $ 575
====== ======
Long-term debt consists of the following:
<CAPTION>
DECEMBER 31,
--------------
1993 1994
------ ------
<S> <C> <C>
Notes payable for vehicles. This debt is collateralized by
vehicles and has varying interest rates of 8.5% to 11.5%... $ 481 $ 308
Other notes payable......................................... 4 3
------ ------
485 311
Less current portion........................................ (189) (174)
------ ------
$ 296 $ 137
====== ======
</TABLE>
F-127
<PAGE>
3D DISTRIBUTION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Debt maturities are as follows:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1995.............................................................. $174
1996.............................................................. 127
1997.............................................................. 10
----
$311
====
</TABLE>
The line of credit and unsecured note payable are due from a related party
and are due on demand. Upon consummation of the Mergers, this debt will be
repaid.
6. INCOME TAXES
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, DECEMBER 31, DECEMBER 19,
1993 1994 1995
----------- ------------ ------------
<S> <C> <C> <C>
Current tax provision (benefit):
Federal............................. $ 3 $16 $231
State............................... -- -- 23
--- --- ----
3 16 254
Deferred tax (benefit) provision:
Federal............................. (4) (9) (88)
State............................... -- -- (7)
--- --- ----
(4) (9) (95)
--- --- ----
Total (benefit) provision............. $(1) $ 7 $159
=== === ====
</TABLE>
The differences between taxable income for financial reporting and income
tax purposes are primarily attributable to depreciation expense.
The deferred tax assets (liabilities) consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1993 1994
------ ------
<S> <C> <C>
Deferred tax assets:
Insurance accrual........................................... $ -- $ 79
Other....................................................... 10 12
------ -----
10 91
------ -----
Deferred tax liabilities:
Accumulated depreciation.................................... (15) (8)
------ -----
Valuation allowance........................................... -- (79)
------ -----
$ (5) $ 4
====== =====
</TABLE>
F-128
<PAGE>
3D DISTRIBUTION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The differences in income taxes provided and the amounts determined by
applying the federal statutory tax rate to income before income taxes result
from the following:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED PERIOD ENDED
OCTOBER 31, DECEMBER 31, DECEMBER 19,
1993 1994 1995
----------- ------------ ------------
<S> <C> <C> <C>
Tax at federal statutory rate......... $ (22) $(71) $ (23)
State income taxes, net of federal
income
tax benefit.......................... -- -- 17
Nondeductible expenses................ 19 7 244
Effect of graduated rates............. (3) (11) --
Effect of rate change on deferred
tax.................................. 5 3 --
Effect of valuation allowance......... -- 79 (79)
----- ---- -----
$ (1) $ 7 $ 159
===== ==== =====
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
Lease Commitments
3D leases office and operating facilities and certain equipment under
noncancellable operating leases with terms in excess of one year. Future
minimum lease payments required by operating leases approximate the following:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
<S> <C>
1995.............................................................. $334
1996.............................................................. 171
1997.............................................................. 92
1998.............................................................. 9
----
$606
====
</TABLE>
Several operating lease agreements have provisions for escalation in rents
to approximate the change in the consumer price index. In addition, 3D leases
office and operating facilities and certain vehicles and equipment on a month-
to-month basis. Lease expense for the years ended October 31, 1993, and
December 31, 1994 and for the period ended December 19, 1995 was $686, $710
and $751, respectively.
3D leases a number of its delivery vehicles under lease agreements bearing a
12 month initial noncancellable lease term, at the end of which the agreements
are month-to-month. Operating lease expense related to these agreements and
included in total lease expense was $140, $179 and $201 for the years ended
October 31, 1993, December 31, 1994 and for the period ended December 19,
1995, respectively.
Litigation
3D is, from time to time, a party to litigation arising in the normal course
of its business. Management believes that none of these actions will have a
material adverse effect on the financial position or results of operations of
3D.
F-129
<PAGE>
3D DISTRIBUTION SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
8. RELATED PARTY TRANSACTIONS
3D has a revolving line of credit and notes payable with a former
stockholder and officer of 3D which are due upon demand. Both the revolving
line of credit and notes payable are to be paid in full upon consummation of
the Mergers.
3D pays consulting fees of approximately $95 per year to a former
stockholder and officer of 3D. The consulting fees are to be discontinued upon
completion of the Mergers.
9. CONCENTRATION OF CREDIT RISK
During the year ended October 31, 1993, one customer accounted for
approximately $1,300, or 10.1% of revenues. During the year ended December 31,
1994, no individual customer accounted for greater than 10% of revenues
however, four customers accounted for approximately 31% of revenues. During
the period ended December 19, 1995, one customer accounted for $1,634 or 10.7%
of revenue.
Although 3D is affected by the creditworthiness of its customers, management
does not believe significant concentration of credit risk exists at December
19, 1995. 3D generally does not require collateral. 3D does not maintain
reserves for potential credit losses as historically such losses have been
insignificant.
10. SUBSEQUENT EVENTS
On December 20, 1995, in exchange for shares of Common Stock and cash, 3D
merged with a wholly-owned subsidiary of the Company.
F-130
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
F-131
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Eddy Messenger Service, Inc.
We have audited the accompanying balance sheet of Eddy Messenger Service,
Inc. as of December 31, 1995, and the related statements of income, retained
earnings and cash flows for the year then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Eddy Messenger Service,
Inc. at December 31, 1995, and the results of its operations and its cash
flows for the year then ended, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
White Plains, New York
May 1, 1996
F-132
<PAGE>
EDDY MESSENGER SERVICE, INC.
BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
1995
------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents......................................... $ 142
Accounts receivable, less allowance for doubtful accounts of $78.. 968
Loans receivable from employees................................... 12
Deferred income taxes............................................. 265
Refundable income taxes........................................... 236
Other current assets.............................................. 2
------
Total current assets............................................... 1,625
Fixed assets, at cost, net of accumulated depreciation of $451..... 272
Real estate held for sale, at net realizable value................. 100
Security deposits.................................................. 271
Deferred income taxes.............................................. 46
Other assets....................................................... 12
------
$2,326
======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses............................. $ 678
Due to stockholders............................................... 207
Working capital borrowings........................................ 100
Current portion of long-term debt................................. 28
------
Total current liabilities.......................................... 1,013
Long-term debt, less current portion............................... 101
Security deposits.................................................. 21
Stockholders' equity:
Common stock, no par value
200 shares authorized and issued; 190 shares outstanding (no
change from prior year)......................................... --
Retained earnings................................................. 1,207
Less: treasury stock, 10 shares; at cost (no change from prior
year)............................................................ (16)
------
Total stockholders' equity ........................................ 1,191
------
$2,326
======
</TABLE>
See accompanying notes.
F-133
<PAGE>
EDDY MESSENGER SERVICE, INC.
STATEMENT OF INCOME
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
Revenue:
Messenger service................................................ $12,181
Other............................................................ 307
-------
12,488
Costs and expenses:
Messenger service................................................ 9,628
Selling, general and administrative, including interest expense
of $6........................................................... 2,716
-------
12,344
Income before income taxes........................................ 144
Provision for income taxes........................................ 62
-------
Net income........................................................ $ 82
=======
</TABLE>
See accompanying notes.
F-134
<PAGE>
EDDY MESSENGER SERVICE, INC.
STATEMENT OF RETAINED EARNINGS
(IN THOUSANDS)
<TABLE>
<S> <C>
Retained earnings at January 1, 1995, as initially reported............. $1,347
Adjustment.............................................................. (222)
------
Retained earnings at January 1, 1995, as restated....................... 1,125
Net income.............................................................. 82
------
Retained earnings at December 31, 1995.................................. $1,207
======
</TABLE>
See accompanying notes.
F-135
<PAGE>
EDDY MESSENGER SERVICE, INC.
STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1995
------------
<S> <C>
OPERATING ACTIVITIES
Net income....................................................... $ 82
Adjustments to reconcile net income to net cash used in operating
activities:
Depreciation and amortization................................... 251
Deferred income taxes........................................... 74
Gain on sale of fixed asset..................................... (2)
Changes in operating assets and liabilities:
Increase in accounts receivable................................ (180)
Decrease in due from stockholders.............................. 76
Decrease in loans receivable from employees.................... 3
Decrease in other current assets............................... 17
Increase in security deposits receivable....................... (1)
Increase in accounts payable and accrued expenses.............. 36
Increase in due to stockholders................................ 46
Decrease in income taxes....................................... (415)
Increase in security deposits payable.......................... 2
----
Net cash used in operating activities............................ (11)
----
INVESTING ACTIVITIES
Purchases of fixed assets........................................ (95)
Proceeds from sale of fixed assets............................... 7
----
Net cash used in investing activities............................ (88)
----
FINANCING ACTIVITIES
Proceeds from working capital borrowings......................... 100
Payments on long-term debt....................................... (55)
----
Net cash provided by financing activities........................ 45
----
Decrease in cash and cash equivalents............................ (54)
Cash and cash equivalents at beginning of period................. 196
----
Cash and cash equivalents at end of period....................... $142
====
</TABLE>
See accompanying notes.
F-136
<PAGE>
EDDY MESSENGER SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Company is in the business of providing package delivery services to
large and medium size companies in the New York Tri-State area, on either a
scheduled or emergency basis. Revenue is recognized as services are performed.
Credit is extended based on an evaluation of the customer's financial
condition; collateral is not required.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Depreciation and Amortization
Depreciation is computed principally on the straight-line method based on
estimated useful lives of the assets. Leasehold improvements are amortized
over the lesser of 10 years or the life of the lease.
Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
2. FIXED ASSETS
Fixed assets consist of the following:
<TABLE>
<S> <C>
Leasehold improvements............................................ $244,512
Machinery and equipment........................................... 178,456
Automobiles and trucks............................................ 237,339
Furniture and fixtures............................................ 62,876
--------
723,183
Less: accumulated depreciation.................................... (450,945)
--------
$272,238
========
</TABLE>
Substantially all leasehold improvements have been incurred in connection
with properties leased from related parties which, through 1994, were being
amortized over periods of 10 to 40 years. In 1995, the Company adjusted the
life used to amortize such assets to the lesser of 10 years or the life of the
lease. This resulted in a net adjustment to the January 1, 1995 retained
earnings of $222,570.
F-137
<PAGE>
EDDY MESSENGER SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
3. LONG-TERM DEBT AND NOTES PAYABLE
Long-term debt consists of the following:
<TABLE>
<S> <C>
Secured note payable to a finance company, with interest at 8.2%,
due in monthly installments of principal and interest of $1,572
through October 1997............................................ $ 30,643
Secured mortgage note payable to a bank, with an adjustable rate
of interest (8.5% at December 31, 1995), due in monthly
installments of principal and interest ($719 at December 31,
1995) through October 2019...................................... 88,156
Secured note payable to bank, with interest at 10%, due in
monthly installments of principal and interest of $616 through
October 1996 ................................................... 5,888
Unsecured note payable to a finance company, with interest at 2%,
due in monthly installments of principal and interest of $1,948
through February 1996 .......................................... 3,892
--------
128,579
Less: current portion............................................ 27,947
--------
$100,632
========
</TABLE>
Substantially all of the assets of the Company are pledged as collateral
under certain of the above notes.
Maturities of long-term debt for years subsequent to December 31, 1995 are
as follows:
<TABLE>
<S> <C>
1996............................................................... $ 27,947
1997............................................................... 14,966
1998............................................................... 1,413
1999............................................................... 1,537
2000............................................................... 1,674
Thereafter......................................................... 81,042
--------
$128,579
========
</TABLE>
During 1995, interest payments amounted to $6,217.
At December 31, 1995, the Company has $100,000 outstanding under a $350,000
line of credit to fund working capital needs. The borrowings are to be repaid
within one year and accrue interest at prime. The remaining $250,000 under
this line of credit accrues interest at prime plus 1 1/2%. There is no
expiration date on this line of credit. At December 31, 1995 the prime rate
was 8 1/2%.
The carrying value of the Company's borrowings under its working capital
loans, long-term debt and notes payable approximate their fair value.
F-138
<PAGE>
EDDY MESSENGER SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
4. LEASES
The Company leases its offices, warehouse, certain trucks and other
equipment under various operating leases. Security deposits of $231,100 have
been paid to current stockholders.
The Company leases office space and certain warehouses from its current
stockholders and third parties on a month-to-month basis. Portions of the
warehouse space are subleased to third parties through noncancelable subleases
expiring on various dates through the year 2000 and other various month-to-
month subleases. The aggregate income on the three noncancelable subleases is
as follows:
<TABLE>
<S> <C>
1996........................................................... $129,000
1997........................................................... 112,500
1998........................................................... 112,500
1999........................................................... 112,500
2000........................................................... 84,000
</TABLE>
The Company intends to continue to lease the property from its current
stockholders for at least the period covered by the subleases. Included in
costs and expenses is approximately $477,000 of rent expense paid to current
stockholders. During 1995, income from all the subleases noted above amounted
to approximately $150,000 and has been recorded as other revenue.
The Company has commitments under an operating lease for office and
warehouse space. The lease expires in 1998. The Company has two month-to-month
subleases which generate income of $5,000 per month. Total aggregate minimum
lease commitments are as follows:
<TABLE>
<S> <C>
1996............................................................ $42,000
1997............................................................ 42,000
1998............................................................ 7,000
-------
$91,000
=======
</TABLE>
5. INCOME TAXES
Deferred taxes are provided when items of income or expense are recognized
in different periods for tax purposes. Cumulative temporary differences of
approximately $737,000 relate to the allowance for bad debts, amortization of
leasehold improvements and various accrued liabilities which are being
deducted for book purposes on a current basis, but will not be deducted for
tax purposes until a later date.
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
-------- -------- -------
<S> <C> <C> <C>
Federal...................................... $(21,500) $65,700 $44,200
State........................................ 10,000 8,200 18,200
-------- ------- -------
$(11,500) $73,900 $62,400
======== ======= =======
</TABLE>
In addition to federal income taxes, the Company pays state taxes in New
York State, New York City, New Jersey and Connecticut. The difference between
income taxes expense resulting from applying domestic federal statutory rates
to pretax income and the reported amount of income tax expense is attributable
to state taxes.
During 1995, the Company made income tax payments of approximately $403,700.
F-139
<PAGE>
EDDY MESSENGER SERVICE, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
6. SUBSEQUENT EVENTS
Sales of Business
On April 5, 1996, the Company entered into a letter of intent with United
TransNet, Inc. ("UTN") relating to the sale of 100% of the common stock or
substantially all of the assets relating to the provision of courier services
of the Company (the "Sale"). The letter of intent stipulates that the Company
may write-off leasehold improvements and automobiles with a net carrying
amount of approximately $240,000 at December 31, 1995. In addition, the
Company will write-off $231,100 of security deposits due from current
shareholders (see Note 4). The letter of intent shall terminate on May 24,
1996 if the Sale is not consummated by that date.
Debt Guaranty
During February 1996, the Company agreed to act as guarantor in connection
with a $2.2 million mortgage loan of an affiliate. In addition, the Company
entered into an agreement with the affiliate to lease the related property in
the event of the affiliate's default on the mortgage.
F-140
<PAGE>
AGREEMENT AND PLAN OF MERGER
Dated as of September 10, 1996
by and among
Corporate Express, Inc.,
Bevo Acquisition Corp., Inc.
and
United TransNet, Inc.
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of September 10, 1996 (the
"Agreement"), by and among Corporate Express, Inc., a Colorado corporation
("Parent"), Bevo Acquisition Corp., Inc., a Delaware corporation and a wholly-
owned subsidiary of Parent ("Subsidiary"), and United TransNet, Inc., a Delaware
corporation (the "Company");
W I T N E S S E T H:
WHEREAS, the Boards of Directors of Parent and the Company have determined
that the merger of Subsidiary with and into the Company(the "Merger") is
consistent with and in furtherance of the long-term business strategy of Parent
and the Company and is fair to, and in the best interests of, Parent and the
Company and their respective stockholders; and
WHEREAS, Parent, Subsidiary and the Company intend the Merger to qualify as
a tax-free reorganization under the provisions of Section 368 of the Internal
Revenue Code of 1986, as amended (the "Code"), and to be treated as a pooling-
of-interests under Accounting Principles Board Opinion No. 16 ("APB 16");
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound, agree as follows:
ARTICLE I
The Merger
SECTION 1.1. The Merger. Upon the terms and subject to the conditions of
this Agreement, at the Effective Time (as defined in Section 1.2) in accordance
with the Delaware General Corporation Law (the "DGCL"), Subsidiary shall be
merged with and into the Company and the separate existence of Subsidiary shall
thereupon cease. The Company shall be the surviving corporation in the Merger
and is hereinafter sometimes referred to as the "Surviving Corporation."
SECTION 1.2. Effective Time of the Merger. The Merger shall become
effective at such time (the "Effective Time") as shall be stated in a
Certificate of Merger, in a form mutually acceptable to Parent and the Company,
to be filed with the Secretary of State of the State of Delaware in accordance
with the DGCL (the "Merger Filing"). The Merger Filing shall be
2
<PAGE>
made simultaneously with or as soon as practicable after the closing of the
transactions contemplated by this Agreement in accordance with Section 3.5.
ARTICLE II
The Surviving and Parent Corporations
SECTION 2.1. Certificate of Incorporation. The Certificate of
Incorporation of the Surviving Corporation shall be amended and restated at and
as of the Effective Time to read as did the Certificate of Incorporation of the
Subsidiary immediately prior to the Effective Time (except that the name of the
Surviving Corporation shall remain unchanged).
SECTION 2.2. By-Laws. The By-laws of the Surviving Corporation shall be
amended and restated at and as of the Effective Time to read as did the By-laws
of the Subsidiary immediately prior to the Effective Time (except that the name
of the Surviving Corporation shall remain unchanged).
SECTION 2.3. Directors and Officers. The directors and officers of the
Surviving Corporation shall be as designated in Schedule 2.3, and such directors
------------
and officers shall serve in accordance with the By-laws of the Surviving
Corporation until their respective successors are duly elected or appointed and
qualified.
ARTICLE III
Conversion of Shares
SECTION 3.1. Conversion of Company Shares and Subsidiary Shares in the
Merger. At the Effective Time, by virtue of the Merger and without any action
on the part of any holder of any shares of capital stock of the Company:
(a) as consideration to be issued to each such holder in the Merger (the
"Merger Consideration"), each share of Common Stock, par value $.001 per share,
of the Company (the "Company Common Stock"), shall be converted into the right
to receive one share of the common stock, par value $.0002 per share, of Parent
("Parent Common Stock") multiplied by the Exchange Ratio (as defined below);
(b) each share of capital stock of the Company, if any, owned by Parent or
any subsidiary of Parent or held in treasury by the Company or any subsidiary of
the Company immediately prior to the Effective Time shall be canceled and shall
cease to exist from and after the Effective Time;
3
<PAGE>
(c) subject to and as more fully provided in Section 7.9, each unexpired
option to purchase Company Common Stock ("Company Options") that is outstanding
at the Effective Time shall automatically and without any action on the part of
the holder thereof be assumed by Parent and converted into an option to purchase
a number of shares of Parent Common Stock equal to the number of shares of
Company Common Stock which is entitled to be purchased under such Company
Options multiplied by the Exchange Ratio, at a price per share of Parent Common
Stock equal to the per share exercise price of such Company Options divided by
the Exchange Ratio (the "Exchanged Options"). Parent shall (i) reserve for
issuance the number of shares of Parent Common Stock that will become issuable
upon the exercise of the Exchanged Options and (ii) at the Effective Time, issue
to each holder of an Exchanged Option a document evidencing Parent's assumption
of the Company's obligations under the Company Options. The Exchanged Options
shall have the same terms and conditions as the Company Options;
(d) each issued and outstanding share of common stock, par value $.001 per
share, of Subsidiary ("Subsidiary Common Stock") shall be converted into one
share of common stock, par value $.01 per share, of the Surviving Corporation;
and
(e) no share of Company Common Stock shall be deemed to be outstanding or
to have any rights other than those set forth in this Section 3.1 after the
Effective Time.
SECTION 3.2. Exchange Ratio; Adjustments to Parent Common Stock.
(a) The "Exchange Ratio" shall be forty-five one hundredths (.45) of one
share of Parent Common Stock for each one (1) share of Company Common Stock.
(b) If, prior to Closing (as defined in Section 3.5 below), Parent
(i) pays a dividend or makes a distribution on any class of
Parent Common Stock in shares of any class of Parent Common Stock;
(ii) subdivides its outstanding shares of any class of Parent
Common Stock into a greater number of shares;
(iii) combines its outstanding shares of any class of Parent
Common Stock into a smaller number of shares;
4
<PAGE>
(iv) pays a dividend or makes a distribution on any class of
Parent Common Stock in shares of its capital stock other than Parent Common
Stock;
(v) issues by reclassification of any class of Parent Common
Stock any shares of its capital stock; or
(vi) takes any other corporate action the effect of which is to
change the number of shares of Parent Common Stock outstanding;
then the Exchange Ratio in effect immediately prior to such action shall be
proportionately adjusted so that the holder of any shares of Company Common
Stock or any Company Options thereafter shall receive the aggregate number and
kind of shares of Parent Common Stock (and other capital stock, as the case may
be) which it would have owned immediately following such action if such shares
of Company Common Stock or such Company Option had been converted to Parent
Common Stock or Parent Options, as the case may be, immediately prior to such
action. The adjustment in the Exchange Ratio provided for in this Section
3.2(b) shall become effective immediately after the record date in the case of a
dividend or distribution and immediately after the effective date in the case of
a subdivision, combination, reclassification or other corporate action.
SECTION 3.3. Exchange of Certificates. (a) From and after the
Effective Time, each holder of an outstanding certificate which immediately
prior to the Effective Time represented shares of Company Common Stock shall be
entitled to receive in exchange therefor, upon surrender thereof to an exchange
agent reasonably satisfactory to Parent and the Company (the "Exchange Agent"),
a certificate or certificates representing the number of whole shares of Parent
Common Stock to which such holder is entitled pursuant to Section 3.1(a).
Notwithstanding any other provision of this Agreement, (i) until holders or
transferees of certificates theretofore representing shares of Company Common
Stock have surrendered them for exchange as provided herein, no dividends (or
other distributions) shall be paid with respect to any shares represented by
such certificates and no payment for fractional shares shall be made and (ii)
without regard to when such certificates representing shares of Company Common
Stock are surrendered for exchange as provided herein, no interest shall be paid
on any dividends (or other distributions) or any payment for fractional shares.
Upon surrender of a certificate which immediately prior to the Effective Time
represented shares of Company Common Stock, there shall be paid to the holder of
such certificate the amount of any dividends (or other distributions) which
theretofore became payable, but which were not paid by reason of the foregoing,
with respect to the number of whole shares of Parent Common Stock
5
<PAGE>
represented by the certificate or certificates issued upon such surrender.
(b) If any certificate for shares of Parent Common Stock is to be
issued in a name other than that in which the certificate for shares of Company
Common Stock surrendered in exchange therefor is registered, it shall be a
condition of such exchange that the person requesting such exchange shall pay
any applicable transfer or other taxes required by reason of such issuance.
(c) No later than the Closing (as hereinafter defined), Parent shall
deliver to the Exchange Agent the certificates representing shares of Parent
Common Stock, registered under the Registration Statement as defined in Section
4.9, required to effect the exchanges referred to in paragraph (a) above and
cash for payment of any fractional shares referred to in Section 3.4. The
Exchange Agent shall, pursuant to irrevocable instructions, deliver the Merger
Consideration to be issued and paid pursuant to Section (a) above and Section
3.4 to holders of Company Common Stock upon transmittal of Certificates for
exchange as provided in paragraph (d) below. Any interest, dividends or other
income earned on the investment of cash held by the Exchange Agent shall be for
the account of Parent.
(d) Promptly after the the special meeting of the Company's
stockholders at which this Agreement and the Merger will be considered, and
assuming approval thereof, the Exchange Agent shall mail to each holder of
record of a certificate or certificates that immediately prior to the Effective
Time represented outstanding shares of Company Common Stock (the "Company
Certificates") (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Company Certificates shall
pass, only upon actual delivery of the Company Certificates to the Exchange
Agent) and (ii) instructions for use in effecting the surrender of the Company
Certificates in exchange for certificates representing shares of Parent Common
Stock. Upon surrender of Company Certificates for cancellation to the Exchange
Agent, together with a duly executed letter of transmittal and such other
documents as the Exchange Agent shall reasonably require, the holder of such
Company Certificates shall be entitled to receive in exchange therefor a
certificate representing that number of whole shares of Parent Common Stock into
which the shares of Company Common Stock theretofore represented by the Company
Certificates so surrendered shall have been converted pursuant to the provisions
of Section 3.1(a), and the Company Certificates so surrendered shall be
canceled. Notwithstanding the foregoing, neither the Exchange Agent nor any
party hereto shall be liable to a holder of shares of Company Common Stock for
any shares of
6
<PAGE>
Parent Common Stock or dividends or distributions thereon delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws.
(e) Promptly following the date which is nine months after the
Effective Date, the Exchange Agent shall deliver to Parent all cash,
certificates (including any Parent Common Stock) and other documents in its
possession relating to the transactions described in this Agreement, and the
Exchange Agent's duties shall terminate. Thereafter, each holder of a Company
Certificate may surrender such Company Certificate to the Surviving Corporation
and (subject to applicable abandoned property, escheat and similar laws) receive
in exchange therefor the Parent Common Stock, without any interest thereon.
Notwithstanding the foregoing, none of the Exchange Agent, Parent, Subsidiary,
the Company or the Surviving Corporation shall be liable to a holder of Company
Common Stock for any Parent Common Stock delivered to a public official pursuant
to applicable abandoned property, escheat and similar laws.
(f) In the event any Company Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Company Certificate to be lost, stolen or destroyed, the Surviving
Corporation shall issue in exchange for such lost, stolen or destroyed Company
Certificate the Parent Common Stock deliverable in respect thereof determined in
accordance with this Article III. When authorizing such payment in exchange
therefor, the Board of Directors of the Surviving Corporation may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed Company Certificate to give the
Surviving Corporation such indemnity as it may reasonably direct as protection
against any claim that may be made against the Surviving Corporation with
respect to the Company Certificate alleged to have been lost, stolen or
destroyed.
SECTION 3.4. No Fractional Securities. Notwithstanding any other
provision of this Agreement, no certificates or scrip for fractional shares of
Parent Common Stock shall be issued in the Merger and no Parent Common Stock
dividend, stock split or interest shall relate to any fractional security, and
such fractional interests shall not entitle the owner thereof to vote or to any
other rights of a security holder. In lieu of any such fractional shares, each
holder of Company Common Stock who would otherwise have been entitled to receive
a fraction of a share of Parent Common Stock upon surrender of Company
Certificates for exchange pursuant to this Article III shall be entitled to
receive from the Exchange Agent a cash payment equal to such fraction multiplied
by the closing price per share of Parent Common Stock on the Nasdaq National
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Market System (the "NASDAQ"), as reported by the Wall Street Journal, on the
last trading day immediately preceding the Effective Time.
SECTION 3.5. Closing. The closing (the "Closing") of the
transactions contemplated by this Agreement shall take place at a location
mutually agreeable to Parent and the Company on the fifth business day
immediately following the date on which the last of the conditions set forth in
Article VIII is fulfilled or waived (but in any case no earlier than November 4,
1996), or at such other time and place as Parent and the Company shall agree
(the date on which the Closing occurs is referred to in this Agreement as the
"Closing Date").
SECTION 3.6. Closing of the Company's Transfer Books. At and after
the Effective Time, holders of Company Certificates shall cease to have any
rights as stockholders of the Company, except for the right to receive shares of
Parent Common Stock pursuant to Section 3.3 and the right to receive cash for
payment of fractional shares pursuant to Section 3.4. At the Effective Time,
the stock transfer books of the Company shall be closed and no transfer of
shares of Company Common Stock which were outstanding immediately prior to the
Effective Time shall thereafter be made. If, after the Effective Time, subject
to the terms and conditions of this Agreement, Company Certificates formerly
representing Company Common Stock are presented to the Surviving Corporation,
they shall be canceled and exchanged for Parent Common Stock in accordance with
this Article III.
ARTICLE IV
Representations and Warranties
of Parent and Subsidiary
Parent and Subsidiary each represent and warrant to the Company as
follows:
SECTION 4.1. Organization and Qualification. Each of Parent and
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation and has the requisite
power and authority to own, lease and operate its assets and properties and to
carry on its business as it is now being conducted. Each of Parent and
Subsidiary is qualified to do business and is in good standing in each
jurisdiction in which the properties owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary,
except where the failure to be so qualified and in good standing will not, when
taken together with all other such failures, have a material adverse effect on
the business, operations, properties, assets, condition (financial or other) or
results of operations of Parent and its
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subsidiaries, taken as a whole (a "Parent Material Adverse Effect"). True,
accurate and complete copies of each of Parent's and Subsidiary's Certificates
of Incorporation and By-laws, in each case as in effect on the date hereof,
including all amendments thereto, have heretofore been (or, in the case of
Subsidiary, will promptly be) delivered to the Company.
SECTION 4.2. Capitalization.
(a) The authorized capital stock of Parent consists of (i)
100,000,000 shares of Parent Common Stock, of which 70,351,327 shares were
outstanding as of August 29, 1996, (ii) 3,000,000 shares of non-voting common
stock, par value $.0001 per share, none of which was outstanding as of July 19,
1996, and (ii) 25,000,000 shares of preferred stock, par value $.0001 per share,
none of which was issued and outstanding as of July 8, 1996. All of the issued
and outstanding shares of Parent Common Stock are validly issued and are fully
paid, nonassessable and free of preemptive rights.
(b) The authorized capital stock of Subsidiary consists of 1,000
shares of Subsidiary Common Stock, of which 100 shares are issued and
outstanding, which shares are owned beneficially and of record by Parent.
(c) Except as disclosed in the Parent SEC Reports (as defined in
Section 4.5) or as set forth on Schedule 4.2 attached hereto, as of the date
------------
hereof, there are (i) no outstanding subscriptions, options, calls, contracts,
commitments, understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any outstanding security,
instrument or other agreement and also including any rights plan or other anti-
takeover agreement, obligating Parent or any subsidiary of Parent to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
the capital stock of Parent or obligating Parent or any subsidiary of Parent to
grant, extend or enter into any such agreement or commitment, and (ii) no voting
trusts, proxies or other agreements or understandings to which Parent or any
subsidiary of Parent is a party or is bound with respect to the voting of any
shares of capital stock of Parent. The shares of Parent Common Stock issued to
stockholders of the Company in the Merger will be at the Effective Time duly
authorized, validly issued, fully paid and nonassessable and free of preemptive
rights.
SECTION 4.3. Subsidiaries. Each direct and indirect corporate
subsidiary of Parent is duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation and has the requisite power
and authority to own, lease and operate its assets and properties and to carry
on
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its business as it is now being conducted except where any failure would not
have a Parent Material Adverse Effect. Each subsidiary of Parent is qualified
to do business, and is in good standing, in each jurisdiction in which the
properties owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except where the failure to
be so qualified and in good standing would not, when taken together with all
such other failures, have a Parent Material Adverse Effect. All of the
outstanding shares of capital stock of each corporate subsidiary of Parent are
validly issued, fully paid, nonassessable and free of preemptive rights, and are
owned directly or indirectly by Parent, free and clear of any liens, claims or
encumbrances except that such shares are pledged to secure Parent's credit
facilities and except as set forth on Schedule 4.3. There are no subscriptions,
------------
options, warrants, rights, calls, contracts, voting trusts, proxies or other
commitments, understandings, restrictions or arrangements relating to the
issuance, sale, voting, transfer, ownership or other rights with respect to any
shares of capital stock of any corporate subsidiary of Parent, including any
right of conversion or exchange under any outstanding security, instrument or
agreement. As used in this Agreement, the term "subsidiary" shall mean, when
used with reference to any person or entity, any corporation, partnership, joint
venture or other entity which such person or entity, directly or indirectly,
controls or of which such person or entity (either acting alone or together with
its other subsidiaries) owns, directly or indirectly, 50% or more of the stock
or other voting interests, the holders of which are entitled to vote for the
election of a majority of the board of directors or any similar governing body
of such corporation, partnership, joint venture or other entity.
SECTION 4.4. Authority; Non-Contravention; Approvals.
(a) Parent and Subsidiary each have full corporate power and
authority to enter into this Agreement and, subject to the Parent Required
Statutory Approvals (as defined in Section 4.4(c)), to consummate the
transactions contemplated hereby. This Agreement has been approved by the
Boards of Directors of Parent and Subsidiary and no other corporate proceedings
on the part of Parent or Subsidiary are necessary to authorize the execution and
delivery of this Agreement or the consummation by Parent and Subsidiary of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by each of Parent and Subsidiary, and, assuming the due authorization,
execution and delivery hereof by the Company, constitutes a valid and legally
binding agreement of each of Parent and Subsidiary enforceable against each of
them in accordance with its terms, except that such enforcement may be subject
to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting or relating to enforcement of
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creditors' rights generally and (ii) general equitable principles.
(b) The execution and delivery of this Agreement by each of Parent
and Subsidiary do not violate, conflict with or result in a breach of any
provision of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result in the termination
of, or accelerate the performance required by, or result in a right of
termination or acceleration under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
Parent or any of its subsidiaries under any of the terms, conditions or
provisions of (i) the respective charters or by-laws of Parent or any of its
subsidiaries, (ii) any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any court or governmental
authority applicable to Parent or any of its subsidiaries or any of their
respective properties or assets or (iii) any note, bond, mortgage, indenture,
deed of trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which Parent or any of its
subsidiaries is now a party or by which Parent or any of its subsidiaries or any
of their respective properties or assets may be bound or affected. The
consummation by Parent and Subsidiary of the transactions contemplated hereby
will not result in any violation, conflict, breach, termination, acceleration or
creation of liens under any of the terms, conditions or provisions described in
clauses (i) through (iii) of the preceding sentence, subject (x) in the case of
the terms, conditions or provisions described in clause (ii) above, to obtaining
(prior to the Effective Time) the Parent Required Statutory Approvals (as
defined in Section 4.4(c)) and (y) in the case of the terms, conditions or
provisions described in clause (iii) above, to obtaining (prior to the Effective
Time) consents required from commercial lenders, lessors or other third parties.
Excluded from the foregoing sentences of this paragraph (b), insofar as they
apply to the terms, conditions or provisions described in clauses (ii) and (iii)
of the first sentence of this paragraph (b), are such violations, conflicts,
breaches, defaults, terminations, accelerations or creations of liens, security
interests, charges or encumbrances that would not, in the aggregate, have a
Parent Material Adverse Effect.
(c) Except for (i) the filings by Parent and the Company required by
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (ii) the filing of the Joint Proxy Statement/Prospectus (as defined in
Section 4.9) with the Securities and Exchange Commission (the "SEC") pursuant to
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
Securities Act of 1933, as amended (the "Securities Act"), and the declaration
of the effectiveness
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thereof by the SEC and filings with various state blue sky authorities, (iii)
the making of the Merger Filing with the Secretary of State of the State of
Delaware in connection with the Merger, (iv) any required filing with the
Interstate Commerce Commission ("ICC") or the Department of Transportation
("DOT") and (v) any required filings or approvals under the Interstate Commerce
Act or filings with or approvals from the DOT, the Federal Communications
Commission, applicable state environmental authorities, public service
commissions and public utility commissions (the filings and approvals referred
to in clauses (i) through (v) are collectively referred to as the "Parent
Required Statutory Approvals"), no declaration, filing or registration with, or
notice to, or authorization, consent or approval of, any governmental or
regulatory body or authority is necessary for the execution and delivery of this
Agreement by Parent or Subsidiary or the consummation by Parent or Subsidiary of
the transactions contemplated hereby, other than such declarations, filings,
registrations, notices, authorizations, consents or approvals which, if not made
or obtained, as the case may be, would not, in the aggregate, have a Parent
Material Adverse Effect.
SECTION 4.5. Reports and Financial Statements. Since September 23,
1994, Parent has filed with the SEC all forms, statements, reports and documents
(including all exhibits, amendments and supplements thereto) required to be
filed by it under each of the Securities Act, the Exchange Act and the
respective rules and regulations thereunder, all of which, as amended if
applicable, complied in all material respects with all applicable requirements
of the appropriate act and the rules and regulations thereunder. Parent has
previously delivered to the Company copies of its (a) Annual Reports on Form 10-
K for the fiscal years ended February 25, 1995 and March 2, 1996, as filed with
the SEC, (b) proxy and information statements relating to (i) all meetings of
its stockholders (whether annual or special) and (ii) actions by written consent
in lieu of a stockholders' meeting from September 23, 1994 until the date
hereof, and (c) all other reports, including quarterly reports, or registration
statements filed by Parent with the SEC since September 23, 1994 (other than
registration statements filed on Form S-3/S-8) (the documents referred to in
clauses (a), (b) and (c) are collectively referred to as the "Parent SEC
Reports"). As of their respective dates, the Parent SEC Reports did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements and unaudited interim consolidated
financial statements of Parent included in such reports (collectively, the
"Parent Financial Statements") have been prepared in accordance with generally
accepted accounting principles applied on a
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consistent basis (except as may be indicated therein or in the notes thereto)
and fairly present the financial position of Parent and its subsidiaries as of
the dates thereof and the results of their operations and changes in financial
position for the periods then ended, subject, in the case of the unaudited
interim financial statements, to normal year-end and audit adjustments and any
other adjustments described therein.
SECTION 4.6. Absence of Undisclosed Liabilities. Except as
disclosed in the Parent SEC Reports or with respect to acquisitions or potential
transactions or commitments heretofore disclosed to the Company, neither Parent
nor any of its subsidiaries had at May 31, 1996, or has incurred since that
date, any liabilities or obligations (whether absolute, accrued, contingent or
otherwise) of any nature, except: (a) liabilities, obligations or contingencies
(i) which are accrued or reserved against in the Parent Financial Statements or
reflected in the notes thereto or (ii) which were incurred after May 31, 1996
and were incurred in the ordinary course of business and consistent with past
practices, (b) liabilities, obligations or contingencies which (i) would not, in
the aggregate, have a Parent Material Adverse Effect, or (ii) have been
discharged or paid in full prior to the date hereof, and (c) liabilities and
obligations which are of a nature not required to be accrued or reserved against
in the consolidated financial statements of Parent and its subsidiaries, or
reflected in the notes thereto, prepared in accordance with generally accepted
accounting principles consistently applied and which were incurred in the
ordinary course of business.
SECTION 4.7. Absence of Certain Changes or Events. Since the date
of the most recent Parent SEC Report, there has not been any material adverse
change in the business, operations, properties, assets, liabilities, condition
(financial or other) or results of operations of Parent and its subsidiaries,
taken as a whole, including as a result of any change in capital structure,
employee compensation arrangement (including severance rights and benefit
plans), accounting method or applicable law.
SECTION 4.8. Litigation. Except as disclosed in the Parent SEC
Reports or in Schedule 4.8 attached hereto, there are no claims, suits, actions
------------
or proceedings pending or, to the knowledge of Parent, threatened against,
relating to or affecting Parent or any of its subsidiaries, before any court,
governmental department, commission, agency, instrumentality or authority, or
any arbitrator that seek to restrain or enjoin the consummation of the Merger or
which could reasonably be expected, either alone or in the aggregate with all
such claims, actions or proceedings, to cause a Parent Material Adverse Effect.
Except as set forth in the Parent SEC Reports or in Schedule 4.8 attached
------------
hereto, neither Parent nor any of its subsidiaries is subject to any
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judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or authority or any arbitrator
which prohibits or restricts the consummation of the transactions contemplated
hereby or would have any Parent Material Adverse Effect.
SECTION 4.9. Registration Statement and Proxy Statement. None of
the information to be supplied by Parent or its subsidiaries for inclusion in
(a) the Registration Statement on Form S-4 to be filed under the Securities Act
with the SEC by Parent in connection with the Merger for the purpose of
registering the shares of Parent Common Stock to be issued in the Merger (the
"Registration Statement") or (b) the proxy statement to be distributed in
connection with the Company's meeting of its stockholders to vote upon this
Agreement and the transactions contemplated hereby (the "Proxy Statement" and,
together with the prospectus included in the Registration Statement, the "Joint
Proxy Statement/Prospectus") will, in the case of the Proxy Statement or any
amendments thereof or supplements thereto, at the time of the mailing of the
Proxy Statement and any amendments or supplements thereto, and at the time of
the meeting of stockholders of the Company to be held in connection with the
transactions contemplated by this Agreement, or, in the case of the Registration
Statement, as amended or supplemented, at the time it becomes effective, at the
time of such meeting of the stockholders of the Company and for so long as it
remains effective, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. The Joint Proxy Statement/Prospectus will, as of its
effective date, comply as to form in all material respects with all applicable
laws, including the provisions of the Securities Act and the Exchange Act and
the rules and regulations promulgated thereunder, except that no representation
or covenant is made by Parent or Subsidiary with respect to information in
writing supplied or to be supplied by the Company for inclusion therein.
SECTION 4.10. No Violation of Law. Except as disclosed in the Parent
SEC Reports, neither Parent nor any of its subsidiaries is in violation of, or
has been given notice or been charged with any violation of, any law, statute,
order, rule, regulation, ordinance, or judgment (including, without limitation,
any applicable environmental law, ordinance or regulation) of any governmental
or regulatory body or authority, except for violations which, in the aggregate,
could not reasonably be expected to have a Parent Material Adverse Effect.
Except as disclosed in the Parent SEC Reports, as of the date of this Agreement,
to the knowledge of Parent, no investigation or review by any governmental or
regulatory body or authority is pending or threatened, nor has any governmental
or regulatory
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body or authority indicated an intention to conduct the same, other than, in
each case, those the outcome of which, as far as reasonably can be foreseen,
will not have a Parent Material Adverse Effect. Parent and its subsidiaries
have all permits, licenses, franchises, variances, exemptions, orders and other
governmental authorizations, consents and approvals necessary to conduct their
businesses as presently conducted (collectively, the "Parent Permits"), except
for permits, licenses, franchises, variances, exemptions, orders, and other
governmental authorizations, consents and approvals the absence of which, alone
or in the aggregate, would not have a Parent Material Adverse Effect. Parent
and its subsidiaries are not in violation of the terms of any Parent Permit,
except for delays in filing reports or violations which, alone or in the
aggregate, would not have a Parent Material Adverse Effect.
SECTION 4.11. Compliance with Agreements. Except as disclosed in the
Parent SEC Reports, Parent and each of its subsidiaries are not in breach or
violation of or in default in the performance or observance of any term or
provision of, and no event has occurred which, with lapse of time or action by a
third party, could result in a default under (a) the respective charters, by-
laws or other similar organizational instruments of Parent or any of its
subsidiaries or (b) any contract, commitment, agreement, indenture, mortgage,
loan agreement, note, lease, bond, license, approval or other instrument to
which Parent or any of its subsidiaries is a party or by which any of them is
bound or to which any of their property is subject, which breaches, violations
and defaults, in the case of clause (b) of this Section 4.11, would have, in the
aggregate, a Parent Material Adverse Effect.
SECTION 4.12. Taxes.
(a) Parent and its subsidiaries have (i) duly filed with the
appropriate governmental authorities all Tax Returns (as defined in Section
4.12(c)) required to be filed by them for all periods ending on or prior to the
Effective Time, other than those Tax Returns the failure of which to file would
not have a Parent Material Adverse Effect, and such Tax Returns are true,
correct and complete in all material respects and (ii) duly paid in full or made
adequate provision for the payment of all Taxes (as defined in Section 4.12(b))
for all periods ending at or prior to the Effective Time. The liabilities and
reserves for Taxes reflected in the Parent balance sheet included in the latest
Parent SEC Report are adequate to cover all Taxes for all periods ending at or
prior to the Effective Time and there are no material liens for Taxes upon any
property or assets of Parent or any subsidiary thereof, except for liens for
Taxes not yet due. There are no unresolved issues of law or fact arising out of
a notice of deficiency, proposed deficiency or assessment from the
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Internal Revenue Service (the "IRS") or any other governmental taxing authority
with respect to Taxes of the Parent or any of its subsidiaries which, if decided
adversely, singly or in the aggregate, would have a Parent Material Adverse
Effect. Neither Parent nor any of its subsidiaries is a party to any agreement
providing for the allocation or sharing of Taxes with any entity that is not,
directly or indirectly, a wholly-owned corporate subsidiary of Parent other than
agreements disclosed in Schedule 4.12 the consequences of which are fully and
-------------
adequately reserved for in the Parent Financial Statements. Neither Parent nor
any of its corporate subsidiaries has, with regard to any assets or property
held, acquired or to be acquired by any of them, filed a consent to the
application of Section 341(f) of the Code.
(b) For purposes of this Agreement, the term "Taxes" shall mean all
taxes, including, without limitation, income, gross receipts, excise, property,
sales, withholding, social security, occupation, use, service, service use,
license, payroll, franchise, transfer and recording taxes, fees and charges,
windfall profits, severance, customs, import, export, employment or similar
taxes, charges, fees, levies or other assessments imposed by the United States,
or any state, local or foreign government or subdivision or agency thereof,
whether computed on a separate, consolidated, unitary, combined or any other
basis, and such term shall include any interest, fines, penalties or additional
amounts and any interest in respect of any additions, fines or penalties
attributable or imposed or with respect to any such taxes, charges, fees, levies
or other assessments.
(c) For purposes of this Agreement, the term "Tax Return" shall mean
any return, report or other document or information required to be supplied to a
taxing authority in connection with Taxes.
SECTION 4.13. Employee Benefit Plans; ERISA. (a) Except as set forth
in the Parent SEC Reports, at the date hereof, Parent and its subsidiaries do
not maintain or contribute to any material employee benefit plans, programs,
arrangements or practices (such plans, programs, arrangements or practices of
Parent and its subsidiaries being referred to as the "Parent Plans"), including
employee benefit plans within the meaning set forth in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or other
similar material arrangements for the provision of benefits (excluding any
"Multi-employer Plan" within the meaning of Section 3(37) of ERISA or a
"Multiple Employer Plan" within the meaning of Section 413(c) of the Code).
Schedule 4.13 attached hereto lists all Multi-employer Plans and Multiple
- -------------
Employer Plans which any of Parent or its subsidiaries maintains or to which any
of them makes contributions. Neither Parent nor its subsidiaries has any
16
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obligation to create any additional such plan or to amend any such plan so as to
increase benefits thereunder, except as required under the terms of the Parent
Plans, under existing collective bargaining agreements or to comply with
applicable law.
(b) Except as disclosed in the Parent SEC Reports, (i) there have
been no prohibited transactions within the meaning of Section 406 or 407 of
ERISA or Section 4975 of the Code with respect to any of the Parent Plans that
could result in penalties, taxes or liabilities which, singly or in the
aggregate, could have a Parent Material Adverse Effect, (ii) except for premiums
due, there is no outstanding material liability, whether measured alone or in
the aggregate, under Title IV of ERISA with respect to any of the Parent Plans,
(iii) neither the Pension Benefit Guaranty Corporation nor any plan
administrator has instituted proceedings to terminate any of the Parent Plans
subject to Title IV of ERISA other than in a "standard termination" described in
Section 4041(b) of ERISA, (iv) none of the Parent Plans has incurred any
"accumulated funding deficiency" (as defined in Section 302 of ERISA and Section
412 of the Code), whether or not waived, as of the last day of the most recent
fiscal year of each of the Parent Plans ended prior to the date of this
Agreement, (v) the current present value of all projected benefit obligations
under each of the Parent Plans which is subject to Title IV of ERISA did not, as
of its latest valuation date, exceed the then current value of the assets of
such plan allocable to such benefit liabilities by more than the amount, if any,
disclosed in the Parent SEC Reports as of March 2, 1996, based upon reasonable
actuarial assumptions currently utilized for such Parent Plan, (vi) each of the
Parent Plans has been operated and administered in all material respects in
accordance with applicable laws during the period of time covered by the
applicable statute of limitations, (vii) each of the Parent Plans which is
intended to be "qualified" within the meaning of Section 401(a) of the Code has
been determined by the IRS to be so qualified and such determination has not
been modified, revoked or limited by failure to satisfy any condition thereof or
by a subsequent amendment thereto or a failure to amend, except that it may be
necessary to make additional amendments retroactively to maintain the
"qualified" status of such Parent Plans, and the period for making any such
necessary retroactive amendments has not expired, (viii) with respect to Multi-
employer Plans, neither Parent nor any of its subsidiaries has made or suffered
a "complete withdrawal" or a "partial withdrawal," as such terms are
respectively defined in Sections 4203, 4204 and 4205 of ERISA and, to the best
knowledge of Parent and its subsidiaries, no event has occurred or is expected
to occur which presents a material risk of a complete withdrawal or partial
withdrawal under said Sections 4203, 4204 and 4205, (ix) to the best knowledge
of Parent and its
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subsidiaries, there are no material pending, threatened or anticipated claims
involving any of the Parent Plans other than claims for benefits in the ordinary
course, and (x) Parent and its subsidiaries have no current material liability,
whether measured alone or in the aggregate, for plan termination or complete
withdrawal or partial withdrawal under Title IV of ERISA based on any plan to
which any entity that would be deemed one employer with Parent and its
subsidiaries under Section 4001 of ERISA or Section 414 of the Code contributed
during the period of time covered by the applicable statute of limitations (a
"Parent Controlled Group Plan"), and Parent and its subsidiaries do not
reasonably anticipate that any such liability will be asserted against Parent or
any of its subsidiaries. None of the Parent Controlled Group Plans has an
"accumulated funding deficiency" (as defined in Section 302 of ERISA and Section
412 of the Code).
(c) The Parent SEC Reports contain a true and complete summary or
list of or otherwise describe all material employment contracts and other
employee benefit arrangements with "change of control" or similar provisions and
all severance agreements with executive officers.
SECTION 4.14. Labor Controversies. Except as set forth in the Parent
SEC Reports, (a) there are no significant controversies pending or, to the
knowledge of Parent, threatened between Parent or its subsidiaries and any
representatives of any of their employees, (b) to the knowledge of Parent, there
are no material organizational efforts presently being made involving any of the
presently unorganized employees of Parent and its subsidiaries, (c) Parent and
its subsidiaries have, to the knowledge of Parent, complied in all material
respects with all laws relating to the employment of labor, including, without
limitation, any provisions thereof relating to wages, hours, collective
bargaining, and the payment of social security and similar taxes, and (d) no
person has, to the knowledge of Parent, asserted that Parent or any of its
subsidiaries is liable in any material amount for any arrears of wages or any
taxes or penalties for failure to comply with any of the foregoing, except for
such controversies, organizational efforts, non-compliance and liabilities
which, singly or in the aggregate, could not reasonably be expected to have a
Parent Material Adverse Effect.
SECTION 4.15. Environmental Matters. (a) Except as set forth in the
Parent SEC Reports or in Schedule 4.15, (i) Parent and its subsidiaries have
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conducted their respective businesses in compliance with all applicable
Environmental Laws, including, without limitation, having all permits, licenses
and other approvals and authorizations necessary for the operation of their
respective businesses as presently conducted, (ii) none of the properties owned,
leased or operated by Parent or any of its subsidiaries contains any Hazardous
Substance in amounts
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exceeding the levels permitted by, or which otherwise create liability under,
applicable Environmental Laws, (iii) neither Parent nor any of its subsidiaries
has received any notices, demand letters or requests for information from any
Federal, state, local or foreign governmental entity or third party indicating
that Parent or any of its subsidiaries may be in violation of, or liable under,
any Environmental Law in connection with the ownership or operation of their
businesses, or any of the properties owned, leased or operated by Parent or any
of its subsidiaries (iv) there are no civil, criminal or administrative actions,
suits, demands, claims, hearings, investigations or proceedings pending or
threatened, against Parent or any of its subsidiaries relating to any violation,
or alleged violation, of or any liability or alleged liability, under any
Environmental Law, (v) no reports have been filed, or are required to be filed,
by Parent or any of its subsidiaries concerning the release of any Hazardous
Substance or the threatened or actual violation of any Environmental Law, (vi)
no Hazardous Substance has been disposed of or released at, from or onto any
properties owned, leased or operated by Parent or any of its subsidiaries during
the time such properties were owned, leased or operated by Parent or any of its
subsidiaries or to the best knowledge of Parent and its subsidiaries at any
other time or at any other facility or site to which Hazardous Substances from
or generated by Parent or any of its subsidiaries have been taken at any time in
the past, (vii) there have been no environmental investigations, studies,
audits, tests, reviews or other analyses regarding compliance or noncompliance
with any applicable Environmental Law conducted by or which are in the
possession of Parent or its subsidiaries relating to the activities of or
properties owned, leased or operated by Parent or its subsidiaries which have
not been delivered to the Company prior to the date hereof, (viii) there are no
underground storage tanks on, in or under any properties owned, leased or
operated by Parent and any of its subsidiaries and no underground storage tanks
have been closed or removed from any of such properties during the time such
properties were owned, leased or operated by Parent or any of its subsidiaries,
or, to the best knowledge of Parent and its subsidiaries, at any other time (ix)
there is no friable asbestos or asbestos containing material present in any of
the properties owned by Parent and its subsidiaries, and no asbestos has been
removed from any of such properties during the time such properties were owned,
leased or operated by Parent or any of its subsidiaries, and (x) neither Parent,
its subsidiaries nor any of their respective properties are subject to any
material liabilities or expenditures (fixed or contingent) relating to any suit,
settlement, court order, administrative order, regulatory requirement, judgment
or claim asserted or arising under any Environmental Law, except for violations
of the foregoing clauses (i) through (x) that, singly or in the
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aggregate, would not reasonably be expected to have a Parent Material Adverse
Effect.
(b) As used herein, "Environmental Law" means any Federal, state,
local or foreign law, statute, ordinance, rule, regulation, code, license,
permit, authorization, approval, consent, legal doctrine, order, judgment,
decree, injunction, requirement or agreement with any governmental entity
relating to (x) the protection, preservation or restoration of the environment
(including, without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface land, subsurface land, plant and animal life or
any other natural resource) or to human health or safety or (y) the exposure to,
or the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of Hazardous
Substances, in each case as amended and as in effect on the Closing Date. The
term Environmental Law includes, without limitation, (i) the Federal
Comprehensive Environmental Response Compensation and Liability Act of 1980, the
Superfund Amendments and Reauthorization Act, the Federal Water Pollution
Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act, the
Federal Resource Conservation and Recovery Act of 1976 (including the Hazardous
and Solid Waste Amendments thereto), the Federal Solid Waste Disposal Act, the
Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide and
Rodenticide Act, the Federal Occupational Safety and Health Act of 1970, each as
amended and as in effect on the Closing Date, and (ii) any common law or
equitable doctrine (including, without limitation, injunctive relief and tort
doctrines such as negligence, nuisance, trespass and strict liability) that may
impose liability or obligations for injuries or damages due to, or threatened as
a result of, the presence of, effects of or exposure to any Hazardous Substance.
(c) As used herein, "Hazardous Substance" means any substance
presently or hereafter listed, defined, designated or classified as hazardous,
toxic, radioactive, or dangerous, under any Environmental Law. Hazardous
Substance includes any substance to which exposure is regulated by any
government authority pursuant to any Environmental Law including, without
limitation, any toxic waste, hazardous substance, toxic substance, hazardous
waste, special waste or petroleum or any derivative or by-product thereof,
radon, radioactive material, asbestos or asbestos containing material, urea
formaldehyde foam insulation, lead or polychlorinated biphenyls.
SECTION 4.16. Title to Assets. Parent and each of its subsidiaries
has good and marketable title in fee simple to all its real property and good
title to all its leasehold interests and other properties as reflected in the
most recent balance sheet included in the Parent Financial Statements, except
for
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properties and assets that have been disposed of in the ordinary course of
business since the date of such balance sheet, free and clear of all mortgages,
liens, pledges, charges or encumbrances of any nature whatsoever, except (i) the
lien for current taxes, payments of which are not yet delinquent, (ii) such
imperfections in title and easements and encumbrances, if any, as are not
substantial in character, amount or extent and do not materially detract from
the value or interfere with the present use of the property subject thereto or
affected thereby, or otherwise materially impair the Parent's business
operations (in the manner presently carried on by the Parent), or (iii) as
disclosed in the Parent SEC Reports, and except for such matters which, singly
or in the aggregate, could not reasonably be expected to have a Parent Material
Adverse Effect. All leases under which Parent leases any real or personal
property are in good standing, valid and effective in accordance with their
respective terms, and there is not, under any of such leases, any existing
default or event which with notice or lapse of time or both would become a
default other than defaults under such leases which in the aggregate will not
have a Parent Material Adverse Effect.
SECTION 4.17. Trademarks and Intellectual Property Compliance.
Parent and its subsidiaries own or have the right to use, without any material
payment to any other party, all of their patents, trademarks (registered or
unregistered), trade names, service marks, copyrights and applications
("Intellectual Property Rights") and the consummation of the transactions
contemplated hereby will not alter or impair such rights in any material
respect. To the best knowledge of Parent, no claims are pending by any person
with respect to the ownership, validity, enforceability or use of any such
Intellectual Property Rights challenging or questioning the validity or
effectiveness of any of the foregoing which claims could reasonably be expected
to have a Parent Material Adverse Effect.
SECTION 4.18. Material Agreements. Parent and Subsidiary have no
material agreements other than those filed as exhibits to Parent SEC Reports or
which will be filed with the Registration Statement, copies of which (to the
extent such agreements exist on and as of the date hereof) have been delivered
to the Company, or which will be delivered to the Company promptly after they
become available.
SECTION 4.19. Pooling Matters. To the Parent's knowledge and based
upon consultation with its independent accountants, neither the Parent nor any
of its affiliates has taken or agreed to take any action that would affect the
ability of Parent to account for the Merger as a pooling of interests.
SECTION 4.20. Insurance. Except to the extent there would be no
Parent Material Adverse Effect, all of Parent's and
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its subsidiaries' liability, theft, life, health, fire, title, worker's
compensation and other forms of insurance, surety bonds and umbrella policies,
insuring Parent and its subsidiaries and their directors, officers, employees,
independent contractors, properties, assets and business, are valid and in full
force and effect and without any premium past due or pending notice of
cancellation, are, in the reasonable judgment of Parent, adequate for the
business of Parent and its subsidiaries as now conducted, and there are no
claims, singly or in the aggregate, under such policies in excess of $200,000,
which, in any event, are not in excess of the limitations of coverage set forth
in such policies. Parent and its subsidiaries have taken all actions reasonably
necessary to insure that their independent contractors obtain and maintain
adequate insurance coverage. All of the insurance policies referred to in this
Section 4.20 are "occurrence" policies and no such policies are "claims made"
policies. Neither Parent nor any of its subsidiaries has knowledge of any fact
indicating that such policies will not continue to be available to Parent and
its subsidiaries upon substantially similar terms subsequent to the Effective
Time. The provision and/or reserves in the Parent Financial Statements are
adequate for any and all self insurance programs maintained by Parent or its
subsidiaries.
SECTION 4.21. Transactions with Related Parties. Except as set forth
in the Parent SEC Reports, (a) there have been no transactions by Parent or its
subsidiaries with any officer or director of Parent or beneficial owner of more
than five percent (5%) of Parent which are required to be disclosed pursuant to
the Exchange Act and (b) there are no material agreements or understandings now
in effect between Parent or its subsidiaries and any Related Party.
ARTICLE V
Representations and Warranties of the Company
The Company represents and warrants to Parent and Subsidiary as
follows:
SECTION 5.1. Organization and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the requisite corporate power and authority to
own, lease and operate its assets and properties and to carry on its business as
it is now being conducted. The Company is qualified to do business and is in
good standing in each jurisdiction in which the properties owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification necessary, except where the failure to be so qualified and in good
standing will not,
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when taken together with all other such failures, have a material adverse effect
on the business, operations, properties, assets, condition (financial or other)
or results of operations of the Company and its subsidiaries, taken as a whole
(a "Company Material Adverse Effect"). True, accurate and complete copies of
the Company's Certificate of Incorporation and By-laws, in each case as in
effect on the date hereof, including all amendments thereto, have heretofore
been delivered to Parent.
SECTION 5.2. Capitalization.
(a) The authorized capital stock of the Company consists of
25,000,000 shares of Company Common Stock and 1,000,000 shares of preferred
stock (par value $.001 per shares). As of August 7, 1996, 9,380,946 shares of
Company Common Stock and no shares of preferred stock were issued and
outstanding. All of such issued and outstanding shares are validly issued and
are fully paid, nonassessable and free of preemptive rights.
(b) Except as set forth in the Company SEC Reports (as defined in
Section 5.5) or on Schedule 5.2 attached hereto, as of the date hereof there
------------
are: (i) no outstanding subscriptions, options, calls, contracts, commitments,
understandings, restrictions, arrangements, rights or warrants, including any
right of conversion or exchange under any outstanding security, instrument or
other agreement and also including any rights plan or other anti-takeover
agreement, obligating the Company or any subsidiary of the Company to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
the capital stock of the Company or obligating the Company or any subsidiary of
the Company to grant, extend or enter into any such agreement or commitment, and
(ii) no voting trusts, proxies or other agreements or understandings to which
the Company or any subsidiary of the Company is a party or is bound with respect
to the voting of any shares of capital stock of the Company.
SECTION 5.3. Subsidiaries. Except as set forth in Schedule 5.3,
------------
each direct and indirect corporate subsidiary of the Company is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation and has the requisite power and authority to own, lease and
operate its assets and properties and to carry on its business as it is now
being conducted except where any failure would not have a Company Material
Adverse Effect. Each subsidiary of the Company is qualified to do business, and
is in good standing, in each jurisdiction in which the properties owned, leased
or operated by it or the nature of the business conducted by it makes such
qualification necessary, except where the failure to be so qualified and in good
standing will not, when taken together with all such other failures, have a
Company Material Adverse Effect. All of the outstanding shares of capital stock
of each corporate
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subsidiary of the Company are validly issued, fully paid, nonassessable and free
of preemptive rights, and are owned directly or indirectly by the Company free
and clear of any liens, claims, encumbrances, security interests, equities,
charges and options of any nature whatsoever except that such shares are pledged
to secure the Company's (and such subsidiaries') credit facilities or as set
forth in Schedule 5.3 attached hereto. There are no subscriptions, options,
------------
warrants, rights, calls, contracts, voting trusts, proxies or other commitments,
understandings, restrictions or arrangements relating to the issuance, sale,
voting, transfer, ownership or other rights with respect to any shares of
capital stock of any corporate subsidiary of the Company, including any right of
conversion or exchange under any outstanding security, instrument or agreement.
SECTION 5.4. Authority; Non-Contravention; Approvals.
(a) The Company has full corporate power and authority to enter into
this Agreement and, subject to the Company Stockholders' Approval (as defined in
Section 7.3) and the Company Required Statutory Approvals (as defined in Section
5.4(c)), to consummate the transactions contemplated hereby. This Agreement has
been approved by the Board of Directors of the Company, and no other corporate
proceedings on the part of the Company are necessary to authorize the execution
and delivery of this Agreement or, except for the Company Stockholders'
Approval, the consummation by the Company of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by the Company,
and, assuming the due authorization, execution and delivery hereof by Parent and
Subsidiary, constitutes a valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms, except that such
enforcement may be subject to (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting or relating to enforcement of
creditors' rights generally and (ii) general equitable principles. Without
limitation of the foregoing, each of the covenants and obligations of the
Company set forth in Sections 6.1, 6.5, 7.3, 7.6, 7.7, 7.8 and 7.10 is valid,
legally binding and enforceable notwithstanding the absence of the Company
Stockholders' Approval.
(b) Except as set forth in Schedule 5.4(b), the execution and
---------------
delivery of this Agreement by the Company do not violate, conflict with or
result in a breach of any provision of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination of, or accelerate the performance required by, or
result in a right of termination or acceleration under, or result in the
creation of any lien, security interest, charge or
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encumbrance upon any of the properties or assets of the Company or any of its
subsidiaries under any of the terms, conditions or provisions of (i) the
respective charters or by-laws of the Company or any of its subsidiaries, (ii)
any statute, law, ordinance, rule, regulation, judgment, decree, order,
injunction, writ, permit or license of any court or governmental authority
applicable to the Company or any of its subsidiaries or any of their respective
properties or assets, or (iii) any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which the Company or any of
its subsidiaries is now a party or by which the Company or any of its
subsidiaries or any of their respective properties or assets may be bound or
affected. Except as set forth in Schedule 5.4(b), the consummation by the
---------------
Company of the transactions contemplated hereby will not result in any
violation, conflict, breach, termination, acceleration or creation of liens
under any of the terms, conditions or provisions described in clauses (i)
through (iii) of the preceding sentence, subject (x) in the case of the terms,
conditions or provisions described in clause (ii) above, to obtaining (prior to
the Effective Time) the Company Required Statutory Approvals and the Company
Stockholders' Approval and (y) in the case of the terms, conditions or
provisions described in clause (iii) above, to obtaining (prior to the Effective
Time) consents required from commercial lenders, lessors or other third parties.
Excluded from the foregoing sentences of this paragraph (b), insofar as they
apply to the terms, conditions or provisions described in clauses (ii) and (iii)
of the first sentence of this paragraph (b), are such violations, conflicts,
breaches, defaults, terminations, accelerations or creations of liens, security
interests, charges or encumbrances that would not, in the aggregate, have a
Company Material Adverse Effect.
(c) Except for (i) the filings by Parent and the Company required by
the HSR Act, (ii) the filing of the Joint Proxy Statement/Prospectus with the
SEC pursuant to the Exchange Act and the Securities Act and the declaration of
the effectiveness thereof by the SEC and filings with various state blue sky
authorities, (iii) the making of the Merger Filing with the Secretary of State
of the State of Delaware in connection with the Merger and (iv) any required
filings or approvals under the Interstate Commerce Act or filings with or
approvals from the DOT, the Federal Communications Commission, applicable state
environmental authorities, public service commissions and public utility
commissions (the filings and approvals referred to in clauses (i) through (iv)
are collectively referred to as the "Company Required Statutory Approvals"), no
declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by the Company or the
consummation by the Company of the transactions
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contemplated hereby, other than such declarations, filings, registrations,
notices, authorizations, consents or approvals which, if not made or obtained,
as the case may be, would not, in the aggregate, have a Company Material Adverse
Effect.
SECTION 5.5. Reports and Financial Statements. Except as set forth
on Schedule 5.5 attached hereto, since December 20, 1995, the Company has filed
------------
with the SEC all material forms, statements, reports and documents (including
all exhibits, amendments and supplements thereto) required to be filed by it
under each of the Securities Act, the Exchange Act and the respective rules and
regulations thereunder, all of which, as amended if applicable, complied in all
material respects with all applicable requirements of the appropriate act and
the rules and regulations thereunder. The Company has previously delivered to
Parent copies of its (a) Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, as filed with the SEC, (b) proxy and information statements
relating to (i) all meetings of its stockholders (whether annual or special) and
(ii) actions by written consent in lieu of a stockholders' meeting, if any, from
December 20, 1995 until the date hereof, and (c) all other reports, including
quarterly reports, or registration statements filed by the Company with the SEC
since December 20, 1995 (other than registration statements filed on Form S-3/S-
8) (the documents referred to in clauses (a), (b) and (c) are collectively
referred to as the "Company SEC Reports"). As of their respective dates, the
Company SEC Reports did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The audited consolidated financial statements and
unaudited interim consolidated financial statements of the Company included in
such reports (collectively, the "Company Financial Statements") have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis (except as may be indicated therein or in the notes thereto)
and fairly present the financial position of the Company and its subsidiaries as
of the dates thereof and the results of their operations and changes in
financial position for the periods then ended, subject, in the case of the
unaudited interim financial statements, to normal year-end and audit adjustments
and any other adjustments described therein.
SECTION 5.6. Absence of Undisclosed Liabilities. Except as
disclosed in the Company SEC Reports, neither the Company nor any of its
subsidiaries had at June 29, 1996, or has incurred since that date, any
liabilities or obligations (whether absolute, accrued, contingent or otherwise)
of any nature, except: (a) liabilities, obligations or contingencies (i) which
are accrued or reserved against in the Company Financial Statements or reflected
in the notes thereto or (ii) which were
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incurred after June 29, 1996 and were incurred in the ordinary course of
business and consistent with past practices, (b) liabilities, obligations or
contingencies which (i) would not, in the aggregate, have a Company Material
Adverse Effect, or (ii) have been discharged or paid in full prior to the date
hereof, and (c) liabilities and obligations which are of a nature not required
to be accrued or reserved against in the consolidated financial statements of
the Company and its subsidiaries, or reflected in the notes thereto, prepared in
accordance with generally accepted accounting principles consistently applied
and which were incurred in the ordinary course of business.
SECTION 5.7. Absence of Certain Changes or Events. Since the date of
the most recent Company SEC Report, there has not been any material adverse
change in the business, operations, properties, assets, liabilities, condition
(financial or other) or results of operations of the Company and its
subsidiaries, taken as a whole, including as a result of any change in capital
structure, employee compensation arrangement (including severance rights and
benefit plans), accounting method or applicable law.
SECTION 5.8. Litigation. Except as referred to in the Company SEC
Reports or in Schedule 5.8 attached hereto, there are no claims, suits, actions
------------
or proceedings pending or, to the knowledge of the Company, threatened against,
relating to or affecting the Company or any of its subsidiaries, before any
court, governmental department, commission, agency, instrumentality or
authority, or any arbitrator that seek to restrain the consummation of the
Merger or which could reasonably be expected, either alone or in the aggregate
with all such claims, actions or proceedings, to cause a Company Material
Adverse Effect. Except as referred to in the Company SEC Reports or in Schedule
--------
5.8 attached hereto, neither the Company nor any of its subsidiaries is subject
- ---
to any judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or authority, or any arbitrator
which prohibits or restricts the consummation of the transactions contemplated
hereby or would have any Company Material Adverse Effect.
SECTION 5.9. Registration Statement and Proxy Statement. None of
the information to be supplied by the Company or its subsidiaries for inclusion
in (a) the Registration Statement or (b) the Proxy Statement will, in the case
of the Proxy Statement or any amendments thereof or supplements thereto, at the
time of the mailing of the Proxy Statement and any amendments or supplements
thereto, and at the time of the meeting of stockholders of the Company to be
held in connection with the transactions contemplated by this Agreement or, in
the case of the Registration Statement, as amended or supplemented, at the
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time it becomes effective, at the time of such meeting of the stockholders of
the Company and for so long as it remains effective, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The Joint Proxy
Statement/Prospectus will, as of its effective date, comply as to form in all
material respects with all applicable laws, including the provisions of the
Securities Act and the Exchange Act and the rules and regulations promulgated
thereunder, except that no representation or covenant is made by the Company
with respect to information in writing supplied or to be supplied by Parent or
Subsidiary for inclusion therein.
SECTION 5.10. No Violation of Law. Except as disclosed in the
Company SEC Reports or in Schedule 5.10 attached hereto, neither the Company nor
-------------
any of its subsidiaries is in violation of or has been given notice or been
charged with any violation of, any law, statute, order, rule, regulation,
ordinance or judgment (including, without limitation, any applicable
environmental law, ordinance or regulation) of any governmental or regulatory
body or authority, except for violations which, in the aggregate, could not
reasonably be expected to have a Company Material Adverse Effect. Except as
disclosed in the Company SEC Reports, as of the date of this Agreement, to the
knowledge of the Company, no investigation or review by any governmental or
regulatory body or authority is pending or threatened, nor has any governmental
or regulatory body or authority indicated an intention to conduct the same,
other than, in each case, those the outcome of which, as far as reasonably can
be foreseen, will not have a Company Material Adverse Effect. The Company and
its subsidiaries have all permits, licenses, franchises, variances, exemptions,
orders and other governmental authorizations, consents and approvals necessary
to conduct their businesses as presently conducted (collectively, the "Company
Permits"), except for permits, licenses, franchises, variances, exemptions,
orders, and other governmental authorizations, consents and approvals the
absence of which, alone or in the aggregate, would not have a Company Material
Adverse Effect. The Company and its subsidiaries are not in violation of the
terms of any Company Permit, except for delays in filing reports or violations
which, alone or in the aggregate, would not have a Company Material Adverse
Effect.
SECTION 5.11. Compliance with Agreements. Except as disclosed in the
Company SEC Reports or in Schedule 5.11, the Company and each of its
-------------
subsidiaries are not in breach or violation of or in default in the performance
or observance of any term or provision of, and no event has occurred which, with
lapse of time or action by a third party, could result in a default under, (a)
the respective charters, by-laws or similar
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organizational instruments of the Company or any of its subsidiaries or (b) any
contract, commitment, agreement, indenture, mortgage, loan agreement, note,
lease, bond, license, approval or other instrument to which the Company or any
of its subsidiaries is a party or by which any of them is bound or to which any
of their property is subject, which breaches, violations and defaults, in the
case of clause (b) of this Section 5.11, would have, in the aggregate, a Company
Material Adverse Effect.
SECTION 5.12. Taxes. The Company and its subsidiaries have (i) duly
filed with the appropriate governmental authorities all Tax Returns required to
be filed by them for all periods ending on or prior to the Effective Time, other
than those Tax Returns the failure of which to file would not have a Company
Material Adverse Effect, and such Tax Returns are true, correct and complete in
all material respects, and (ii) duly paid in full or made adequate provision for
the payment of all Taxes for all periods ending at or prior to the Effective
Time. The liabilities and reserves for Taxes reflected in the Company balance
sheet included in the latest Company SEC Report are adequate to cover all Taxes
for all periods ending at or prior to the Effective Time and there are no
material liens for Taxes upon any property or assets of the Company or any
subsidiary thereof, except for liens for Taxes not yet due. There are no
unresolved issues of law or fact arising out of a notice of deficiency, proposed
deficiency or assessment from the IRS or any other governmental taxing authority
with respect to Taxes of the Company or any of its subsidiaries which, if
decided adversely, singly or in the aggregate, would have a Company Material
Adverse Effect. Neither the Company nor any of its subsidiaries is a party to
any agreement providing for the allocation or sharing of Taxes with any entity
that is not, directly or indirectly, a wholly-owned corporate subsidiary of the
Company. Neither the Company nor any of its corporate subsidiaries has, with
regard to any assets or property held, acquired or to be acquired by any of
them, filed a consent to the application of Section 341(f) of the Code.
SECTION 5.13. Employee Benefit Plans; ERISA.
(a) Except as set forth in the Company SEC Reports, at the date
hereof, the Company and its subsidiaries do not maintain or contribute to any
material employee benefit plans, programs, arrangements and practices (such
plans, programs, arrangements and practices of the Company and its subsidiaries
being referred to as the "Company Plans"), including employee benefit plans
within the meaning set forth in Section 3(3) of ERISA, or other similar material
arrangements for the provision of benefits (excluding any "Multi-employer Plan"
within the meaning of Section 3(37) of ERISA or a "Multiple Employer Plan"
within the
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meaning of Section 413(c) of the Code). Schedule 5.13(a) attached hereto lists
----------------
all Multi-employer Plans and Multiple Employer Plans which any of the Company or
its subsidiaries maintains or to which any of them makes contributions. Neither
the Company nor its subsidiaries has any obligation to create any additional
such plan or to amend any such plan so as to increase benefits thereunder,
except as required under the terms of the Company Plans, under existing
collective bargaining agreements or to comply with applicable law.
(b) Except as disclosed in the Company SEC Reports, (i) there have
been no prohibited transactions within the meaning of Section 406 or 407 of
ERISA or Section 4975 of the Code with respect to any of the Company Plans that
could result in penalties, taxes or liabilities which, singly or in the
aggregate, could have a Company Material Adverse Effect, (ii) except for
premiums due, there is no outstanding material liability, whether measured alone
or in the aggregate, under Title IV of ERISA with respect to any of the Company
Plans, (iii) neither the Pension Benefit Guaranty Corporation nor any plan
administrator has instituted proceedings to terminate any of the Company Plans
subject to Title IV of ERISA other than in a "standard termination" described in
Section 4041(b) of ERISA, (iv) none of the Company Plans has incurred any
"accumulated funding deficiency" (as defined in Section 302 of ERISA and Section
412 of the Code), whether or not waived, as of the last day of the most recent
fiscal year of each of the Company Plans ended prior to the date of this
Agreement, (v) the current present value of all projected benefit obligations
under each of the Company Plans which is subject to Title IV of ERISA did not,
as of its latest valuation date, exceed the then current value of the assets of
such plan allocable to such benefit liabilities by more than the amount, if any,
disclosed in the Company SEC Reports as of June 29, 1996, based upon reasonable
actuarial assumptions currently utilized for such Company Plan, (vi) each of the
Company Plans has been operated and administered in all material respects in
accordance with applicable laws during the period of time covered by the
applicable statute of limitations, (vii) each of the Company Plans which is
intended to be "qualified" within the meaning of Section 401(a) of the Code has
been determined by the IRS to be so qualified and such determination has not
been modified, revoked or limited by failure to satisfy any condition thereof or
by a subsequent amendment thereto or a failure to amend, except that it may be
necessary to make additional amendments retroactively to maintain the
"qualified" status of such Company Plans, and the period for making any such
necessary retroactive amendments has not expired, (viii) with respect to Multi-
employer Plans, neither the Company nor any of its subsidiaries has, made or
suffered a "complete withdrawal" or a "partial withdrawal," as such terms are
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respectively defined in Sections 4203, 4204 and 4205 of ERISA and, to the best
knowledge of the Company and its subsidiaries, no event has occurred or is
expected to occur which presents a material risk of a complete or partial
withdrawal under said Sections 4203, 4204 and 4205, (ix) to the best knowledge
of the Company and its subsidiaries, there are no material pending, threatened
or anticipated claims involving any of the Company Plans other than claims for
benefits in the ordinary course, and (x) the Company and its subsidiaries have
no current material liability, whether measured alone or in the aggregate, for
plan termination or complete withdrawal or partial withdrawal under Title IV of
ERISA based on any plan to which any entity that would be deemed one employer
with the Company and its subsidiaries under Section 4001 of ERISA or Section 414
of the Code contributed during the period of time covered by the applicable
statute of limitations (the "Company Controlled Group Plans"), and the Company
and its subsidiaries do not reasonably anticipate that any such liability will
be asserted against the Company or any of its subsidiaries. None of the Company
Controlled Group Plans has an "accumulated funding deficiency" (as defined in
Section 302 of ERISA and Section 412 of the Code).
(c) The Company SEC Reports or Schedule 5.13(c) contain a true and
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complete summary or list of or otherwise describe all material employment
contracts and other employee benefit arrangements with "change of control" or
similar provisions and all severance agreements with executive officers.
SECTION 5.14. Labor Controversies. Except as set forth in the
Company SEC Reports, (a) there are no significant controversies pending or, to
the knowledge of the Company, threatened between the Company or its subsidiaries
and any representatives of any of their employees, (b) to the knowledge of the
Company, there are no material organizational efforts presently being made
involving any of the presently unorganized employees of the Company or its
subsidiaries, (c) the Company and its subsidiaries have, to the knowledge of the
Company, complied in all material respects with all laws relating to the
employment of labor, including, without limitation, any provisions thereof
relating to wages, hours, collective bargaining, and the payment of social
security and similar taxes, and (d) no person has, to the knowledge of the
Company, asserted that the Company or any of its subsidiaries is liable in any
material amount for any arrears of wages or any taxes or penalties for failure
to comply with any of the foregoing, except for such controversies,
organizational efforts, non-compliance and liabilities which, singly or in the
aggregate, could not reasonably be expected to have a Company Material Adverse
Effect.
SECTION 5.15. Environmental Matters. Except as set forth in the
Company SEC Reports or in Schedule 5.15, (i) the
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Company and its subsidiaries have conducted their respective businesses in
compliance with all applicable Environmental Laws, including, without
limitation, having all permits, licenses and other approvals and authorizations
necessary for the operation of their respective businesses as presently
conducted, (ii) none of the properties owned, leased or operated by the Company
or any of its subsidiaries contains any Hazardous Substance in amounts exceeding
the levels permitted by, or which otherwise create liability under, applicable
Environmental Laws, (iii) neither the Company nor any of its subsidiaries has
received any notices, demand letters or requests for information from any
Federal, state, local or foreign governmental entity or third party indicating
that the Company or any of its subsidiaries may be in violation of, or liable
under, any Environmental Law in connection with the ownership or operation of
their businesses, or any of the properties owned, leased or operated by the
Company or any of its subsidiaries (iv) there are no civil, criminal or
administrative actions, suits, demands, claims, hearings, investigations or
proceedings pending or threatened, against the Company or any of its
subsidiaries relating to any violation, or alleged violation, of any
Environmental Law, (v) no reports have been filed, or are required to be filed,
by the Company or any of its subsidiaries concerning the release of any
Hazardous Substance or the threatened or actual violation of or any liability,
or alleged liability under any Environmental Law, (vi) no Hazardous Substance
has been disposed of or released at, from or onto any properties owned, leased
or operated by the Company or any of its subsidiaries during the time such
properties were owned, leased or operated by the Company or any of its
subsidiaries or to the best knowledge of Company and its subsidiaries at any
other time or at any other facility or site to which Hazardous Substances from
or generated by the Company or any of its subsidiaries have been taken at any
time in the past, (vii) there have been no environmental investigations,
studies, audits, tests, reviews or other analyses regarding compliance or
noncompliance with any applicable Environmental Law conducted by or which are in
the possession of the Company or its subsidiaries relating to the activities of
or properties owned, leased or operated by the Company or its subsidiaries which
have not been delivered to Parent prior to the date hereof, (viii) there are no
underground storage tanks on, in or under any properties owned, leased or
operated by the Company or any of its subsidiaries and no underground storage
tanks have been closed or removed from any of such properties during the time
such properties were owned, leased or operated by the Company or any of its
subsidiaries, or to the best knowledge of the Company and its subsidiaries at
any other time, (ix) there is no friable asbestos or asbestos containing
material present in any of the properties owned by the Company and its
subsidiaries, and no asbestos has been removed from any of such properties
during the time such properties were owned, leased or operated by the Company or
any of its
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subsidiaries, and (x) neither the Company, its subsidiaries nor any of their
respective properties are subject to any material liabilities or expenditures
(fixed or contingent) relating to any suit, settlement, court order,
administrative order, regulatory requirement, judgment or claim asserted or
arising under any Environmental Law, except for violations of the foregoing
clauses (i) through (x) that, singly or in the aggregate, would not reasonably
be expected to have a Company Material Adverse Effect.
SECTION 5.16. Title to Assets. The Company and each of its
subsidiaries has good and marketable title in fee simple to all its real
property and good title to all its leasehold interests and other properties, as
reflected in the most recent balance sheet included in the Company Financial
Statements, except for properties and assets that have been disposed of in the
ordinary course of business since the date of such balance sheet, free and clear
of all mortgages, liens, pledges, charges or encumbrances of any nature
whatsoever, except (i) the lien for current taxes, payments of which are not yet
delinquent, (ii) such imperfections in title and easements and encumbrances, if
any, as are not substantial in character, amount or extent and do not materially
detract from the value, or interfere with the present use of the property
subject thereto or affected thereby, or otherwise materially impair the
Company's business operations (in the manner presently carried on by the
Company), (iii) as disclosed in the Company SEC Reports or (iv) as provided in
the credit facility, dated April 12, 1996, between the Company and its lending
banks, and except for such matters which, singly or in the aggregate, could not
reasonably be expected to have a Company Material Adverse Effect. All leases
under which the Company leases any substantial amount of real or personal
property are in good standing, valid and effective in accordance with their
respective terms, and there is not, under any of such leases, any existing
default or event which with notice or lapse of time or both would become a
default other than defaults under such leases which in the aggregate will not
have a Company Material Adverse Effect.
SECTION 5.17. Company Stockholders' Approval. The affirmative vote
of stockholders of the Company required for approval and adoption of this
Agreement and the Merger is a majority of the outstanding shares of Company
Common Stock.
SECTION 5.18 No Excess Parachute Payments. Except as set forth on
Schedule 5.18, the Company has no contracts, arrangements or understandings
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pursuant to which any person may receive any amount or entitlement from the
Company or any of its subsidiaries (including cash or property or the vesting of
property) that may be characterized as an "excess parachute payment" (as such
term is defined in Section 280G(B)(1) of the Code) (any such amount being an
"Excess Parachute Payment") as a
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result of any of the transactions contemplated by this Agreement. Except as set
forth on Schedule 5.18, to the best knowledge of the Company, no person is
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entitled to receive any additional payment from the Company, its subsidiaries or
any other person (a "Parachute Gross-up Payment") in the event that the 20
percent (20%) parachute excise tax of Section 4999(a) of the Code is imposed on
such person. Except as set forth on Schedule 5.18, the Board of Directors of
-------------
the Company has not during the six months prior to the date of this Agreement
granted to any officer, director or employee of the Company any right to receive
any Parachute Gross-Up Payment.
SECTION 5.19 Trademarks and Intellectual Property Compliance. The
Company and its subsidiaries own or have the right to use, without any material
payment to any other party, all of their Intellectual Property Rights, and the
consummation of the transactions contemplated hereby will not alter or impair
such rights in any material respect. To the knowledge of the Company, no claims
are pending by any person with respect to the ownership, validity,
enforceability or use of any such Intellectual Property Rights challenging or
questioning the validity or effectiveness of any of the foregoing which claims
could reasonably be expected to have a Company Material Adverse Effect.
SECTION 5.20 Material Agreements. The Company has no material
agreements other than those filed as exhibits to the Company SEC Reports or as
set forth on Schedule 5.20 or which will be filed with the Registration
-------------
Statement, copies of which (to the extent such agreements exist on and as of the
date hereof) have been delivered to Parent, or which will be delivered to Parent
promptly after they become available.
SECTION 5.21 Pooling Matters. To the Company's knowledge and based
upon consultation with its independent accountants, neither the Company nor any
of its affiliates has taken or agreed to take any action that would affect the
ability of Parent to account for the Merger as a pooling of interests.
SECTION 5.22 Transactions with Related Parties. Except as set forth
in the Company SEC Reports or on Schedule 5.22, (a) there have been no
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transactions by the Company or its subsidiaries with any officer or director of
the Company or beneficial owner of more than five percent (5%) of the Company
Common Stock or their affiliates ("Related Parties") which are required to be
disclosed pursuant to the Exchange Act and (b) there are no material agreements
or understandings now in effect between the Company or its subsidiaries and any
Related Party.
SECTION 5.23 Insurance. Except to the extent there would be no
Company Material Adverse Effect, all of the Company's
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and its subsidiaries' liability, theft, life, health, fire, title, worker's
compensation and other forms of insurance, surety bonds and umbrella policies,
insuring the Company and its subsidiaries and their directors, officers,
employees, independent contractors, properties, assets and business, are valid
and in full force and effect and without any premium past due or pending notice
of cancellation, are, in the reasonable judgment of the Company, adequate for
the business of the Company and its subsidiaries as now conducted, and there are
no claims, singly or in the aggregate, under such policies in excess of $250,000
(as to which the Company is self-insured), which, in any event, are not in
excess of the limitations of coverage set forth in such policies. The Company
and its subsidiaries have taken all actions reasonably necessary to insure that
their independent contractors obtain and maintain adequate insurance coverage.
All of the insurance policies referred to in this Section 5.23 are "occurrence"
policies and no such policies are "claims made" policies. Neither the Company
nor any of its subsidiaries has knowledge of any fact indicating that such
policies will not continue to be available to the Company and its subsidiaries
upon substantially similar terms subsequent to the Effective Time. The
provision and/or reserves in the Company Financial Statements are adequate for
any and all self insurance programs maintained by the Company or its
subsidiaries.
SECTION 5.24 Employment Agreements. Except as set forth on Schedule
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5.24, any and all employees of the Company who are parties to agreements that
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would provide to them cash compensation upon a change of control (as defined
therein) of the Company or upon a voluntary termination of employment by any
such employee (collectively, the "Employment Agreements") have executed
amendments and/or waivers of the cash compensation provisions applicable upon
such a change of control (as defined therein) or upon a voluntary termination of
employment by any such employee.
SECTION 5.25 Affiliate Agreements. Each person who may be deemed an
affiliate of the Company under Rule 145 of the Securities Act ("Rule 145"),
including, without limitation, all directors and executive officers of the
Company, has delivered an agreement to Parent agreeing to the resale
restrictions imposed by applicable securities laws and accounting rules
(including, but not limited to, Accounting Series Release No. 135 ("ASR 135")).
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 6.1. Conduct of Business by the Company Pending the Merger.
Except as otherwise contemplated by this
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Agreement, after the date hereof and prior to the Closing Date or earlier
termination of this Agreement, unless Parent shall otherwise agree in writing,
the Company shall, and shall cause its subsidiaries, to:
(a) conduct their respective businesses in the ordinary and usual
course of business and consistent with past practice;
(b) not (i) amend or propose to amend their respective charters or
by-laws, (ii) split, combine or reclassify their outstanding capital stock or
(iii) declare, set aside or pay any dividend or distribution payable in cash,
stock, property or otherwise, except for the payment of dividends or
distributions by a wholly-owned subsidiary of the Company;
(c) not issue, sell, pledge or dispose of, or agree to issue, sell,
pledge or dispose of, any additional shares of Company Common Stock, or any
options, warrants or rights of any kind to acquire any shares of their capital
stock of any class or any debt or equity securities convertible into or
exchangeable for such capital stock, except that the Company may issue shares
(i) upon conversion of convertible securities and exercise of options
outstanding on the date hereof; and (ii) in connection with the potential
acquisitions described in Schedule 6.1;
------------
(d) not (i) incur or become contingently liable with respect to any
indebtedness for borrowed money other than (A) borrowings in the ordinary course
of business or (B) borrowings to refinance existing indebtedness, (ii) redeem,
purchase, acquire or offer to purchase or acquire any shares of its capital
stock or any options, warrants or rights to acquire any of its capital stock or
any security convertible into or exchangeable for its capital stock, (iii) take
any action which to the knowledge of the Company would unreasonably jeopardize
the treatment of the Merger as a pooling of interests under APB 16, (iv) take or
fail to take any action which action or failure to the knowledge of the Company
would cause the Company or its stockholders (except to the extent that any
stockholders receive cash in lieu of fractional shares) to recognize gain or
loss for federal income tax purposes as a result of the consummation of the
Merger, (v) sell, pledge, dispose of or encumber any assets or businesses other
than sales in the ordinary course of business or (vi) enter into any contract,
agreement, commitment or arrangement with respect to any of the foregoing;
(e) use all reasonable efforts to preserve intact their respective
business organizations and goodwill, keep available the services of their
respective present officers and key employees, and preserve the goodwill and
business relationships with customers and others having business
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relationships with them and not engage in any action, directly or indirectly,
with the intent to adversely impact the transactions contemplated by this
Agreement;
(f) confer on a regular and frequent basis with one or more
representatives of Parent to report operational matters of materiality and the
general status of ongoing operations;
(g) not enter into or amend any employment, severance, special pay
arrangement with respect to termination of employment or other similar
arrangements or agreements with any directors, officers or key employees, except
in the ordinary course and consistent with past practice (excluding material
management non-competition and severance agreements);
(h) not adopt, enter into or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation, health
care, employment or other employee benefit plan, agreement, trust, fund or
arrangement for the benefit or welfare of any employee or retiree, except as
required to comply with changes in applicable law; and
(i) maintain with financially responsible insurance companies
insurance on its tangible assets and its businesses in such amounts and against
such risks and losses as are consistent with past practice.
SECTION 6.2. Conduct of Business by Parent and Subsidiary Pending
the Merger. Except as otherwise contemplated by this Agreement, after the date
hereof and prior to the Closing Date or earlier termination of this Agreement,
unless the Company shall otherwise agree in writing, Parent shall, and shall
cause its subsidiaries, to:
(a) conduct their respective businesses in the ordinary and usual
course of business and consistent with past practice;
(b) not (i) amend or propose to amend their respective charters or
by-laws, (ii) split, combine or reclassify (whether by stock dividend or
otherwise) their outstanding capital stock, or (iii) declare, set aside or pay
any dividend or distribution payable in cash, stock, property or otherwise,
except for the payment of dividends or distributions by a wholly-owned
subsidiary of Parent;
(c) not issue, sell, pledge or dispose of, or agree to issue, sell,
pledge or dispose of, any shares of Parent Common Stock, or any options,
warrants or rights of any kind to acquire any shares of their capital stock of
any class or any debt or equity securities convertible into or exchangeable for
such
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capital stock, except that Parent may issue shares (i) upon conversion of
convertible securities and exercise of options outstanding on the date hereof
and (ii) in connection with potential acquisitions;
(d) not (i) incur or become contingently liable with respect to any
indebtedness for borrowed money other than (A) borrowings in the ordinary course
of business or (B) borrowings to refinance existing indebtedness, (ii) redeem,
purchase, acquire or offer to purchase or acquire any shares of its capital
stock or any options, warrants or rights to acquire any of its capital stock or
any security convertible into or exchangeable for its capital stock, (iii) take
any action which to the knowledge of Parent would unreasonably jeopardize the
treatment of the Merger as a pooling of interests under APB No. 16, (iv) take or
fail to take any action which action or failure to take action would cause the
Company or its stockholders (except to the extent that any stockholders receive
cash in lieu of fractional shares) to recognize gain or loss for federal income
tax purposes as a result of the consummation of the Merger, (v) sell, pledge,
dispose of or encumber any assets or businesses other than sales in the ordinary
course of business or (vi) enter into any contract, agreement, commitment or
arrangement with respect to any of the foregoing;
(e) use all reasonable efforts to preserve intact their respective
business organizations and goodwill, keep available the services of their
respective present officers and key employees, and preserve the goodwill and
business relationships with customers and others having business relationships
with them and not engage in any action, directly or indirectly, with the intent
to adversely impact the transactions contemplated by this Agreement;
(f) confer on a regular and frequent basis with one or more
representatives of the Company to report operational matters of materiality and
the general status of ongoing operations;
(g) not enter into or amend any employment, severance, special pay
arrangement with respect to termination of employment or other similar
arrangements or agreements with any directors, officers or key employees, except
in the ordinary course and consistent with past practice; provided, however,
that Parent and its subsidiaries shall in no event enter into any written
employment agreement which provides for an annual base salary in excess of
$125,000 and has a term in excess of one year or enter into or amend any
material severance or termination arrangement;
(h) not adopt, enter into or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation, health
care, employment or other employee
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benefit plan, agreement, trust, fund or arrangement for the benefit or welfare
of any employee or retiree, except as required to comply with changes in
applicable law; and
(i) maintain with financially responsible insurance companies
insurance on its tangible assets and its businesses in such amounts and against
such risks and losses as are consistent with past practice.
SECTION 6.3. Control of the Company's Operations. Nothing contained
in this Agreement shall give to Parent, directly or indirectly, rights to
control or direct the Company's operations prior to the Effective Time. Prior
to the Effective Time, the Company shall exercise, consistent with the terms and
conditions of this Agreement, complete control and supervision of its
operations.
SECTION 6.4. Control of Parent's Operations. Nothing contained in
this Agreement shall give to the Company, directly or indirectly, rights to
control or direct Parent's operations prior to the Effective Time. Prior to the
Effective Time, Parent shall exercise, consistent with the terms and conditions
of this Agreement, complete control and supervision of its operations.
SECTION 6.5. Acquisition Transactions.
(a) After the date hereof and prior to the Effective Time or earlier
termination of this Agreement, the Company shall not, and shall not permit any
of its subsidiaries to, initiate or solicit, and the Company shall, and shall
use its best efforts to cause each of its subsidiaries to, cause any officer,
director or employee of, or any attorney, accountant, investment banker,
financial advisor or other agent retained by it, not to initiate or solicit, any
proposal or offer to acquire all or any substantial part of the business and
properties of the Company and its subsidiaries or any capital stock of the
Company and its subsidiaries, whether by merger, purchase of assets, tender
offer or otherwise, whether for cash, securities or any other consideration or
combination thereof in a transaction, upon the consummation of which the holders
of Company Common Stock will own less than a majority of the equity of the
offeror or resulting entity or have the right to elect no more than a minority
of the board of directors (or similar governing board) of the offeror or the
resulting entity (any such transactions being referred to herein as "Acquisition
Transactions").
(b) Notwithstanding any other provision of this Agreement, in response
to an unsolicited proposal or inquiry with respect to an Acquisition
Transaction, (i) the Company may engage in discussions or negotiations regarding
such proposal or inquiry with a third party who (without any solicitation or
initiation,
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directly or indirectly, by or with the Company or any Company representative
after the date of this Agreement) seeks to initiate such discussions or
negotiations and may negotiate with and furnish to such third party information
concerning the Company and its business, properties and assets, and (ii) if such
Acquisition Transaction is a tender offer subject to the provisions of Section
14(d) under the Exchange Act, the Company's Board of Directors may take and
disclose to the Company's stockholders a position contemplated by Rule 14e-2(a)
under the Exchange Act.
(c) In the event the Company shall determine to provide any
information or negotiate as described in paragraph (b) above, or shall receive
any offer of the type referred to in paragraph (b) above, it shall (i)
immediately provide Parent a copy of all information provided to the third
party, (ii) inform Parent that information is to be provided, that negotiations
are to take place or that an offer has been received, as the case may be, and
(iii) furnish to Parent the identity of the person receiving such information or
the proponent of such offer, if applicable, and, if any offer has been received,
unless the Board of Directors of the Company concludes that such disclosure is
inconsistent with its fiduciary duties under applicable law, a description of
the material terms thereof.
(d) The Company may terminate this Agreement, withdraw, modify or not
make its recommendation referred to in Section 7.3, if but only if (i) the
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Company shall have determined in good faith after consultation with the
independent financial advisors of the Company that such Acquisition Transaction
would be more favorable to the Company's stockholders from a financial point of
view than the Merger, (ii) the Board of Directors of the Company shall conclude
in good faith after consultation with its legal counsel that such action is
necessary in order for the Board of Directors of the Company to act in a manner
that is consistent with its fiduciary obligations under applicable law and (iii)
the Company shall have furnished the Parent with a copy of a definitive
agreement (if any) with an offeror of an Acquisition Transaction at least five
business days prior to its execution and Parent shall have failed within such
five business day period to offer to amend the terms of this Agreement so that
the Merger would be, in the good faith determination of the Board of Directors
of the Company, at least as favorable to the Company's stockholders from a
financial point of view as the Acquisition Transaction.
(e) Each party (i) acknowledges that a breach of any of its covenants
contained in this Section 6.5 will result in irreparable harm to the other party
which will not be compensable in money damages, and (ii) agrees that such
covenant shall be specifically enforceable and that specific performance and
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injunctive relief shall be a remedy properly available to the other party for a
breach of such covenant. In any event, if Company enters into an Acquisition
Transaction, it will immediately pay to Parent the sums described in Section 7.6
below.
ARTICLE VII
Additional Agreements
SECTION 7.1. Access to Information. (a) The Company and its
subsidiaries shall afford to Parent and Subsidiary and their respective
accountants, counsel, financial advisors and other representatives (the "Parent
Representatives") and Parent and its subsidiaries shall afford to the Company
and its accountants, counsel, financial advisors and other representatives (the
"Company Representatives") full access during normal business hours throughout
the period prior to the Effective Time to all of their respective properties,
books, contracts, commitments and records (including, but not limited to, Tax
Returns) and, during such period, shall furnish promptly to one another (i) a
copy of each report, schedule and other document filed or received by any of
them pursuant to the requirements of federal or state securities laws or filed
by any of them with the SEC in connection with the transactions contemplated by
this Agreement or which may have a material effect on their respective
businesses, properties or personnel and (ii) such other information concerning
their respective businesses, properties and personnel as Parent or Subsidiary or
the Company, as the case may be, shall reasonably request; provided that no
investigation pursuant to this Section 7.1 shall amend or modify any
representations or warranties made herein or the conditions to the obligations
of the respective parties to consummate the Merger. Parent and its subsidiaries
shall hold and shall use their reasonable best efforts to cause the Parent
Representatives to hold, and the Company and its subsidiaries shall hold and
shall use their reasonable best efforts to cause the Company Representatives to
hold, in strict confidence all non-public documents and information furnished to
Parent and Subsidiary or to the Company, as the case may be, in connection with
the transactions contemplated by this Agreement, except that (i) Parent,
Subsidiary and the Company may disclose such information as may be necessary in
connection with seeking the Parent Required Statutory Approvals, the Company
Required Statutory Approvals and the Company Stockholders' Approval and (ii)
each of Parent, Subsidiary and the Company may disclose any information that it
is required by law or judicial or administrative order to disclose.
(b) In the event that this Agreement is terminated in accordance with
its terms, each party shall promptly redeliver to
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the other all non-public written material provided pursuant to this Section 7.1
and shall not retain any copies, extracts or other reproductions in whole or in
part of such written material. In such event, all documents, memoranda, notes
and other writings prepared by Parent or the Company based on the information in
such material shall be destroyed (and Parent and the Company shall use their
respective reasonable best efforts to cause their advisors and representatives
to similarly destroy their documents, memoranda and notes), and such destruction
(and reasonable best efforts) shall be certified in writing by an authorized
officer supervising such destruction.
(c) The Company shall promptly advise Parent and Parent shall
promptly advise the Company in writing of any change or the occurrence of any
event after the date of this Agreement having, or which, insofar as can
reasonably be foreseen, in the future may have, any material adverse effect on
the business, operations, properties, assets, condition (financial or other),
results of operations or prospects of the Company and its subsidiaries or Parent
and its subsidiaries, as the case may be, taken as a whole.
SECTION 7.2. Registration Statement and Proxy Statement. Parent and
the Company shall file with the SEC as soon as is reasonably practicable after
the date hereof the Joint Proxy Statement/Prospectus and shall use all
reasonable efforts to have the Registration Statement declared effective by the
SEC as promptly as practicable. Parent shall also take any action required to
be taken under applicable state blue sky or securities laws in connection with
the issuance of Parent Common Stock pursuant hereto. Parent and the Company
shall promptly furnish to each other all information, and take such other
actions, as may reasonably be requested in connection with any action by any of
them in connection with the first sentence of this Section 7.2.
SECTION 7.3. Stockholders' Approval. The Company shall, as promptly
as practicable, submit this Agreement and the transactions contemplated hereby
for the approval of its stockholders at a meeting of stockholders and, subject
to the fiduciary duties of the Board of Directors of the Company under
applicable law, or except to the extent contemplated by Section 6.5, shall use
its reasonable best efforts to obtain stockholder approval and adoption (the
"Company Stockholders' Approval") of this Agreement and the transactions
contemplated hereby. Such meeting of stockholders shall be held as soon as
practicable following the date upon which the Registration Statement becomes
effective. Subject to the fiduciary duties of the Board of Directors of the
Company under applicable law, or except as contemplated by Section 6.5, the
Company shall, through its Board of Directors, recommend to its stockholders
approval of the
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transactions contemplated by this Agreement. The Company (i) acknowledges that
a breach of its covenant contained in this Section 7.3 to convene a meeting of
its stockholders and call for a vote thereat with respect to the approval of
this Agreement and the Merger will result in irreparable harm to Parent which
will not be compensable in money damages and (ii) agrees that such covenant
shall be specifically enforceable and that specific performance and injunctive
relief shall be a remedy properly available to Parent for a breach of such
covenant.
SECTION 7.4. [Intentionally omitted.]
SECTION 7.5. Exchange Listing. Parent shall use its best efforts to
effect, at or before the Effective Time, authorization for listing on the
NASDAQ, upon official notice of issuance, of the shares of Parent Common Stock
to be issued pursuant to the Merger.
SECTION 7.6. Expenses and Fees.
(a) Except as provided in Section 7.6(b), all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses, except that those
expenses incurred in connection with printing and mailing of the Joint Proxy
Statement/Prospectus shall be shared equally by Parent and the Company.
(b) The Company agrees to pay to Parent a fee equal to Three Million
Three Hundred Seventy-Five Thousand Dollars ($3,375,000) if (i) the Company
terminates this Agreement pursuant to Section 6.5, and (ii) within twelve (12)
months thereafter consummates the Acquisition Transaction to which such
termination is attributable or another Acquisition Transaction commenced within
sixty (60) days after such termination.
SECTION 7.7. Agreement to Cooperate.
(a) Subject to the terms and conditions herein provided, each of the
parties hereto shall use all reasonable efforts to take, or cause to be taken,
all action and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement, including using its reasonable
efforts to obtain all necessary or appropriate waivers, consents and approvals
and SEC "no-action" letters to effect all necessary registrations, filings and
submissions and to lift any injunction or other legal bar to the Merger (and, in
such case, to proceed with the Merger as expeditiously as possible), subject,
however, to the requisite votes of the
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stockholders of the Company and the boards of directors of the Company and
Parent.
(b) Without limitation of the foregoing, each of Parent and the
Company undertakes and agrees to file as soon as practicable after the date
hereof a Notification and Report Form under the HSR Act with the Federal Trade
Commission (the "FTC") and the Antitrust Division of the Department of Justice
(the "Antitrust Division"). Each of Parent and the Company shall (i) use its
reasonable efforts to comply as expeditiously as possible with all lawful
requests of the FTC or the Antitrust Division for additional information and
documents and (ii) not extend any waiting period under the HSR Act or enter into
any agreement with the FTC or the Antitrust Division not to consummate the
transactions contemplated by this Agreement, except with the prior written
consent of the other parties hereto.
(c) In the event any litigation is commenced by any person or entity
relating to the transactions contemplated by this Agreement, including any
Acquisition Transaction, Parent shall have the right, at its own expense, to
participate therein, and the Company will not settle any such litigation without
the consent of Parent, which consent will not be unreasonably withheld.
SECTION 7.8. Public Statements and Filings. The parties shall
consult with each other prior to issuing any press release or any written public
statement with respect to this Agreement or the transactions contemplated hereby
and, except as required by law in the judgment of the issuing party, shall not
issue any such press release or written public statement prior to such
consultation. In addition, each party shall provide the other party with a
written copy of any of its SEC Reports to be filed at least 48 hours prior to
the filing of such report.
SECTION 7.9. Option Plans. Prior to the Effective Time, the Company
through the Compensation Committee of its Board of Directors and Parent shall
take such action as may be necessary to cause each unexpired and unexercised
option (each a "Company Option"), whether immediately exercisable, exercisable
at Closing by virtue of acceleration attributable to the Merger or exercisable
only after Closing, to be automatically converted at the Effective Time into an
option (each a "Parent Option") to purchase a number of shares of Parent Common
Stock equal to the number of shares of Company Common Stock that could have been
purchased under the Company Option multiplied by the Exchange Ratio, at a price
per share of Parent Common Stock equal to the option exercise price determined
pursuant to the Company Option divided by the Exchange Ratio and subject to the
same terms and conditions as the Company Option, including acceleration and
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period of exercise. At the Effective Time, all references in the stock option
agreements to the Company shall be deemed to refer to Parent. As of the
Effective Time, Parent shall assume all of the Company's obligations with
respect to Company Options as so amended and, from and after the Effective Time,
shall have reserved for issuance upon exercise of the Parent Options all shares
of Parent Common Stock covered thereby and, as of the Effective Time, shall have
filed an amendment to its Registration Statement on Form S-8 to register the
additional shares of Parent Common Stock subject to Parent Options granted in
replacement of Company Options.
SECTION 7.10. Notification of Certain Matters. Each of the Company,
Parent and Subsidiary agrees to give prompt notice to each other of, and to use
reasonable efforts to prevent or promptly remedy, (i) the occurrence or failure
to occur or the impending or threatened occurrence or failure to occur, of any
event which occurrence or failure to occur would be likely to cause any of its
representations or warranties in this Agreement to be untrue or inaccurate in
any material respect at any time from the date hereof to the Effective Time and
(ii) any material failure on its part to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to this Section 7.10
shall not limit or otherwise affect the remedies available hereunder to the
party receiving such notice.
SECTION 7.11. Directors' and Officers' Indemnification and Insurance.
(a) From and after the Effective Time, Parent shall, and Parent shall
cause the Surviving Corporation to, indemnify, defend and hold harmless the
present and former officers and directors of the Company (collectively, the
"Indemnified Parties") against all losses, expenses, claims, damages,
liabilities or amounts that are paid in settlement of, or otherwise in
connection with any claim, action, suit, proceeding or investigation (a
"claim"), based in whole or in part on the fact that such person is or was a
director or officer of the Company and arising out of actions or omissions
occurring at or prior to the Effective Time (including, without limitation, this
Agreement, the Merger and the transactions contemplated hereby), in each case to
the fullest extent permitted under the DGCL (and shall pay any expenses in
advance of the final disposition of any such action or proceeding to each
Indemnified Party to the fullest extent permitted under the DGCL, upon receipt
from the Indemnified Party to whom expenses are advanced of any undertaking to
repay such advances required under the DGCL). Parent shall, and Parent shall
cause the Surviving Corporation
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to, observe and comply with the Company's obligations pursuant to the
indemnification agreements listed on Schedule 7.11 hereto.
-------------
(b) Parent shall, and Parent shall cause the Surviving Corporation
to, cause to be maintained in effect until sixty (60) days after the running of
the statute of limitations the current policies of directors' and officers'
liability insurance maintained by the Company (provided that Parent or the
Surviving Corporation may substitute therefor policies of at least the same
coverage and amounts containing terms and conditions which are no less
advantageous to such officers and directors) with respect to claims arising from
facts or events which occurred at or before the Effective Time.
(c) In the event the Surviving Corporation or Parent or any of their
successors or assigns (i) consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then and in each such case, proper
provisions shall be made so that the successors and assigns of the Surviving
Corporation or Parent shall assume the obligations set forth in this Section
7.11.
(d) This Section 7.11 is intended to be for the benefit of, and shall
be enforceable by, the Indemnified Parties, their heirs and personal
representatives and shall be binding on Parent, the Surviving Corporation and
their respective successors and assigns.
SECTION 7.12. Corrections to the Joint Proxy Statement/Prospectus and
Registration Statement. Prior to the date of approval of the Merger by the
Company's stockholders, each of the Company, Parent and Subsidiary shall correct
promptly any information provided by it to be used specifically in the Joint
Proxy Statement/Prospectus and Registration Statement that shall have become
false or misleading in any material respect and shall take all steps necessary
to file with the SEC and have declared effective or cleared by the SEC any
amendment or supplement to the Joint Proxy Statement/Prospectus or the
Registration Statement so as to correct the same and to cause the Joint Proxy
Statement/Prospectus as so corrected to be disseminated to the stockholders of
the Company and Parent, in each case to the extent required by applicable law.
SECTION 7.13. [Intentionally omitted.]
SECTION 7.14. Irrevocable Proxies. Upon the execution hereof, the
Company will use its best efforts to cause its officers and directors to execute
and deliver to Parent irrevocable proxies in a form reasonably acceptable to
Parent
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authorizing the Parent to vote all shares of Company Common Stock which such
executive officers and directors are entitled to vote in favor of the Merger.
SECTION 7.15. Tax-Free Treatment of Merger. The Parent, the
Subsidiary and Company shall each use its best efforts to cause the Merger to be
treated as a tax-free reorganization for federal income tax purposes.
SECTION 7.16. Parent's Periodic Reports Following the Merger.
Following the Effective Time, Parent shall file with the SEC a periodic report
under the Exchange Act which contains at least thirty (30) days of combined
results of operations of the Company and the Parent as required by ASR 135
within the time prescribed under the Exchange Act for the filing of such report.
SECTION 7.17. Grant of Options to Company Employees. Upon
consummation of the Merger, Parent shall grant non-qualified options to purchase
1,000,000 shares of Parent Common Stock at an exercise price equal to Fair
Market Value (as defined in Section 2.8 of Parent's 1994 Stock Option and
Incentive Plan, as amended) on the grant date (which shall be the Closing Date),
to certain employees of the Company as recommended to Parent by senior
management of the Company in accordance with Schedule 7.17 and as agreed to by
-------------
the compensation committee of the Parent's Board of Directors. Such options
will vest over five years (2.083% per month, for months thirteen (13) through
sixty (60), inclusive, following the Effective Time), expire ten (10) years from
the date of grant and otherwise be subject to the terms and conditions of
Parent's existing stock option plan, except that such options shall not qualify
as incentive stock options under the Code. Parent shall register under the S-8
the shares issuable pursuant to the options Parent has agreed to grant under
this Section 7.17,and shall use reasonable efforts to cause such shares to be
listed on Nasdaq.
ARTICLE VIII
Conditions
SECTION 8.1. Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) this Agreement and the transactions contemplated hereby shall
have been approved and adopted by the requisite vote of the stockholders of the
Company under applicable law and applicable listing requirements;
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(b) the shares of Parent Common Stock issuable in the Merger shall
have been authorized for listing on the NASDAQ upon official notice of issuance;
(c) the waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated;
(d) the Registration Statement shall have become effective in
accordance with the provisions of the Securities Act, and no stop order
suspending such effectiveness shall have been issued and remain in effect and no
proceeding for that purpose shall have been instituted by the SEC or any state
regulatory authorities;
(e) no preliminary or permanent injunction or other order or decree
by any federal or state court which prevents the consummation of the Merger
shall have been issued and remain in effect (each party agreeing to use its
reasonable efforts to have any such injunction, order or decree lifted);
(f) no action shall have been taken, and no statute, rule or
regulation shall have been enacted, by any state or federal government or
governmental agency in the United States which would prevent the consummation of
the Merger or make the consummation of the Merger illegal;
(g) all governmental waivers, consents, orders and approvals legally
required for the consummation of the Merger and the transactions contemplated
hereby, and all consents from lenders required to consummate the Merger, shall
have been obtained and be in effect at the Effective Time; and
(h) Coopers & Lybrand, certified public accountants for Parent, shall
have delivered a letter, dated the Closing Date, addressed to Parent, in form
and substance reasonably satisfactory to Parent, stating that the Merger will
qualify as a pooling-of-interests transaction under APB No. 16.
SECTION 8.2. Conditions to Obligation of the Company to Effect the
Merger. Unless waived by the Company, the obligation of the Company to effect
the Merger shall be subject to the fulfillment at or prior to the Closing Date
of the following additional conditions:
(a) Parent and Subsidiary shall have performed in all material
respects their agreements contained in this Agreement required to be performed
on or prior to the Closing Date and the representations and warranties of Parent
and Subsidiary contained in this Agreement shall be true and correct in all
material respects on and as of the date made and, on and as of the Closing
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Date as if made at and as of such date, and the Company shall have received a
certificate of the Chairman of the Board and Chief Executive Officer, the
President or a Vice President of Parent and of the President and Chief Executive
Officer or a Vice President of Subsidiary to that effect;
(b) the Company shall have received an opinion of Sullivan &
Worcester LLP, counsel to the Company, in form and substance reasonably
satisfactory to the Company, dated the Closing Date, to the effect that the
Company and holders of Company Common Stock will recognize no gain or loss for
federal income tax purposes as a result of consummation of the Merger (except to
the extent any stockholders receive cash in lieu of fractional shares);
(c) the Company shall have received an opinion or opinions from
Ballard, Spahr, Andrews & Ingersoll, counsel to Parent and Subsidiary, dated the
Closing Date, substantially in the form of Exhibit 8.2(c);
(d) the Company shall have received "comfort" letters in customary
form from Coopers & Lybrand, certified public accountants for Parent and
Subsidiary, dated the date of the Proxy Statement, the effective date of the
Registration Statement and the Closing Date (or such other date reasonably
acceptable to the Company) with respect to certain financial statements and
other financial information included in the Registration Statement and any
subsequent changes in specified balance sheet and income statement items,
including total assets, working capital, total stockholders' equity, total
revenues and the total and per share amounts of net income;
(e) since the date hereof, there shall have been no changes that
constitute, and no event or events shall have occurred which have resulted in or
constitute, a material adverse change in the business, operations, properties,
assets, condition (financial or other) or results of operations of Parent and
its subsidiaries, taken as a whole;
(f) all governmental waivers, consents, orders, and approvals legally
required for the consummation of the Merger and the transactions contemplated
hereby shall have been obtained and be in effect at the Closing Date, and no
governmental authority shall have promulgated any statute, rule or regulation
which, when taken together with all such promulgations, would materially impair
the value to Parent of the Merger; and
(g) the Company shall have received from Smith Barney Inc. (or other
nationally recognized investment banking firm reasonably acceptable to Parent)
an opinion, dated the date hereof, and, if requested by the Company, confirmed
as of the
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date of the Joint Proxy Statement/Prospectus, to the effect that the Exchange
Ratio is fair, from a financial point of view, to the holders of Company Common
Stock, and such opinion shall not have been withdrawn.
SECTION 8.3. Conditions to Obligations of Parent and Subsidiary to
Effect the Merger. Unless waived by Parent and Subsidiary, the obligations of
Parent and Subsidiary to effect the Merger shall be subject to the fulfillment
at or prior to the Effective Time of the following additional conditions:
(a) the Company shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior to
the Closing Date and the representations and warranties of the Company contained
in this Agreement shall be true and correct in all material respects on and as
of the date made and on and as of the Closing Date as if made at and as of such
date, and Parent shall have received a Certificate of the President and Chief
Executive Officer or of a Vice President of the Company to that effect;
(b) Parent shall have received an opinion from Sullivan & Worcester
LLP, counsel to the Company, dated the Closing Date, substantially in the form
of Exhibit 8.3(b);
(c) Parent shall have received "comfort" letters in customary form
from Price Waterhouse, certified public accountants for the Company, dated the
date of the Proxy Statement, the effective date of the Registration Statement
and the Closing Date (or such other date reasonably acceptable to Parent) with
respect to certain financial statements and other financial information included
in the Registration Statement and any subsequent changes in specified balance
sheet and income statement items, including total assets, working capital, total
stockholders' equity, total revenues and the total and per share amounts of net
income;
(d) since the date hereof, there shall have been no changes that
constitute, and no event or events shall have occurred which have resulted in or
constitute, a material adverse change in the business, operations, properties,
assets, condition (financial or other) or results of operations of the Company
and its subsidiaries, taken as a whole;
(e) all governmental waivers, consents, orders and approvals legally
required for the consummation of the Merger and the transactions contemplated
hereby shall have been obtained and be in effect at the Closing Date, and no
governmental authority shall have promulgated any statute, rule or regulation
which, when taken together with all such promulgations, would materially impair
the value to Parent of the Merger; and
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(f) Parent shall have received from Donaldson, Lufkin & Jenrette
Securities Corporation (or other nationally recognized investment banking firm
reasonably acceptable to the Company) an opinion, dated the date hereof, and, if
requested by Parent, confirmed as of the date of the Joint Proxy
Statement/Prospectus, to the effect that the Exchange Ratio is fair, from a
financial point of view, to Parent's stockholders, and such opinion shall not
have been withdrawn.
ARTICLE IX
Termination, Amendment and Waiver
SECTION 9.1. Termination. This Agreement may be terminated at any
time prior to the Closing Date, whether before or after approval by the
stockholders of the Company, as follows:
(a) The Company shall have the right to terminate this Agreement:
(i) if the Merger is not completed by December 31, 1996
otherwise than account of delay or default on the part of the Company or
any of its 5% stockholders or any of their affiliates or associates;
(ii) if the Merger is enjoined by a final, unappealable court
order not entered at the request or with the support of the Company or any
of its 5% stockholders or any of their affiliates or associates;
(iii) if the terms and conditions of Section 6.5(d), the last
sentence of Section 6.5(e) and Section 7.6(b) are satisfied;
(iv) if the Company's shareholder vote is not sufficient to
approve the Merger;
(v) if Parent (A) fails to perform in any material respect any
of its material covenants in this Agreement and (B) does not cure such
default in all material respects within 30 days after written notice of
such default is given to Parent by the Company; or
(vi) if (A) Parent is subjected to any claim, suit, action or
proceeding, the existence or threat of which has not been disclosed to the
Company as of the date hereof, that could reasonably be expected to have a
Parent Material Adverse Effect, and (B) the Company notifies Parent within
ten days after the Company receives notice of such claim, suit, action or
proceeding that the Company is terminating this Agreement.
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(b) Parent shall have the right to terminate this Agreement:
(i) if the Merger is not completed by December 31, 1996
otherwise than account of delay or default on the part of Parent or any of
its 5% stockholders or any of their affiliates or associates;
(ii) if the Merger is enjoined by a final, unappealable court
order not entered at the request or with the support of Parent or any of
its 5% stockholders or any of their affiliates or associates;
(iii) if the Company's shareholder vote is not sufficient to
approve the Merger;
(iv) if the Company (A) fails to perform in any material respect
any of its material covenants in this Agreement and (B) does not cure such
default in all material respects within 30 days after written notice of
such default is given to the Company by Parent; or
(v) if (A) the Company is subjected to any claim, suit, action
or proceeding, the existence or threat of which has not been disclosed to
Parent as of the date hereof, that could reasonably be expected to have a
Company Material Adverse Effect, and (B) Parent notifies the Company within
ten days after Parent receives notice of such claim, suit, action or
proceeding that Parent is terminating this Agreement.
SECTION 9.2. Effect of Termination. In the event of termination of
this Agreement by either Parent or the Company, as provided in Section 9.1, this
Agreement shall forthwith become void and there shall be no further obligation
on the part of the Company, Parent, Subsidiary or their respective officers or
directors (except as set forth in this Section 9.2 and in Sections 7.1, 7.6 and
7.8, all of which shall survive the termination). Nothing in this Section 9.2
shall relieve any party from liability for any breach of this Agreement.
SECTION 9.3. Amendment. This Agreement may not be amended except
by action taken by the parties' respective Boards of Directors or duly
authorized committees thereof and then only by an instrument in writing signed
on behalf of each of the parties hereto and in compliance with applicable law.
SECTION 9.4. Waiver. At any time prior to the Effective Time, the
parties hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the
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representations and warranties contained herein or in any document delivered
pursuant thereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid if set forth in an instrument in writing
signed on behalf of such party.
ARTICLE X
General Provisions
SECTION 10.1. Non-Survival of Representations and Warranties. All
representations and warranties in this Agreement shall not survive the Merger,
and after effectiveness of the Merger neither the Company, Parent, Subsidiary or
their respective officers or directors shall have any further obligation with
respect thereto.
SECTION 10.2. Brokers. The Company represents and warrants that no
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee (except for the fee payable to the investment banking firm described
in Section 8.2(g)) or commission in connection with the Merger or the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company. Parent and Subsidiary represent and warrant that no
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee (except for the fee payable to the investment banking firm described
in Section 8.3(f)) or commission in connection with the Merger or the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Parent or Subsidiary.
SECTION 10.3. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered personally,
mailed by registered or certified mail (return receipt requested) or sent via
facsimile to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) If to Parent or Subsidiary to:
Corporate Express, Inc.
325 Interlocken Parkway
Broomfield, Colorado 80021
Attention: Jirka Rysavy
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with a copy to:
Ballard Spahr Andrews & Ingersoll
1735 Market Street
Philadelphia, Pennsylvania 19103
Attention: Justin P. Klein
(b) If to the Company, to:
United TransNet, Inc.
1080 Holcomb Bridge Road
Building 200, Suite 140
Roswell, Georgia 30076
Attention: Philip A. Belyew
with a copy to:
Sullivan & Worcester LLP
One Post Office Square
Boston, Massachusetts 02109
Attention: Harvey E. Bines
SECTION 10.4. Interpretation. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. In this Agreement, unless a
contrary intention appears, (i) the words "herein", "hereof" and "hereunder" and
other words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision and (ii) reference to any
Article or Section means such Article or Section hereof. No provision of this
Agreement shall be interpreted or construed against any party hereto solely
because such party or its legal representative drafted such provision.
SECTION 10.5. Miscellaneous. This Agreement (including the documents
and instruments referred to herein) (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof,
(b) is not intended to confer upon any other person any rights or remedies
hereunder, except for rights of indemnified Parties under Section 7.11 and (c)
shall not be assigned by operation of law or otherwise, except that Subsidiary
may assign this Agreement to any other wholly-owned subsidiary of Parent. THIS
AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING VALIDITY, INTERPRETATION
AND EFFECT, BY THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS
EXECUTED AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE.
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SECTION 10.6. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
SECTION 10.7. Parties In Interest. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and except as set
forth in the exception to Section 10.5(b), nothing in this Agreement, express or
implied, is intended to confer upon any other person any rights or remedies of
any nature whatsoever under or by reason of this Agreement.
SECTION 10.8. Exhibits and Schedules. All Exhibits and Schedules
referred to in this Agreement shall be attached hereto and are incorporated by
reference herein. A disclosure in any Schedule referred to this Agreement shall
constitute disclosure for purposes of each other Schedule referred to in this
Agreement.
IN WITNESS WHEREOF, Parent, Subsidiary and the Company have caused
this Agreement to be signed by their respective officers as of the date first
written above.
CORPORATE EXPRESS, INC.
By: /s/ Clayton K. Trier
---------------------------
Name: Clayton K. Trier
Title: Authorized Signatory
BEVO ACQUISITION CORP., INC.
By: /s/ Clayton K. Trier
---------------------------
Name: Clayton K. Trier
Title: Authorized Signatory
UNITED TRANSNET, INC.
By: /s/ Philip A. Belyew
---------------------------
Name: Philip A. Belyew
Title: Chief Executive Officer
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September 10, 1996
United TransNet, Inc.
1080 Holcomb Bridge Road
Building 200, Suite 140
Roswell, Georgia 30076
Gentlemen:
Corporate Express, Inc. and United TransNet, Inc. contemplate entering into
an Agreement and Plan of Reorganization (the "Merger Agreement") concurrently
with the execution of this letter. In connection therewith, certain of your
employees will be granted non-qualified options to purchase 1,000,000 shares of
Parent Common Stock (as defined in the Merger Agreement). This letter confirms
our understanding that, following completion of Parent's 1996 fiscal year which
ends March 1, 1997, the Compensation Committee of the Board of Directors of
Parent will review the financial and operating performance of the business units
formerly under the control of the Company's employees for the period from
September 1, 1996 to March 1, 1997, and grant up to an additional 200,000 non-
qualified options. Such options will vest over five years (2.083% per month,
for months thirteen (13) through sixty (60), inclusive, following the Effective
Time), expire ten (10) years from the date of grant and otherwise be subject to
the terms and conditions of Parent's existing stock option plan, except that
such options shall not qualify as incentive stock options under the Code.
Capitalized terms not otherwise defined herein shall have the meanings ascribed
to them in the Merger Agreement.
If the foregoing accurately reflects our agreement, please so indicate by
signing this letter in the space provided below.
Sincerely yours,
By:
-----------------------------
Name: Clayton K. Trier
Title: Director
AGREED AND ACCEPTED
this 10th day of September, 1996
By:
-----------------------------
Name: Philip A. Belyew
Title: Chief Executive Officer
<PAGE>
APPENDIX II
[LETTERHEAD OF SMITH BARNEY APPEARS HERE]
September 10, 1996
The Board of Directors
United TransNet, Inc.
1080 Holcomb Bridge Road
Roswell, Georgia 30076
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the common stock of United TransNet, Inc. ("United
TransNet") of the consideration to be received by such holders pursuant to the
terms and subject to the conditions set forth in the Agreement and Plan of
Merger, dated as of September 10, 1996 (the "Merger Agreement"), by and among
Corporate Express, Inc. ("Corporate Express"), Bevo Acquisition Corp., Inc., a
wholly owned subsidiary of Corporate Express ("Subsidiary"), and United
TransNet. As more fully described in the Merger Agreement, (i) Subsidiary will
be merged with and into United TransNet (the "Merger") and (ii) each outstanding
share of the common stock, par value $0.001 per share, of United TransNet (the
"United TransNet Common Stock") will be converted into the right to receive 0.45
of a share (the "Exchange Ratio") of the common stock, par value $0.0002 per
share, of Corporate Express (the "Corporate Express Common Stock").
In arriving at our opinion, we reviewed the Merger Agreement and held
discussions with certain senior officers, directors and other representatives
and advisors of United TransNet and with certain senior officers of Corporate
Express concerning the businesses, operations and prospects of United TransNet
and Corporate Express. We examined certain publicly available business and
financial information relating to United TransNet and Corporate Express as well
as certain financial forecasts and other information and data for United
TransNet and Corporate Express which were provided to or otherwise discussed
with us by the respective managements of United TransNet and Corporate Express,
including information relating to certain strategic implications and operational
benefits anticipated to result from the Merger. We reviewed the financial terms
of the Merger as set forth in the Merger Agreement in relation to, among other
things: current and historical market prices and trading volumes of United
TransNet Common Stock and Corporate Express Common Stock; historical and
projected earnings and operating data of United TransNet and Corporate Express;
and the capitalization and financial condition of United TransNet and Corporate
Express. We also considered, to the extent publicly available, the financial
terms of certain other similar transactions recently effected which we
considered relevant in evaluating the Merger and analyzed certain financial,
stock market and other publicly available information relating to the businesses
of other companies whose operations we considered relevant in evaluating those
of United TransNet and Corporate Express. We also evaluated the potential pro
forma financial impact of the Merger on Corporate Express. In addition to the
foregoing, we conducted such other analyses and examinations and considered such
other financial, economic and market criteria as we deemed appropriate in
arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed by
or discussed with us. With respect to financial forecasts and other information
and data furnished to or otherwise reviewed by or discussed with us, we have
been advised by the respective managements of United TransNet and
<PAGE>
The Board of Directors
United TransNet, Inc.
September 10, 1996
Page 2
Corporate Express that such forecasts and other information and data were
reasonably prepared on bases reflecting the best currently available estimates
and judgments of the managements of United TransNet and Corporate Express as to
the future financial performance of United TransNet and Corporate Express and
the potential strategic implications and operational benefits anticipated to
result from the Merger. We have assumed, with your consent, that the Merger
will be treated as a pooling of interests in accordance with generally accepted
accounting principles and as a tax-free reorganization for federal income tax
purposes. Our opinion, as expressed herein, relates to the relative values of
United TransNet and Corporate Express. We are not expressing any opinion as to
what the value of the Corporate Express Common Stock actually will be when
issued to United TransNet stockholders pursuant to the Merger or the prices at
which the Corporate Express Common Stock will trade subsequent to the Merger.
We have not made or been provided with an independent evaluation or appraisal of
the assets or liabilities (contingent or otherwise) of United TransNet or
Corporate Express nor have we made any physical inspection of the properties or
assets of United TransNet or Corporate Express. We were not requested to, and
we did not, participate in the negotiation or structuring of the Merger, nor
were we requested to, and we did not, approach or hold discussions with third
parties regarding the possible acquisition of United TransNet. Our opinion is
necessarily based upon information available to us, and financial, stock market
and other conditions and circumstances existing and disclosed to us, as of the
date hereof.
Smith Barney has been engaged to render financial advisory services to United
TransNet with respect to this opinion and will receive a fee for our services,
including a fee upon delivery of this opinion. In the ordinary course of
business, we and our affiliates may actively trade or hold the securities of
United TransNet and Corporate Express for our own account or for the account of
our customers and, accordingly, may at any time hold a long or short position in
such securities. Smith Barney has in the past provided financial advisory and
investment banking services to United TransNet unrelated to the proposed Merger,
and has received compensation for such services. In addition, we and our
affiliates (including Travelers Group Inc. and its affiliates) may maintain
business relationships with United TransNet and Corporate Express.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of United TransNet in evaluating the
proposed Merger, and our opinion is not intended to be and does not constitute a
recommendation to any stockholder as to how such stockholder should vote on the
proposed Merger. Our opinion may not be published or otherwise used or referred
to, nor shall any public reference to Smith Barney be made, without our prior
written consent.
Based upon and subject to the foregoing, our experience as investment bankers,
our work as described above and other factors we deemed relevant, we are of the
opinion that, as of the date hereof, the Exchange Ratio is fair, from a
financial point of view, to the holders of United TransNet Common Stock.
Very truly yours,
SMITH BARNEY INC.
<PAGE>
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 agent 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' Articles of Amendment and Restatement to the Articles
of Incorporation and By-Laws provide that Corporate Express shall indemnify its
officers and directors to the full extent permitted by the law. The
indemnification provisions in Corporate Express' By-Laws are substantially
similar to the provisions of Section 7-109-101, et seq. Corporate Express has
entered into agreements to provide indemnification for its directors and certain
officers consistent with its Articles of Amendment and Restatement to the
Articles of Incorporation and By-Laws.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
Except as otherwise noted, the Exhibit was previously filed as an exhibit
to Corporate Express' Registration Statement on Form S-1, File No. 33-81924 (the
"Initial Registration Statement"), and is incorporated herein by reference with
respect to such exhibits. The exhibit numbers shown below for such items
correspond to those shown in the Initial Registration Statement.
Exhibit
Number Description
------ -----------
2.1* Agreement and Plan of Merger dated as of September 10, 1996
among Corporate Express, Inc., United TransNet, Inc. and
Bevo Acquisition Corp., Inc.
2.2* Letter dated September 10, 1996 to United TransNet, Inc.
regarding grant of options
3.1 Articles of Amendment and Restatement of the Articles of
Incorporation of Corporate Express, Inc., a Colorado
corporation filed on September 30, 1994.
3.2 Amended and Restated By-Laws of Corporate Express, Inc.
4.1 Specimen Common Stock Certificate of Corporate Express,
Inc.
4.2 Form of Corporate Express Warrant Agreement.
1
<PAGE>
4.3 Credit Agreement, dated as of February 28, 1994 by and among
Corporate Express, Inc., various Financial Institutions,
Sanwa Business Credit Corporation and Continental Bank N.A.,
as amended (the "Senior Credit Facility").
4.4 Indenture dated as of February 28, 1994 by and among
Corporate Express, Inc., and the Guarantors named therein
and First Trust National Association for the $100,000,000
9% Senior Subordinated Notes.
4.5 Note Purchase Agreement dated February 22, 1994 by and among
Corporate Express, Inc., McQuiddy Holdings Inc., McQuiddy
Office Designers, Inc., New Jersey Office Supply Inc., Ross-
Martin Company Inc., Scott Rice Company Inc.,
Schwabacher/Frey, Inc., Bayless Stationers, Inc., Donaldson,
Lufkin & Jenrette Securities Corporation and Alex. Brown &
Sons Incorporated.
4.6 Recapitalization Agreement dated December 3, 1991, by and
between Corporate Express, Inc., J.P. Morgan Investment
Corporation ("J.P. Morgan") and Shareholders.
4.7 Recapitalization Agreement dated August 29, 1992 by and
among Corporate Express, Inc., J.P. Morgan and Shareholders.
4.8 First Amendment to Senior Credit Facility dated May 10,
1996.
4.9** Indenture dated as of June 24, 1996 relating to the
Company's 4 1/2% Convertible Notes due July 1, 2000
(including forms of Notes).
4.10** First Amendment to Indenture relating to the Company's 4
1/2% Convertible Notes.
4.11** Registration Rights Agreement dated as of June 24, 1996 by
and among the Company and Alex. Brown & Sons Incorporated,
Donaldson Lufkin & Jenrette Securities Corporation,
Montgomery Securities and J.P. Morgan & Co.
5.1*** Opinion of Ballard Spahr Andrews & Ingersoll as to the
validity of the shares of Corporate Express Common Stock
being registered.
10.1 Employment Agreement (Restated) dated as of January 1, 1992,
by and between Corporate Express, Inc. and Jirka Rysavy, as
amended.
10.2 Employment Agreement dated as of August 25, 1993, by and
between Corporate Express, Inc. and Robert King, as amended
effective July 15, 1994.
10.3 Stock Purchase Agreement dated September 26, 1993, by and
among Corporate Express, Inc., Synergom, Inc. and OfficeMax,
Inc., as amended.
10.4 Agreement and Plan of Merger, dated May 3, 1993, by and
among Lindsay's Business Supplies and Furniture, Inc.
("Lindsay's"), the shareholders of Lindsay's and Corporate
Express, Inc. (the "Lindsay's Merger Agreement"), as amended
on May 6, 1993.
10.5 Stock Purchase Agreement dated November 19, 1993 by and
among HM Holdings,Inc., SFB Stationers Holdings, Inc. and
Corporate Express, Inc., as amended on December 16, 1993 and
February 24, 1994.
2
<PAGE>
10.6 Agreement and Plan of Merger, dated November 30, 1993, by
and among Lucas Bros., Inc. ("Lucas"), the Shareholders of
Lucas and Corporate Express, Inc.
10.7 Corporate Express Amended and Restated 1992 Stock Option
Plan, Form of Non-qualified Stock Option Agreement and Form
of Incentive Stock Option Agreement.
10.8 Corporate Express 1994 Executive Stock Option Plan.
10.9 Form of Indemnification Agreement between Corporate Express,
Inc. and its officers and directors.
10.10 Corporate Express 1994 Stock Option and Incentive Plan.
10.11 Corporate Express 1994 Employee Stock Purchase Plan.
10.12 Stock Purchase Agreement among Siekert & Baum, Inc., Richard
Buckley, Peter Reiland, other Reiland family members and
related trusts, and Corporate Express, Inc., dated as of
January 13, 1995 (incorporated by reference to Corporate
Express, Inc.'s Form 8-K filed on January 30, 1995, as
amended by Form 8-K/A filed on February 9, 1995).
10.13 Asset Purchase Agreement between Joyce International, Inc.
and Corporate Express, Inc., dated as of January 9, 1995
(incorporated by reference to Corporate Express, Inc.'s Form
8-K filed on January 30, 1995 as amended by Form 8-K/A filed
on February 9, 1995).
10.14 Letter Agreements dated as of December 19, 1994 and February
3, 1995 amending the Senior Credit Facility.
10.15 Employment Agreement dated as of July 31, 1995 by and
between Corporate Express, Inc. and Sam Leno.
10.16 Agreement among Corporate Express, Inc., Synergom, Inc. and
OfficeMax, Inc. dated as of August 25, 1995.
11.1* Statement regarding computation of per share earnings.
21.1* List of Subsidiaries.
23.1*** Consent of Ballard Spahr Andrews & Ingersoll (included as
part of Exhibit 5.1).
23.2* Consent of Coopers & Lybrand L.L.P.
23.3* Consent of Horne CPA Group.
23.4* Consent of Schutrumpf & Koren, P.C.
23.5* Consent of Arthur Andersen LLP.
23.6* Consent of KPMG.
23.7* Consent of McGee, Wheeler & Co., P.C.
3
<PAGE>
23.8* Consent of Ernst & Young LLP.
23.9* Consent of Samson Belair Deloitte & Touche.
23.10* Consent of Arthur Anderson
23.11* Consent of Price Waterhouse LLP
23.12* Consent of Ernst & Young LLP.
24.1 Power of Attorney (included on signature page to Form S-4).
25.1** Form T-1, Statement of Eligibility and Qualification of
Bankers Trust Company.
99.1* Form of Proxy Card.
__________________
* Filed herewith.
** Filed in connection with Corporate Express' Form S-3 dated
September 20, 1996.
*** To be filed by amendment.
4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, 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 1, 1996.
CORPORATE EXPRESS, INC.
By: /s/ Jirka Rysavy
-------------------------------------
Jirka Rysavy
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed on October 1, 1996 by the
following persons in the capacities indicated. Each person whose signature
appears below hereby authorizes and appoints Jirka Rysavy, Robert L. King
and Gary M. Jacobs, and any one of them, as his or her attorneys-in-fact,
to sign and file on his or her behalf, in the capacities stated below, any
and all pre-effective amendments and post-effective amendments to this
Registration Statement.
Signature Title
--------- -----
/s/ Jirka Rysavy Chairman of the Board and Chief Executive
- -------------------------------- Officer (Principal Executive Officer)
Jirka Rysavy
/s/ Robert L. King President, Chief Operating Officer and
- -------------------------------- Director
Robert L. King
/s/ Sam R. Leno Executive Vice President and Chief
- -------------------------------- Financial Officer (Principal Financial
Sam R. Leno Officer)
/s/ Joanne C. Farver Vice President and Controller (Principal
- -------------------------------- Accounting Officer)
Joanne C. Farver
/s/ Janet A. Hickey Director
- --------------------------------
Janet A. Hickey
/s/ Mo Siegel Director
- --------------------------------
Mo Siegel
/s/ Clayton K. Trier Director
- --------------------------------
Clayton K. Trier
<PAGE>
EXHIBIT INDEX
Except as otherwise noted, the Exhibit was previously filed as an
exhibit to Corporate Express' Registration Statement on Form S-1, File No.
33-81924 (the "Initial Registration Statement"), and is incorporated herein
by reference with respect to such exhibits. The exhibit numbers shown below
for such items correspond to those shown in the Initial Registration
Statement.
Exhibit
Number Description
------ ------------------------------------------------------------
2.1* Agreement and Plan of Merger dated as of September 10, 1996
among Corporate Express, Inc., United TransNet, Inc. and
Bevo Acquisition Corp., Inc.
2.2* Letter dated September 10, 1996 to United TransNet, Inc.
regarding grant of options.
3.1 Articles of Amendment and Restatement of the Articles of
Incorporation of Corporate Express, Inc., a Colorado
corporation filed on September 30, 1994.
3.2 Amended and Restated By-Laws of Corporate Express, Inc.
4.1 Specimen Common Stock Certificate of Corporate Express, Inc.
4.2 Form of Corporate Express Warrant Agreement.
4.3 Credit Agreement, dated as of February 28, 1994 by and among
Corporate Express, Inc., various Financial Institutions,
Sanwa Business Credit Corporation and Continental Bank N.A.,
as amended (the "Senior Credit Facility").
4.4 Indenture dated as of February 28, 1994 by and among
Corporate Express, Inc., and the Guarantors named therein
and First Trust National Association for the $100,000,000
9 1/2% Senior Subordinated Notes.
4.5 Note Purchase Agreement dated February 22, 1994 by and among
Corporate Express, Inc., McQuiddy Holdings Inc., McQuiddy
Office Designers, Inc., New Jersey Office Supply Inc., Ross-
Martin Company Inc., Scott Rice Company Inc.,
Schwabacher/Frey, Inc., Bayless Stationers, Inc., Donaldson,
Lufkin & Jenrette Securities Corporation and Alex. Brown &
Sons Incorporated.
4.6 Recapitalization Agreement dated December 3, 1991, by and
between Corporate Express, Inc., J.P. Morgan Investment
Corporation ("J.P. Morgan") and Shareholders.
4.7 Recapitalization Agreement dated August 29, 1992 by and
among Corporate Express, Inc., J.P. Morgan and Shareholders.
4.8 First Amendment to Senior Credit Facility dated May 10,
1996.
4.9** Indenture dated as of June 24, 1996 relating to the
Company's 4 1/2% Convertible Notes due July 1, 2000
(including forms of Notes).
4.10** First Amendment to Indenture relating to the Company's 4
1/2% of Convertible Notes.
4.11** Registration Rights Agreement dated as of June 24, 1996 by
and among the Company and Alex. Brown & Sons Incorporated,
Donaldson Lufkin & Jenrette Securities Corporation,
Montgomery Securities and J.P. Morgan & Co.
<PAGE>
5.1*** Opinion of Ballard Spahr Andrews & Ingersoll as to the
validity of the shares of Corporate Express Common Stock
being registered.
10.1 Employment Agreement (Restated) dated as of January 1, 1992,
by and between Corporate Express, Inc. and Jirka Rysavy, as
amended.
10.2 Employment Agreement dated as of August 25, 1993, by and
between Corporate Express, Inc. and Robert King, as amended
effective July 15, 1994.
10.3 Stock Purchase Agreement dated September 26, 1993, by and
among Corporate Express, Inc., Synergom, Inc. and OfficeMax,
Inc., as amended.
10.4 Agreement and Plan of Merger, dated May 3, 1993, by and
among Lindsay's Business Supplies and Furniture, Inc.
("Lindsay's"), the shareholders of Lindsay's and Corporate
Express, Inc. (the "Lindsay's Merger Agreement"), as amended
on May 6, 1993.
10.5 Stock Purchase Agreement dated November 19, 1993 by and
among HM Holdings,Inc., SFB Stationers Holdings, Inc. and
Corporate Express, Inc., as amended on December 16, 1993 and
February 24, 1994.
10.6 Agreement and Plan of Merger, dated November 30, 1993, by
and among Lucas Bros., Inc. ("Lucas"), the Shareholders of
Lucas and Corporate Express, Inc.
10.7 Corporate Express Amended and Restated 1992 Stock Option
Plan, Form of Non-qualified Stock Option Agreement and Form
of Incentive Stock Option Agreement.
10.8 Corporate Express 1994 Executive Stock Option Plan.
10.9 Form of Indemnification Agreement between Corporate Express,
Inc. and its officers and directors.
10.10 Corporate Express 1994 Stock Option and Incentive Plan.
10.11 Corporate Express 1994 Employee Stock Purchase Plan.
10.12 Stock Purchase Agreement among Siekert & Baum, Inc., Richard
Buckley, Peter Reiland, other Reiland family members and
related trusts, and Corporate Express, Inc., dated as of
January 13, 1995 (incorporated by reference to Corporate
Express, Inc.'s Form 8-K filed on January 30, 1995, as
amended by Form 8-K/A filed on February 9, 1995).
10.13 Asset Purchase Agreement between Joyce International, Inc.
and Corporate Express, Inc., dated as of January 9, 1995
(incorporated by reference to Corporate Express, Inc.'s Form
8-K filed on January 30, 1995 as amended by Form 8-K/A filed
on February 9, 1995).
10.14 Letter Agreements dated as of December 19, 1994 and February
3, 1995 amending the Senior Credit Facility.
10.15 Employment Agreement dated as of July 31, 1995 by and
between Corporate Express, Inc. and Sam Leno.
<PAGE>
10.16 Agreement among Corporate Express, Inc., Synergom, Inc. and
OfficeMax, Inc. dated as of August 25, 1995.
11.1* Statement regarding computation of per share earnings.
21.1* List of Subsidiaries.
23.1*** Consent of Ballard Spahr Andrews & Ingersoll (included as
part of Exhibit 5.1).
23.2* Consent of Coopers & Lybrand L.L.P.
23.3* Consent of Horne CPA Group.
23.4* Consent of Schutrumpf & Koren, P.C.
23.5* Consent of Arthur Andersen LLP.
23.6* Consent of KPMG.
23.7* Consent of McGee, Wheeler & Co., P.C.
23.8* Consent of Ernst & Young LLP.
23.9* Consent of Samson Belair Deloitte & Touche.
23.10* Consent of Arthur Andersen
23.11* Consent of Price Waterhouse LLP.
23.12* Consent of Ernst & Young LLP.
24.1 Power of Attorney (included on signature page to Form S-4).
25.1** Form T-1, Statement of Eligibility and Qualification of
Bankers Trust Company.
99.1* Form of Proxy Card.
__________________
* Filed herewith.
** Filed in connection with Corporate Express' Form S-3 dated
September 20, 1996.
*** To be filed by amendment.
<PAGE>
AGREEMENT AND PLAN OF MERGER
Dated as of September 10, 1996
by and among
Corporate Express, Inc.,
Bevo Acquisition Corp., Inc.
and
United TransNet, Inc.
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of September 10, 1996 (the
"Agreement"), by and among Corporate Express, Inc., a Colorado corporation
("Parent"), Bevo Acquisition Corp., Inc., a Delaware corporation and a wholly-
owned subsidiary of Parent ("Subsidiary"), and United TransNet, Inc., a Delaware
corporation (the "Company");
W I T N E S S E T H:
WHEREAS, the Boards of Directors of Parent and the Company have determined
that the merger of Subsidiary with and into the Company(the "Merger") is
consistent with and in furtherance of the long-term business strategy of Parent
and the Company and is fair to, and in the best interests of, Parent and the
Company and their respective stockholders; and
WHEREAS, Parent, Subsidiary and the Company intend the Merger to qualify as
a tax-free reorganization under the provisions of Section 368 of the Internal
Revenue Code of 1986, as amended (the "Code"), and to be treated as a pooling-
of-interests under Accounting Principles Board Opinion No. 16 ("APB 16");
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound, agree as follows:
ARTICLE I
The Merger
SECTION 1.1. The Merger. Upon the terms and subject to the conditions of
this Agreement, at the Effective Time (as defined in Section 1.2) in accordance
with the Delaware General Corporation Law (the "DGCL"), Subsidiary shall be
merged with and into the Company and the separate existence of Subsidiary shall
thereupon cease. The Company shall be the surviving corporation in the Merger
and is hereinafter sometimes referred to as the "Surviving Corporation."
SECTION 1.2. Effective Time of the Merger. The Merger shall become
effective at such time (the "Effective Time") as shall be stated in a
Certificate of Merger, in a form mutually acceptable to Parent and the Company,
to be filed with the Secretary of State of the State of Delaware in accordance
with the DGCL (the "Merger Filing"). The Merger Filing shall be
2
<PAGE>
made simultaneously with or as soon as practicable after the closing of the
transactions contemplated by this Agreement in accordance with Section 3.5.
ARTICLE II
The Surviving and Parent Corporations
SECTION 2.1. Certificate of Incorporation. The Certificate of
Incorporation of the Surviving Corporation shall be amended and restated at and
as of the Effective Time to read as did the Certificate of Incorporation of the
Subsidiary immediately prior to the Effective Time (except that the name of the
Surviving Corporation shall remain unchanged).
SECTION 2.2. By-Laws. The By-laws of the Surviving Corporation shall be
amended and restated at and as of the Effective Time to read as did the By-laws
of the Subsidiary immediately prior to the Effective Time (except that the name
of the Surviving Corporation shall remain unchanged).
SECTION 2.3. Directors and Officers. The directors and officers of the
Surviving Corporation shall be as designated in Schedule 2.3, and such directors
------------
and officers shall serve in accordance with the By-laws of the Surviving
Corporation until their respective successors are duly elected or appointed and
qualified.
ARTICLE III
Conversion of Shares
SECTION 3.1. Conversion of Company Shares and Subsidiary Shares in the
Merger. At the Effective Time, by virtue of the Merger and without any action
on the part of any holder of any shares of capital stock of the Company:
(a) as consideration to be issued to each such holder in the Merger (the
"Merger Consideration"), each share of Common Stock, par value $.001 per share,
of the Company (the "Company Common Stock"), shall be converted into the right
to receive one share of the common stock, par value $.0002 per share, of Parent
("Parent Common Stock") multiplied by the Exchange Ratio (as defined below);
(b) each share of capital stock of the Company, if any, owned by Parent or
any subsidiary of Parent or held in treasury by the Company or any subsidiary of
the Company immediately prior to the Effective Time shall be canceled and shall
cease to exist from and after the Effective Time;
3
<PAGE>
(c) subject to and as more fully provided in Section 7.9, each unexpired
option to purchase Company Common Stock ("Company Options") that is outstanding
at the Effective Time shall automatically and without any action on the part of
the holder thereof be assumed by Parent and converted into an option to purchase
a number of shares of Parent Common Stock equal to the number of shares of
Company Common Stock which is entitled to be purchased under such Company
Options multiplied by the Exchange Ratio, at a price per share of Parent Common
Stock equal to the per share exercise price of such Company Options divided by
the Exchange Ratio (the "Exchanged Options"). Parent shall (i) reserve for
issuance the number of shares of Parent Common Stock that will become issuable
upon the exercise of the Exchanged Options and (ii) at the Effective Time, issue
to each holder of an Exchanged Option a document evidencing Parent's assumption
of the Company's obligations under the Company Options. The Exchanged Options
shall have the same terms and conditions as the Company Options;
(d) each issued and outstanding share of common stock, par value $.001 per
share, of Subsidiary ("Subsidiary Common Stock") shall be converted into one
share of common stock, par value $.01 per share, of the Surviving Corporation;
and
(e) no share of Company Common Stock shall be deemed to be outstanding or
to have any rights other than those set forth in this Section 3.1 after the
Effective Time.
SECTION 3.2. Exchange Ratio; Adjustments to Parent Common Stock.
(a) The "Exchange Ratio" shall be forty-five one hundredths (.45) of one
share of Parent Common Stock for each one (1) share of Company Common Stock.
(b) If, prior to Closing (as defined in Section 3.5 below), Parent
(i) pays a dividend or makes a distribution on any class of
Parent Common Stock in shares of any class of Parent Common Stock;
(ii) subdivides its outstanding shares of any class of Parent
Common Stock into a greater number of shares;
(iii) combines its outstanding shares of any class of Parent
Common Stock into a smaller number of shares;
4
<PAGE>
(iv) pays a dividend or makes a distribution on any class of
Parent Common Stock in shares of its capital stock other than Parent Common
Stock;
(v) issues by reclassification of any class of Parent Common
Stock any shares of its capital stock; or
(vi) takes any other corporate action the effect of which is to
change the number of shares of Parent Common Stock outstanding;
then the Exchange Ratio in effect immediately prior to such action shall be
proportionately adjusted so that the holder of any shares of Company Common
Stock or any Company Options thereafter shall receive the aggregate number and
kind of shares of Parent Common Stock (and other capital stock, as the case may
be) which it would have owned immediately following such action if such shares
of Company Common Stock or such Company Option had been converted to Parent
Common Stock or Parent Options, as the case may be, immediately prior to such
action. The adjustment in the Exchange Ratio provided for in this Section
3.2(b) shall become effective immediately after the record date in the case of a
dividend or distribution and immediately after the effective date in the case of
a subdivision, combination, reclassification or other corporate action.
SECTION 3.3. Exchange of Certificates. (a) From and after the
Effective Time, each holder of an outstanding certificate which immediately
prior to the Effective Time represented shares of Company Common Stock shall be
entitled to receive in exchange therefor, upon surrender thereof to an exchange
agent reasonably satisfactory to Parent and the Company (the "Exchange Agent"),
a certificate or certificates representing the number of whole shares of Parent
Common Stock to which such holder is entitled pursuant to Section 3.1(a).
Notwithstanding any other provision of this Agreement, (i) until holders or
transferees of certificates theretofore representing shares of Company Common
Stock have surrendered them for exchange as provided herein, no dividends (or
other distributions) shall be paid with respect to any shares represented by
such certificates and no payment for fractional shares shall be made and (ii)
without regard to when such certificates representing shares of Company Common
Stock are surrendered for exchange as provided herein, no interest shall be paid
on any dividends (or other distributions) or any payment for fractional shares.
Upon surrender of a certificate which immediately prior to the Effective Time
represented shares of Company Common Stock, there shall be paid to the holder of
such certificate the amount of any dividends (or other distributions) which
theretofore became payable, but which were not paid by reason of the foregoing,
with respect to the number of whole shares of Parent Common Stock
5
<PAGE>
represented by the certificate or certificates issued upon such surrender.
(b) If any certificate for shares of Parent Common Stock is to be
issued in a name other than that in which the certificate for shares of Company
Common Stock surrendered in exchange therefor is registered, it shall be a
condition of such exchange that the person requesting such exchange shall pay
any applicable transfer or other taxes required by reason of such issuance.
(c) No later than the Closing (as hereinafter defined), Parent shall
deliver to the Exchange Agent the certificates representing shares of Parent
Common Stock, registered under the Registration Statement as defined in Section
4.9, required to effect the exchanges referred to in paragraph (a) above and
cash for payment of any fractional shares referred to in Section 3.4. The
Exchange Agent shall, pursuant to irrevocable instructions, deliver the Merger
Consideration to be issued and paid pursuant to Section (a) above and Section
3.4 to holders of Company Common Stock upon transmittal of Certificates for
exchange as provided in paragraph (d) below. Any interest, dividends or other
income earned on the investment of cash held by the Exchange Agent shall be for
the account of Parent.
(d) Promptly after the the special meeting of the Company's
stockholders at which this Agreement and the Merger will be considered, and
assuming approval thereof, the Exchange Agent shall mail to each holder of
record of a certificate or certificates that immediately prior to the Effective
Time represented outstanding shares of Company Common Stock (the "Company
Certificates") (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Company Certificates shall
pass, only upon actual delivery of the Company Certificates to the Exchange
Agent) and (ii) instructions for use in effecting the surrender of the Company
Certificates in exchange for certificates representing shares of Parent Common
Stock. Upon surrender of Company Certificates for cancellation to the Exchange
Agent, together with a duly executed letter of transmittal and such other
documents as the Exchange Agent shall reasonably require, the holder of such
Company Certificates shall be entitled to receive in exchange therefor a
certificate representing that number of whole shares of Parent Common Stock into
which the shares of Company Common Stock theretofore represented by the Company
Certificates so surrendered shall have been converted pursuant to the provisions
of Section 3.1(a), and the Company Certificates so surrendered shall be
canceled. Notwithstanding the foregoing, neither the Exchange Agent nor any
party hereto shall be liable to a holder of shares of Company Common Stock for
any shares of
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Parent Common Stock or dividends or distributions thereon delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws.
(e) Promptly following the date which is nine months after the
Effective Date, the Exchange Agent shall deliver to Parent all cash,
certificates (including any Parent Common Stock) and other documents in its
possession relating to the transactions described in this Agreement, and the
Exchange Agent's duties shall terminate. Thereafter, each holder of a Company
Certificate may surrender such Company Certificate to the Surviving Corporation
and (subject to applicable abandoned property, escheat and similar laws) receive
in exchange therefor the Parent Common Stock, without any interest thereon.
Notwithstanding the foregoing, none of the Exchange Agent, Parent, Subsidiary,
the Company or the Surviving Corporation shall be liable to a holder of Company
Common Stock for any Parent Common Stock delivered to a public official pursuant
to applicable abandoned property, escheat and similar laws.
(f) In the event any Company Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Company Certificate to be lost, stolen or destroyed, the Surviving
Corporation shall issue in exchange for such lost, stolen or destroyed Company
Certificate the Parent Common Stock deliverable in respect thereof determined in
accordance with this Article III. When authorizing such payment in exchange
therefor, the Board of Directors of the Surviving Corporation may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed Company Certificate to give the
Surviving Corporation such indemnity as it may reasonably direct as protection
against any claim that may be made against the Surviving Corporation with
respect to the Company Certificate alleged to have been lost, stolen or
destroyed.
SECTION 3.4. No Fractional Securities. Notwithstanding any other
provision of this Agreement, no certificates or scrip for fractional shares of
Parent Common Stock shall be issued in the Merger and no Parent Common Stock
dividend, stock split or interest shall relate to any fractional security, and
such fractional interests shall not entitle the owner thereof to vote or to any
other rights of a security holder. In lieu of any such fractional shares, each
holder of Company Common Stock who would otherwise have been entitled to receive
a fraction of a share of Parent Common Stock upon surrender of Company
Certificates for exchange pursuant to this Article III shall be entitled to
receive from the Exchange Agent a cash payment equal to such fraction multiplied
by the closing price per share of Parent Common Stock on the Nasdaq National
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Market System (the "NASDAQ"), as reported by the Wall Street Journal, on the
last trading day immediately preceding the Effective Time.
SECTION 3.5. Closing. The closing (the "Closing") of the
transactions contemplated by this Agreement shall take place at a location
mutually agreeable to Parent and the Company on the fifth business day
immediately following the date on which the last of the conditions set forth in
Article VIII is fulfilled or waived (but in any case no earlier than November 4,
1996), or at such other time and place as Parent and the Company shall agree
(the date on which the Closing occurs is referred to in this Agreement as the
"Closing Date").
SECTION 3.6. Closing of the Company's Transfer Books. At and after
the Effective Time, holders of Company Certificates shall cease to have any
rights as stockholders of the Company, except for the right to receive shares of
Parent Common Stock pursuant to Section 3.3 and the right to receive cash for
payment of fractional shares pursuant to Section 3.4. At the Effective Time,
the stock transfer books of the Company shall be closed and no transfer of
shares of Company Common Stock which were outstanding immediately prior to the
Effective Time shall thereafter be made. If, after the Effective Time, subject
to the terms and conditions of this Agreement, Company Certificates formerly
representing Company Common Stock are presented to the Surviving Corporation,
they shall be canceled and exchanged for Parent Common Stock in accordance with
this Article III.
ARTICLE IV
Representations and Warranties
of Parent and Subsidiary
Parent and Subsidiary each represent and warrant to the Company as
follows:
SECTION 4.1. Organization and Qualification. Each of Parent and
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of the state of its incorporation and has the requisite
power and authority to own, lease and operate its assets and properties and to
carry on its business as it is now being conducted. Each of Parent and
Subsidiary is qualified to do business and is in good standing in each
jurisdiction in which the properties owned, leased or operated by it or the
nature of the business conducted by it makes such qualification necessary,
except where the failure to be so qualified and in good standing will not, when
taken together with all other such failures, have a material adverse effect on
the business, operations, properties, assets, condition (financial or other) or
results of operations of Parent and its
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subsidiaries, taken as a whole (a "Parent Material Adverse Effect"). True,
accurate and complete copies of each of Parent's and Subsidiary's Certificates
of Incorporation and By-laws, in each case as in effect on the date hereof,
including all amendments thereto, have heretofore been (or, in the case of
Subsidiary, will promptly be) delivered to the Company.
SECTION 4.2. Capitalization.
(a) The authorized capital stock of Parent consists of (i)
100,000,000 shares of Parent Common Stock, of which 70,351,327 shares were
outstanding as of August 29, 1996, (ii) 3,000,000 shares of non-voting common
stock, par value $.0001 per share, none of which was outstanding as of July 19,
1996, and (ii) 25,000,000 shares of preferred stock, par value $.0001 per share,
none of which was issued and outstanding as of July 8, 1996. All of the issued
and outstanding shares of Parent Common Stock are validly issued and are fully
paid, nonassessable and free of preemptive rights.
(b) The authorized capital stock of Subsidiary consists of 1,000
shares of Subsidiary Common Stock, of which 100 shares are issued and
outstanding, which shares are owned beneficially and of record by Parent.
(c) Except as disclosed in the Parent SEC Reports (as defined in
Section 4.5) or as set forth on Schedule 4.2 attached hereto, as of the date
------------
hereof, there are (i) no outstanding subscriptions, options, calls, contracts,
commitments, understandings, restrictions, arrangements, rights or warrants,
including any right of conversion or exchange under any outstanding security,
instrument or other agreement and also including any rights plan or other anti-
takeover agreement, obligating Parent or any subsidiary of Parent to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
the capital stock of Parent or obligating Parent or any subsidiary of Parent to
grant, extend or enter into any such agreement or commitment, and (ii) no voting
trusts, proxies or other agreements or understandings to which Parent or any
subsidiary of Parent is a party or is bound with respect to the voting of any
shares of capital stock of Parent. The shares of Parent Common Stock issued to
stockholders of the Company in the Merger will be at the Effective Time duly
authorized, validly issued, fully paid and nonassessable and free of preemptive
rights.
SECTION 4.3. Subsidiaries. Each direct and indirect corporate
subsidiary of Parent is duly organized, validly existing and in good standing
under the laws of its jurisdiction of incorporation and has the requisite power
and authority to own, lease and operate its assets and properties and to carry
on
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its business as it is now being conducted except where any failure would not
have a Parent Material Adverse Effect. Each subsidiary of Parent is qualified
to do business, and is in good standing, in each jurisdiction in which the
properties owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except where the failure to
be so qualified and in good standing would not, when taken together with all
such other failures, have a Parent Material Adverse Effect. All of the
outstanding shares of capital stock of each corporate subsidiary of Parent are
validly issued, fully paid, nonassessable and free of preemptive rights, and are
owned directly or indirectly by Parent, free and clear of any liens, claims or
encumbrances except that such shares are pledged to secure Parent's credit
facilities and except as set forth on Schedule 4.3. There are no subscriptions,
------------
options, warrants, rights, calls, contracts, voting trusts, proxies or other
commitments, understandings, restrictions or arrangements relating to the
issuance, sale, voting, transfer, ownership or other rights with respect to any
shares of capital stock of any corporate subsidiary of Parent, including any
right of conversion or exchange under any outstanding security, instrument or
agreement. As used in this Agreement, the term "subsidiary" shall mean, when
used with reference to any person or entity, any corporation, partnership, joint
venture or other entity which such person or entity, directly or indirectly,
controls or of which such person or entity (either acting alone or together with
its other subsidiaries) owns, directly or indirectly, 50% or more of the stock
or other voting interests, the holders of which are entitled to vote for the
election of a majority of the board of directors or any similar governing body
of such corporation, partnership, joint venture or other entity.
SECTION 4.4. Authority; Non-Contravention; Approvals.
(a) Parent and Subsidiary each have full corporate power and
authority to enter into this Agreement and, subject to the Parent Required
Statutory Approvals (as defined in Section 4.4(c)), to consummate the
transactions contemplated hereby. This Agreement has been approved by the
Boards of Directors of Parent and Subsidiary and no other corporate proceedings
on the part of Parent or Subsidiary are necessary to authorize the execution and
delivery of this Agreement or the consummation by Parent and Subsidiary of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by each of Parent and Subsidiary, and, assuming the due authorization,
execution and delivery hereof by the Company, constitutes a valid and legally
binding agreement of each of Parent and Subsidiary enforceable against each of
them in accordance with its terms, except that such enforcement may be subject
to (i) bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting or relating to enforcement of
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creditors' rights generally and (ii) general equitable principles.
(b) The execution and delivery of this Agreement by each of Parent
and Subsidiary do not violate, conflict with or result in a breach of any
provision of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result in the termination
of, or accelerate the performance required by, or result in a right of
termination or acceleration under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
Parent or any of its subsidiaries under any of the terms, conditions or
provisions of (i) the respective charters or by-laws of Parent or any of its
subsidiaries, (ii) any statute, law, ordinance, rule, regulation, judgment,
decree, order, injunction, writ, permit or license of any court or governmental
authority applicable to Parent or any of its subsidiaries or any of their
respective properties or assets or (iii) any note, bond, mortgage, indenture,
deed of trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which Parent or any of its
subsidiaries is now a party or by which Parent or any of its subsidiaries or any
of their respective properties or assets may be bound or affected. The
consummation by Parent and Subsidiary of the transactions contemplated hereby
will not result in any violation, conflict, breach, termination, acceleration or
creation of liens under any of the terms, conditions or provisions described in
clauses (i) through (iii) of the preceding sentence, subject (x) in the case of
the terms, conditions or provisions described in clause (ii) above, to obtaining
(prior to the Effective Time) the Parent Required Statutory Approvals (as
defined in Section 4.4(c)) and (y) in the case of the terms, conditions or
provisions described in clause (iii) above, to obtaining (prior to the Effective
Time) consents required from commercial lenders, lessors or other third parties.
Excluded from the foregoing sentences of this paragraph (b), insofar as they
apply to the terms, conditions or provisions described in clauses (ii) and (iii)
of the first sentence of this paragraph (b), are such violations, conflicts,
breaches, defaults, terminations, accelerations or creations of liens, security
interests, charges or encumbrances that would not, in the aggregate, have a
Parent Material Adverse Effect.
(c) Except for (i) the filings by Parent and the Company required by
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), (ii) the filing of the Joint Proxy Statement/Prospectus (as defined in
Section 4.9) with the Securities and Exchange Commission (the "SEC") pursuant to
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
Securities Act of 1933, as amended (the "Securities Act"), and the declaration
of the effectiveness
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thereof by the SEC and filings with various state blue sky authorities, (iii)
the making of the Merger Filing with the Secretary of State of the State of
Delaware in connection with the Merger, (iv) any required filing with the
Interstate Commerce Commission ("ICC") or the Department of Transportation
("DOT") and (v) any required filings or approvals under the Interstate Commerce
Act or filings with or approvals from the DOT, the Federal Communications
Commission, applicable state environmental authorities, public service
commissions and public utility commissions (the filings and approvals referred
to in clauses (i) through (v) are collectively referred to as the "Parent
Required Statutory Approvals"), no declaration, filing or registration with, or
notice to, or authorization, consent or approval of, any governmental or
regulatory body or authority is necessary for the execution and delivery of this
Agreement by Parent or Subsidiary or the consummation by Parent or Subsidiary of
the transactions contemplated hereby, other than such declarations, filings,
registrations, notices, authorizations, consents or approvals which, if not made
or obtained, as the case may be, would not, in the aggregate, have a Parent
Material Adverse Effect.
SECTION 4.5. Reports and Financial Statements. Since September 23,
1994, Parent has filed with the SEC all forms, statements, reports and documents
(including all exhibits, amendments and supplements thereto) required to be
filed by it under each of the Securities Act, the Exchange Act and the
respective rules and regulations thereunder, all of which, as amended if
applicable, complied in all material respects with all applicable requirements
of the appropriate act and the rules and regulations thereunder. Parent has
previously delivered to the Company copies of its (a) Annual Reports on Form 10-
K for the fiscal years ended February 25, 1995 and March 2, 1996, as filed with
the SEC, (b) proxy and information statements relating to (i) all meetings of
its stockholders (whether annual or special) and (ii) actions by written consent
in lieu of a stockholders' meeting from September 23, 1994 until the date
hereof, and (c) all other reports, including quarterly reports, or registration
statements filed by Parent with the SEC since September 23, 1994 (other than
registration statements filed on Form S-3/S-8) (the documents referred to in
clauses (a), (b) and (c) are collectively referred to as the "Parent SEC
Reports"). As of their respective dates, the Parent SEC Reports did not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements and unaudited interim consolidated
financial statements of Parent included in such reports (collectively, the
"Parent Financial Statements") have been prepared in accordance with generally
accepted accounting principles applied on a
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consistent basis (except as may be indicated therein or in the notes thereto)
and fairly present the financial position of Parent and its subsidiaries as of
the dates thereof and the results of their operations and changes in financial
position for the periods then ended, subject, in the case of the unaudited
interim financial statements, to normal year-end and audit adjustments and any
other adjustments described therein.
SECTION 4.6. Absence of Undisclosed Liabilities. Except as
disclosed in the Parent SEC Reports or with respect to acquisitions or potential
transactions or commitments heretofore disclosed to the Company, neither Parent
nor any of its subsidiaries had at May 31, 1996, or has incurred since that
date, any liabilities or obligations (whether absolute, accrued, contingent or
otherwise) of any nature, except: (a) liabilities, obligations or contingencies
(i) which are accrued or reserved against in the Parent Financial Statements or
reflected in the notes thereto or (ii) which were incurred after May 31, 1996
and were incurred in the ordinary course of business and consistent with past
practices, (b) liabilities, obligations or contingencies which (i) would not, in
the aggregate, have a Parent Material Adverse Effect, or (ii) have been
discharged or paid in full prior to the date hereof, and (c) liabilities and
obligations which are of a nature not required to be accrued or reserved against
in the consolidated financial statements of Parent and its subsidiaries, or
reflected in the notes thereto, prepared in accordance with generally accepted
accounting principles consistently applied and which were incurred in the
ordinary course of business.
SECTION 4.7. Absence of Certain Changes or Events. Since the date
of the most recent Parent SEC Report, there has not been any material adverse
change in the business, operations, properties, assets, liabilities, condition
(financial or other) or results of operations of Parent and its subsidiaries,
taken as a whole, including as a result of any change in capital structure,
employee compensation arrangement (including severance rights and benefit
plans), accounting method or applicable law.
SECTION 4.8. Litigation. Except as disclosed in the Parent SEC
Reports or in Schedule 4.8 attached hereto, there are no claims, suits, actions
------------
or proceedings pending or, to the knowledge of Parent, threatened against,
relating to or affecting Parent or any of its subsidiaries, before any court,
governmental department, commission, agency, instrumentality or authority, or
any arbitrator that seek to restrain or enjoin the consummation of the Merger or
which could reasonably be expected, either alone or in the aggregate with all
such claims, actions or proceedings, to cause a Parent Material Adverse Effect.
Except as set forth in the Parent SEC Reports or in Schedule 4.8 attached
------------
hereto, neither Parent nor any of its subsidiaries is subject to any
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judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or authority or any arbitrator
which prohibits or restricts the consummation of the transactions contemplated
hereby or would have any Parent Material Adverse Effect.
SECTION 4.9. Registration Statement and Proxy Statement. None of
the information to be supplied by Parent or its subsidiaries for inclusion in
(a) the Registration Statement on Form S-4 to be filed under the Securities Act
with the SEC by Parent in connection with the Merger for the purpose of
registering the shares of Parent Common Stock to be issued in the Merger (the
"Registration Statement") or (b) the proxy statement to be distributed in
connection with the Company's meeting of its stockholders to vote upon this
Agreement and the transactions contemplated hereby (the "Proxy Statement" and,
together with the prospectus included in the Registration Statement, the "Joint
Proxy Statement/Prospectus") will, in the case of the Proxy Statement or any
amendments thereof or supplements thereto, at the time of the mailing of the
Proxy Statement and any amendments or supplements thereto, and at the time of
the meeting of stockholders of the Company to be held in connection with the
transactions contemplated by this Agreement, or, in the case of the Registration
Statement, as amended or supplemented, at the time it becomes effective, at the
time of such meeting of the stockholders of the Company and for so long as it
remains effective, contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they are
made, not misleading. The Joint Proxy Statement/Prospectus will, as of its
effective date, comply as to form in all material respects with all applicable
laws, including the provisions of the Securities Act and the Exchange Act and
the rules and regulations promulgated thereunder, except that no representation
or covenant is made by Parent or Subsidiary with respect to information in
writing supplied or to be supplied by the Company for inclusion therein.
SECTION 4.10. No Violation of Law. Except as disclosed in the Parent
SEC Reports, neither Parent nor any of its subsidiaries is in violation of, or
has been given notice or been charged with any violation of, any law, statute,
order, rule, regulation, ordinance, or judgment (including, without limitation,
any applicable environmental law, ordinance or regulation) of any governmental
or regulatory body or authority, except for violations which, in the aggregate,
could not reasonably be expected to have a Parent Material Adverse Effect.
Except as disclosed in the Parent SEC Reports, as of the date of this Agreement,
to the knowledge of Parent, no investigation or review by any governmental or
regulatory body or authority is pending or threatened, nor has any governmental
or regulatory
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body or authority indicated an intention to conduct the same, other than, in
each case, those the outcome of which, as far as reasonably can be foreseen,
will not have a Parent Material Adverse Effect. Parent and its subsidiaries
have all permits, licenses, franchises, variances, exemptions, orders and other
governmental authorizations, consents and approvals necessary to conduct their
businesses as presently conducted (collectively, the "Parent Permits"), except
for permits, licenses, franchises, variances, exemptions, orders, and other
governmental authorizations, consents and approvals the absence of which, alone
or in the aggregate, would not have a Parent Material Adverse Effect. Parent
and its subsidiaries are not in violation of the terms of any Parent Permit,
except for delays in filing reports or violations which, alone or in the
aggregate, would not have a Parent Material Adverse Effect.
SECTION 4.11. Compliance with Agreements. Except as disclosed in the
Parent SEC Reports, Parent and each of its subsidiaries are not in breach or
violation of or in default in the performance or observance of any term or
provision of, and no event has occurred which, with lapse of time or action by a
third party, could result in a default under (a) the respective charters, by-
laws or other similar organizational instruments of Parent or any of its
subsidiaries or (b) any contract, commitment, agreement, indenture, mortgage,
loan agreement, note, lease, bond, license, approval or other instrument to
which Parent or any of its subsidiaries is a party or by which any of them is
bound or to which any of their property is subject, which breaches, violations
and defaults, in the case of clause (b) of this Section 4.11, would have, in the
aggregate, a Parent Material Adverse Effect.
SECTION 4.12. Taxes.
(a) Parent and its subsidiaries have (i) duly filed with the
appropriate governmental authorities all Tax Returns (as defined in Section
4.12(c)) required to be filed by them for all periods ending on or prior to the
Effective Time, other than those Tax Returns the failure of which to file would
not have a Parent Material Adverse Effect, and such Tax Returns are true,
correct and complete in all material respects and (ii) duly paid in full or made
adequate provision for the payment of all Taxes (as defined in Section 4.12(b))
for all periods ending at or prior to the Effective Time. The liabilities and
reserves for Taxes reflected in the Parent balance sheet included in the latest
Parent SEC Report are adequate to cover all Taxes for all periods ending at or
prior to the Effective Time and there are no material liens for Taxes upon any
property or assets of Parent or any subsidiary thereof, except for liens for
Taxes not yet due. There are no unresolved issues of law or fact arising out of
a notice of deficiency, proposed deficiency or assessment from the
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Internal Revenue Service (the "IRS") or any other governmental taxing authority
with respect to Taxes of the Parent or any of its subsidiaries which, if decided
adversely, singly or in the aggregate, would have a Parent Material Adverse
Effect. Neither Parent nor any of its subsidiaries is a party to any agreement
providing for the allocation or sharing of Taxes with any entity that is not,
directly or indirectly, a wholly-owned corporate subsidiary of Parent other than
agreements disclosed in Schedule 4.12 the consequences of which are fully and
-------------
adequately reserved for in the Parent Financial Statements. Neither Parent nor
any of its corporate subsidiaries has, with regard to any assets or property
held, acquired or to be acquired by any of them, filed a consent to the
application of Section 341(f) of the Code.
(b) For purposes of this Agreement, the term "Taxes" shall mean all
taxes, including, without limitation, income, gross receipts, excise, property,
sales, withholding, social security, occupation, use, service, service use,
license, payroll, franchise, transfer and recording taxes, fees and charges,
windfall profits, severance, customs, import, export, employment or similar
taxes, charges, fees, levies or other assessments imposed by the United States,
or any state, local or foreign government or subdivision or agency thereof,
whether computed on a separate, consolidated, unitary, combined or any other
basis, and such term shall include any interest, fines, penalties or additional
amounts and any interest in respect of any additions, fines or penalties
attributable or imposed or with respect to any such taxes, charges, fees, levies
or other assessments.
(c) For purposes of this Agreement, the term "Tax Return" shall mean
any return, report or other document or information required to be supplied to a
taxing authority in connection with Taxes.
SECTION 4.13. Employee Benefit Plans; ERISA. (a) Except as set forth
in the Parent SEC Reports, at the date hereof, Parent and its subsidiaries do
not maintain or contribute to any material employee benefit plans, programs,
arrangements or practices (such plans, programs, arrangements or practices of
Parent and its subsidiaries being referred to as the "Parent Plans"), including
employee benefit plans within the meaning set forth in Section 3(3) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or other
similar material arrangements for the provision of benefits (excluding any
"Multi-employer Plan" within the meaning of Section 3(37) of ERISA or a
"Multiple Employer Plan" within the meaning of Section 413(c) of the Code).
Schedule 4.13 attached hereto lists all Multi-employer Plans and Multiple
- -------------
Employer Plans which any of Parent or its subsidiaries maintains or to which any
of them makes contributions. Neither Parent nor its subsidiaries has any
16
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obligation to create any additional such plan or to amend any such plan so as to
increase benefits thereunder, except as required under the terms of the Parent
Plans, under existing collective bargaining agreements or to comply with
applicable law.
(b) Except as disclosed in the Parent SEC Reports, (i) there have
been no prohibited transactions within the meaning of Section 406 or 407 of
ERISA or Section 4975 of the Code with respect to any of the Parent Plans that
could result in penalties, taxes or liabilities which, singly or in the
aggregate, could have a Parent Material Adverse Effect, (ii) except for premiums
due, there is no outstanding material liability, whether measured alone or in
the aggregate, under Title IV of ERISA with respect to any of the Parent Plans,
(iii) neither the Pension Benefit Guaranty Corporation nor any plan
administrator has instituted proceedings to terminate any of the Parent Plans
subject to Title IV of ERISA other than in a "standard termination" described in
Section 4041(b) of ERISA, (iv) none of the Parent Plans has incurred any
"accumulated funding deficiency" (as defined in Section 302 of ERISA and Section
412 of the Code), whether or not waived, as of the last day of the most recent
fiscal year of each of the Parent Plans ended prior to the date of this
Agreement, (v) the current present value of all projected benefit obligations
under each of the Parent Plans which is subject to Title IV of ERISA did not, as
of its latest valuation date, exceed the then current value of the assets of
such plan allocable to such benefit liabilities by more than the amount, if any,
disclosed in the Parent SEC Reports as of March 2, 1996, based upon reasonable
actuarial assumptions currently utilized for such Parent Plan, (vi) each of the
Parent Plans has been operated and administered in all material respects in
accordance with applicable laws during the period of time covered by the
applicable statute of limitations, (vii) each of the Parent Plans which is
intended to be "qualified" within the meaning of Section 401(a) of the Code has
been determined by the IRS to be so qualified and such determination has not
been modified, revoked or limited by failure to satisfy any condition thereof or
by a subsequent amendment thereto or a failure to amend, except that it may be
necessary to make additional amendments retroactively to maintain the
"qualified" status of such Parent Plans, and the period for making any such
necessary retroactive amendments has not expired, (viii) with respect to Multi-
employer Plans, neither Parent nor any of its subsidiaries has made or suffered
a "complete withdrawal" or a "partial withdrawal," as such terms are
respectively defined in Sections 4203, 4204 and 4205 of ERISA and, to the best
knowledge of Parent and its subsidiaries, no event has occurred or is expected
to occur which presents a material risk of a complete withdrawal or partial
withdrawal under said Sections 4203, 4204 and 4205, (ix) to the best knowledge
of Parent and its
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subsidiaries, there are no material pending, threatened or anticipated claims
involving any of the Parent Plans other than claims for benefits in the ordinary
course, and (x) Parent and its subsidiaries have no current material liability,
whether measured alone or in the aggregate, for plan termination or complete
withdrawal or partial withdrawal under Title IV of ERISA based on any plan to
which any entity that would be deemed one employer with Parent and its
subsidiaries under Section 4001 of ERISA or Section 414 of the Code contributed
during the period of time covered by the applicable statute of limitations (a
"Parent Controlled Group Plan"), and Parent and its subsidiaries do not
reasonably anticipate that any such liability will be asserted against Parent or
any of its subsidiaries. None of the Parent Controlled Group Plans has an
"accumulated funding deficiency" (as defined in Section 302 of ERISA and Section
412 of the Code).
(c) The Parent SEC Reports contain a true and complete summary or
list of or otherwise describe all material employment contracts and other
employee benefit arrangements with "change of control" or similar provisions and
all severance agreements with executive officers.
SECTION 4.14. Labor Controversies. Except as set forth in the Parent
SEC Reports, (a) there are no significant controversies pending or, to the
knowledge of Parent, threatened between Parent or its subsidiaries and any
representatives of any of their employees, (b) to the knowledge of Parent, there
are no material organizational efforts presently being made involving any of the
presently unorganized employees of Parent and its subsidiaries, (c) Parent and
its subsidiaries have, to the knowledge of Parent, complied in all material
respects with all laws relating to the employment of labor, including, without
limitation, any provisions thereof relating to wages, hours, collective
bargaining, and the payment of social security and similar taxes, and (d) no
person has, to the knowledge of Parent, asserted that Parent or any of its
subsidiaries is liable in any material amount for any arrears of wages or any
taxes or penalties for failure to comply with any of the foregoing, except for
such controversies, organizational efforts, non-compliance and liabilities
which, singly or in the aggregate, could not reasonably be expected to have a
Parent Material Adverse Effect.
SECTION 4.15. Environmental Matters. (a) Except as set forth in the
Parent SEC Reports or in Schedule 4.15, (i) Parent and its subsidiaries have
-------------
conducted their respective businesses in compliance with all applicable
Environmental Laws, including, without limitation, having all permits, licenses
and other approvals and authorizations necessary for the operation of their
respective businesses as presently conducted, (ii) none of the properties owned,
leased or operated by Parent or any of its subsidiaries contains any Hazardous
Substance in amounts
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exceeding the levels permitted by, or which otherwise create liability under,
applicable Environmental Laws, (iii) neither Parent nor any of its subsidiaries
has received any notices, demand letters or requests for information from any
Federal, state, local or foreign governmental entity or third party indicating
that Parent or any of its subsidiaries may be in violation of, or liable under,
any Environmental Law in connection with the ownership or operation of their
businesses, or any of the properties owned, leased or operated by Parent or any
of its subsidiaries (iv) there are no civil, criminal or administrative actions,
suits, demands, claims, hearings, investigations or proceedings pending or
threatened, against Parent or any of its subsidiaries relating to any violation,
or alleged violation, of or any liability or alleged liability, under any
Environmental Law, (v) no reports have been filed, or are required to be filed,
by Parent or any of its subsidiaries concerning the release of any Hazardous
Substance or the threatened or actual violation of any Environmental Law, (vi)
no Hazardous Substance has been disposed of or released at, from or onto any
properties owned, leased or operated by Parent or any of its subsidiaries during
the time such properties were owned, leased or operated by Parent or any of its
subsidiaries or to the best knowledge of Parent and its subsidiaries at any
other time or at any other facility or site to which Hazardous Substances from
or generated by Parent or any of its subsidiaries have been taken at any time in
the past, (vii) there have been no environmental investigations, studies,
audits, tests, reviews or other analyses regarding compliance or noncompliance
with any applicable Environmental Law conducted by or which are in the
possession of Parent or its subsidiaries relating to the activities of or
properties owned, leased or operated by Parent or its subsidiaries which have
not been delivered to the Company prior to the date hereof, (viii) there are no
underground storage tanks on, in or under any properties owned, leased or
operated by Parent and any of its subsidiaries and no underground storage tanks
have been closed or removed from any of such properties during the time such
properties were owned, leased or operated by Parent or any of its subsidiaries,
or, to the best knowledge of Parent and its subsidiaries, at any other time (ix)
there is no friable asbestos or asbestos containing material present in any of
the properties owned by Parent and its subsidiaries, and no asbestos has been
removed from any of such properties during the time such properties were owned,
leased or operated by Parent or any of its subsidiaries, and (x) neither Parent,
its subsidiaries nor any of their respective properties are subject to any
material liabilities or expenditures (fixed or contingent) relating to any suit,
settlement, court order, administrative order, regulatory requirement, judgment
or claim asserted or arising under any Environmental Law, except for violations
of the foregoing clauses (i) through (x) that, singly or in the
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aggregate, would not reasonably be expected to have a Parent Material Adverse
Effect.
(b) As used herein, "Environmental Law" means any Federal, state,
local or foreign law, statute, ordinance, rule, regulation, code, license,
permit, authorization, approval, consent, legal doctrine, order, judgment,
decree, injunction, requirement or agreement with any governmental entity
relating to (x) the protection, preservation or restoration of the environment
(including, without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface land, subsurface land, plant and animal life or
any other natural resource) or to human health or safety or (y) the exposure to,
or the use, storage, recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or disposal of Hazardous
Substances, in each case as amended and as in effect on the Closing Date. The
term Environmental Law includes, without limitation, (i) the Federal
Comprehensive Environmental Response Compensation and Liability Act of 1980, the
Superfund Amendments and Reauthorization Act, the Federal Water Pollution
Control Act of 1972, the Federal Clean Air Act, the Federal Clean Water Act, the
Federal Resource Conservation and Recovery Act of 1976 (including the Hazardous
and Solid Waste Amendments thereto), the Federal Solid Waste Disposal Act, the
Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide and
Rodenticide Act, the Federal Occupational Safety and Health Act of 1970, each as
amended and as in effect on the Closing Date, and (ii) any common law or
equitable doctrine (including, without limitation, injunctive relief and tort
doctrines such as negligence, nuisance, trespass and strict liability) that may
impose liability or obligations for injuries or damages due to, or threatened as
a result of, the presence of, effects of or exposure to any Hazardous Substance.
(c) As used herein, "Hazardous Substance" means any substance
presently or hereafter listed, defined, designated or classified as hazardous,
toxic, radioactive, or dangerous, under any Environmental Law. Hazardous
Substance includes any substance to which exposure is regulated by any
government authority pursuant to any Environmental Law including, without
limitation, any toxic waste, hazardous substance, toxic substance, hazardous
waste, special waste or petroleum or any derivative or by-product thereof,
radon, radioactive material, asbestos or asbestos containing material, urea
formaldehyde foam insulation, lead or polychlorinated biphenyls.
SECTION 4.16. Title to Assets. Parent and each of its subsidiaries
has good and marketable title in fee simple to all its real property and good
title to all its leasehold interests and other properties as reflected in the
most recent balance sheet included in the Parent Financial Statements, except
for
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properties and assets that have been disposed of in the ordinary course of
business since the date of such balance sheet, free and clear of all mortgages,
liens, pledges, charges or encumbrances of any nature whatsoever, except (i) the
lien for current taxes, payments of which are not yet delinquent, (ii) such
imperfections in title and easements and encumbrances, if any, as are not
substantial in character, amount or extent and do not materially detract from
the value or interfere with the present use of the property subject thereto or
affected thereby, or otherwise materially impair the Parent's business
operations (in the manner presently carried on by the Parent), or (iii) as
disclosed in the Parent SEC Reports, and except for such matters which, singly
or in the aggregate, could not reasonably be expected to have a Parent Material
Adverse Effect. All leases under which Parent leases any real or personal
property are in good standing, valid and effective in accordance with their
respective terms, and there is not, under any of such leases, any existing
default or event which with notice or lapse of time or both would become a
default other than defaults under such leases which in the aggregate will not
have a Parent Material Adverse Effect.
SECTION 4.17. Trademarks and Intellectual Property Compliance.
Parent and its subsidiaries own or have the right to use, without any material
payment to any other party, all of their patents, trademarks (registered or
unregistered), trade names, service marks, copyrights and applications
("Intellectual Property Rights") and the consummation of the transactions
contemplated hereby will not alter or impair such rights in any material
respect. To the best knowledge of Parent, no claims are pending by any person
with respect to the ownership, validity, enforceability or use of any such
Intellectual Property Rights challenging or questioning the validity or
effectiveness of any of the foregoing which claims could reasonably be expected
to have a Parent Material Adverse Effect.
SECTION 4.18. Material Agreements. Parent and Subsidiary have no
material agreements other than those filed as exhibits to Parent SEC Reports or
which will be filed with the Registration Statement, copies of which (to the
extent such agreements exist on and as of the date hereof) have been delivered
to the Company, or which will be delivered to the Company promptly after they
become available.
SECTION 4.19. Pooling Matters. To the Parent's knowledge and based
upon consultation with its independent accountants, neither the Parent nor any
of its affiliates has taken or agreed to take any action that would affect the
ability of Parent to account for the Merger as a pooling of interests.
SECTION 4.20. Insurance. Except to the extent there would be no
Parent Material Adverse Effect, all of Parent's and
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its subsidiaries' liability, theft, life, health, fire, title, worker's
compensation and other forms of insurance, surety bonds and umbrella policies,
insuring Parent and its subsidiaries and their directors, officers, employees,
independent contractors, properties, assets and business, are valid and in full
force and effect and without any premium past due or pending notice of
cancellation, are, in the reasonable judgment of Parent, adequate for the
business of Parent and its subsidiaries as now conducted, and there are no
claims, singly or in the aggregate, under such policies in excess of $200,000,
which, in any event, are not in excess of the limitations of coverage set forth
in such policies. Parent and its subsidiaries have taken all actions reasonably
necessary to insure that their independent contractors obtain and maintain
adequate insurance coverage. All of the insurance policies referred to in this
Section 4.20 are "occurrence" policies and no such policies are "claims made"
policies. Neither Parent nor any of its subsidiaries has knowledge of any fact
indicating that such policies will not continue to be available to Parent and
its subsidiaries upon substantially similar terms subsequent to the Effective
Time. The provision and/or reserves in the Parent Financial Statements are
adequate for any and all self insurance programs maintained by Parent or its
subsidiaries.
SECTION 4.21. Transactions with Related Parties. Except as set forth
in the Parent SEC Reports, (a) there have been no transactions by Parent or its
subsidiaries with any officer or director of Parent or beneficial owner of more
than five percent (5%) of Parent which are required to be disclosed pursuant to
the Exchange Act and (b) there are no material agreements or understandings now
in effect between Parent or its subsidiaries and any Related Party.
ARTICLE V
Representations and Warranties of the Company
The Company represents and warrants to Parent and Subsidiary as
follows:
SECTION 5.1. Organization and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the requisite corporate power and authority to
own, lease and operate its assets and properties and to carry on its business as
it is now being conducted. The Company is qualified to do business and is in
good standing in each jurisdiction in which the properties owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification necessary, except where the failure to be so qualified and in good
standing will not,
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when taken together with all other such failures, have a material adverse effect
on the business, operations, properties, assets, condition (financial or other)
or results of operations of the Company and its subsidiaries, taken as a whole
(a "Company Material Adverse Effect"). True, accurate and complete copies of
the Company's Certificate of Incorporation and By-laws, in each case as in
effect on the date hereof, including all amendments thereto, have heretofore
been delivered to Parent.
SECTION 5.2. Capitalization.
(a) The authorized capital stock of the Company consists of
25,000,000 shares of Company Common Stock and 1,000,000 shares of preferred
stock (par value $.001 per shares). As of August 7, 1996, 9,380,946 shares of
Company Common Stock and no shares of preferred stock were issued and
outstanding. All of such issued and outstanding shares are validly issued and
are fully paid, nonassessable and free of preemptive rights.
(b) Except as set forth in the Company SEC Reports (as defined in
Section 5.5) or on Schedule 5.2 attached hereto, as of the date hereof there
------------
are: (i) no outstanding subscriptions, options, calls, contracts, commitments,
understandings, restrictions, arrangements, rights or warrants, including any
right of conversion or exchange under any outstanding security, instrument or
other agreement and also including any rights plan or other anti-takeover
agreement, obligating the Company or any subsidiary of the Company to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
the capital stock of the Company or obligating the Company or any subsidiary of
the Company to grant, extend or enter into any such agreement or commitment, and
(ii) no voting trusts, proxies or other agreements or understandings to which
the Company or any subsidiary of the Company is a party or is bound with respect
to the voting of any shares of capital stock of the Company.
SECTION 5.3. Subsidiaries. Except as set forth in Schedule 5.3,
------------
each direct and indirect corporate subsidiary of the Company is duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation and has the requisite power and authority to own, lease and
operate its assets and properties and to carry on its business as it is now
being conducted except where any failure would not have a Company Material
Adverse Effect. Each subsidiary of the Company is qualified to do business, and
is in good standing, in each jurisdiction in which the properties owned, leased
or operated by it or the nature of the business conducted by it makes such
qualification necessary, except where the failure to be so qualified and in good
standing will not, when taken together with all such other failures, have a
Company Material Adverse Effect. All of the outstanding shares of capital stock
of each corporate
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subsidiary of the Company are validly issued, fully paid, nonassessable and free
of preemptive rights, and are owned directly or indirectly by the Company free
and clear of any liens, claims, encumbrances, security interests, equities,
charges and options of any nature whatsoever except that such shares are pledged
to secure the Company's (and such subsidiaries') credit facilities or as set
forth in Schedule 5.3 attached hereto. There are no subscriptions, options,
------------
warrants, rights, calls, contracts, voting trusts, proxies or other commitments,
understandings, restrictions or arrangements relating to the issuance, sale,
voting, transfer, ownership or other rights with respect to any shares of
capital stock of any corporate subsidiary of the Company, including any right of
conversion or exchange under any outstanding security, instrument or agreement.
SECTION 5.4. Authority; Non-Contravention; Approvals.
(a) The Company has full corporate power and authority to enter into
this Agreement and, subject to the Company Stockholders' Approval (as defined in
Section 7.3) and the Company Required Statutory Approvals (as defined in Section
5.4(c)), to consummate the transactions contemplated hereby. This Agreement has
been approved by the Board of Directors of the Company, and no other corporate
proceedings on the part of the Company are necessary to authorize the execution
and delivery of this Agreement or, except for the Company Stockholders'
Approval, the consummation by the Company of the transactions contemplated
hereby. This Agreement has been duly executed and delivered by the Company,
and, assuming the due authorization, execution and delivery hereof by Parent and
Subsidiary, constitutes a valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms, except that such
enforcement may be subject to (i) bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting or relating to enforcement of
creditors' rights generally and (ii) general equitable principles. Without
limitation of the foregoing, each of the covenants and obligations of the
Company set forth in Sections 6.1, 6.5, 7.3, 7.6, 7.7, 7.8 and 7.10 is valid,
legally binding and enforceable notwithstanding the absence of the Company
Stockholders' Approval.
(b) Except as set forth in Schedule 5.4(b), the execution and
---------------
delivery of this Agreement by the Company do not violate, conflict with or
result in a breach of any provision of, or constitute a default (or an event
which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination of, or accelerate the performance required by, or
result in a right of termination or acceleration under, or result in the
creation of any lien, security interest, charge or
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encumbrance upon any of the properties or assets of the Company or any of its
subsidiaries under any of the terms, conditions or provisions of (i) the
respective charters or by-laws of the Company or any of its subsidiaries, (ii)
any statute, law, ordinance, rule, regulation, judgment, decree, order,
injunction, writ, permit or license of any court or governmental authority
applicable to the Company or any of its subsidiaries or any of their respective
properties or assets, or (iii) any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which the Company or any of
its subsidiaries is now a party or by which the Company or any of its
subsidiaries or any of their respective properties or assets may be bound or
affected. Except as set forth in Schedule 5.4(b), the consummation by the
---------------
Company of the transactions contemplated hereby will not result in any
violation, conflict, breach, termination, acceleration or creation of liens
under any of the terms, conditions or provisions described in clauses (i)
through (iii) of the preceding sentence, subject (x) in the case of the terms,
conditions or provisions described in clause (ii) above, to obtaining (prior to
the Effective Time) the Company Required Statutory Approvals and the Company
Stockholders' Approval and (y) in the case of the terms, conditions or
provisions described in clause (iii) above, to obtaining (prior to the Effective
Time) consents required from commercial lenders, lessors or other third parties.
Excluded from the foregoing sentences of this paragraph (b), insofar as they
apply to the terms, conditions or provisions described in clauses (ii) and (iii)
of the first sentence of this paragraph (b), are such violations, conflicts,
breaches, defaults, terminations, accelerations or creations of liens, security
interests, charges or encumbrances that would not, in the aggregate, have a
Company Material Adverse Effect.
(c) Except for (i) the filings by Parent and the Company required by
the HSR Act, (ii) the filing of the Joint Proxy Statement/Prospectus with the
SEC pursuant to the Exchange Act and the Securities Act and the declaration of
the effectiveness thereof by the SEC and filings with various state blue sky
authorities, (iii) the making of the Merger Filing with the Secretary of State
of the State of Delaware in connection with the Merger and (iv) any required
filings or approvals under the Interstate Commerce Act or filings with or
approvals from the DOT, the Federal Communications Commission, applicable state
environmental authorities, public service commissions and public utility
commissions (the filings and approvals referred to in clauses (i) through (iv)
are collectively referred to as the "Company Required Statutory Approvals"), no
declaration, filing or registration with, or notice to, or authorization,
consent or approval of, any governmental or regulatory body or authority is
necessary for the execution and delivery of this Agreement by the Company or the
consummation by the Company of the transactions
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contemplated hereby, other than such declarations, filings, registrations,
notices, authorizations, consents or approvals which, if not made or obtained,
as the case may be, would not, in the aggregate, have a Company Material Adverse
Effect.
SECTION 5.5. Reports and Financial Statements. Except as set forth
on Schedule 5.5 attached hereto, since December 20, 1995, the Company has filed
------------
with the SEC all material forms, statements, reports and documents (including
all exhibits, amendments and supplements thereto) required to be filed by it
under each of the Securities Act, the Exchange Act and the respective rules and
regulations thereunder, all of which, as amended if applicable, complied in all
material respects with all applicable requirements of the appropriate act and
the rules and regulations thereunder. The Company has previously delivered to
Parent copies of its (a) Annual Report on Form 10-K for the fiscal year ended
December 31, 1995, as filed with the SEC, (b) proxy and information statements
relating to (i) all meetings of its stockholders (whether annual or special) and
(ii) actions by written consent in lieu of a stockholders' meeting, if any, from
December 20, 1995 until the date hereof, and (c) all other reports, including
quarterly reports, or registration statements filed by the Company with the SEC
since December 20, 1995 (other than registration statements filed on Form S-3/S-
8) (the documents referred to in clauses (a), (b) and (c) are collectively
referred to as the "Company SEC Reports"). As of their respective dates, the
Company SEC Reports did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The audited consolidated financial statements and
unaudited interim consolidated financial statements of the Company included in
such reports (collectively, the "Company Financial Statements") have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis (except as may be indicated therein or in the notes thereto)
and fairly present the financial position of the Company and its subsidiaries as
of the dates thereof and the results of their operations and changes in
financial position for the periods then ended, subject, in the case of the
unaudited interim financial statements, to normal year-end and audit adjustments
and any other adjustments described therein.
SECTION 5.6. Absence of Undisclosed Liabilities. Except as
disclosed in the Company SEC Reports, neither the Company nor any of its
subsidiaries had at June 29, 1996, or has incurred since that date, any
liabilities or obligations (whether absolute, accrued, contingent or otherwise)
of any nature, except: (a) liabilities, obligations or contingencies (i) which
are accrued or reserved against in the Company Financial Statements or reflected
in the notes thereto or (ii) which were
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incurred after June 29, 1996 and were incurred in the ordinary course of
business and consistent with past practices, (b) liabilities, obligations or
contingencies which (i) would not, in the aggregate, have a Company Material
Adverse Effect, or (ii) have been discharged or paid in full prior to the date
hereof, and (c) liabilities and obligations which are of a nature not required
to be accrued or reserved against in the consolidated financial statements of
the Company and its subsidiaries, or reflected in the notes thereto, prepared in
accordance with generally accepted accounting principles consistently applied
and which were incurred in the ordinary course of business.
SECTION 5.7. Absence of Certain Changes or Events. Since the date of
the most recent Company SEC Report, there has not been any material adverse
change in the business, operations, properties, assets, liabilities, condition
(financial or other) or results of operations of the Company and its
subsidiaries, taken as a whole, including as a result of any change in capital
structure, employee compensation arrangement (including severance rights and
benefit plans), accounting method or applicable law.
SECTION 5.8. Litigation. Except as referred to in the Company SEC
Reports or in Schedule 5.8 attached hereto, there are no claims, suits, actions
------------
or proceedings pending or, to the knowledge of the Company, threatened against,
relating to or affecting the Company or any of its subsidiaries, before any
court, governmental department, commission, agency, instrumentality or
authority, or any arbitrator that seek to restrain the consummation of the
Merger or which could reasonably be expected, either alone or in the aggregate
with all such claims, actions or proceedings, to cause a Company Material
Adverse Effect. Except as referred to in the Company SEC Reports or in Schedule
--------
5.8 attached hereto, neither the Company nor any of its subsidiaries is subject
- ---
to any judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or authority, or any arbitrator
which prohibits or restricts the consummation of the transactions contemplated
hereby or would have any Company Material Adverse Effect.
SECTION 5.9. Registration Statement and Proxy Statement. None of
the information to be supplied by the Company or its subsidiaries for inclusion
in (a) the Registration Statement or (b) the Proxy Statement will, in the case
of the Proxy Statement or any amendments thereof or supplements thereto, at the
time of the mailing of the Proxy Statement and any amendments or supplements
thereto, and at the time of the meeting of stockholders of the Company to be
held in connection with the transactions contemplated by this Agreement or, in
the case of the Registration Statement, as amended or supplemented, at the
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time it becomes effective, at the time of such meeting of the stockholders of
the Company and for so long as it remains effective, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading. The Joint Proxy
Statement/Prospectus will, as of its effective date, comply as to form in all
material respects with all applicable laws, including the provisions of the
Securities Act and the Exchange Act and the rules and regulations promulgated
thereunder, except that no representation or covenant is made by the Company
with respect to information in writing supplied or to be supplied by Parent or
Subsidiary for inclusion therein.
SECTION 5.10. No Violation of Law. Except as disclosed in the
Company SEC Reports or in Schedule 5.10 attached hereto, neither the Company nor
-------------
any of its subsidiaries is in violation of or has been given notice or been
charged with any violation of, any law, statute, order, rule, regulation,
ordinance or judgment (including, without limitation, any applicable
environmental law, ordinance or regulation) of any governmental or regulatory
body or authority, except for violations which, in the aggregate, could not
reasonably be expected to have a Company Material Adverse Effect. Except as
disclosed in the Company SEC Reports, as of the date of this Agreement, to the
knowledge of the Company, no investigation or review by any governmental or
regulatory body or authority is pending or threatened, nor has any governmental
or regulatory body or authority indicated an intention to conduct the same,
other than, in each case, those the outcome of which, as far as reasonably can
be foreseen, will not have a Company Material Adverse Effect. The Company and
its subsidiaries have all permits, licenses, franchises, variances, exemptions,
orders and other governmental authorizations, consents and approvals necessary
to conduct their businesses as presently conducted (collectively, the "Company
Permits"), except for permits, licenses, franchises, variances, exemptions,
orders, and other governmental authorizations, consents and approvals the
absence of which, alone or in the aggregate, would not have a Company Material
Adverse Effect. The Company and its subsidiaries are not in violation of the
terms of any Company Permit, except for delays in filing reports or violations
which, alone or in the aggregate, would not have a Company Material Adverse
Effect.
SECTION 5.11. Compliance with Agreements. Except as disclosed in the
Company SEC Reports or in Schedule 5.11, the Company and each of its
-------------
subsidiaries are not in breach or violation of or in default in the performance
or observance of any term or provision of, and no event has occurred which, with
lapse of time or action by a third party, could result in a default under, (a)
the respective charters, by-laws or similar
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organizational instruments of the Company or any of its subsidiaries or (b) any
contract, commitment, agreement, indenture, mortgage, loan agreement, note,
lease, bond, license, approval or other instrument to which the Company or any
of its subsidiaries is a party or by which any of them is bound or to which any
of their property is subject, which breaches, violations and defaults, in the
case of clause (b) of this Section 5.11, would have, in the aggregate, a Company
Material Adverse Effect.
SECTION 5.12. Taxes. The Company and its subsidiaries have (i) duly
filed with the appropriate governmental authorities all Tax Returns required to
be filed by them for all periods ending on or prior to the Effective Time, other
than those Tax Returns the failure of which to file would not have a Company
Material Adverse Effect, and such Tax Returns are true, correct and complete in
all material respects, and (ii) duly paid in full or made adequate provision for
the payment of all Taxes for all periods ending at or prior to the Effective
Time. The liabilities and reserves for Taxes reflected in the Company balance
sheet included in the latest Company SEC Report are adequate to cover all Taxes
for all periods ending at or prior to the Effective Time and there are no
material liens for Taxes upon any property or assets of the Company or any
subsidiary thereof, except for liens for Taxes not yet due. There are no
unresolved issues of law or fact arising out of a notice of deficiency, proposed
deficiency or assessment from the IRS or any other governmental taxing authority
with respect to Taxes of the Company or any of its subsidiaries which, if
decided adversely, singly or in the aggregate, would have a Company Material
Adverse Effect. Neither the Company nor any of its subsidiaries is a party to
any agreement providing for the allocation or sharing of Taxes with any entity
that is not, directly or indirectly, a wholly-owned corporate subsidiary of the
Company. Neither the Company nor any of its corporate subsidiaries has, with
regard to any assets or property held, acquired or to be acquired by any of
them, filed a consent to the application of Section 341(f) of the Code.
SECTION 5.13. Employee Benefit Plans; ERISA.
(a) Except as set forth in the Company SEC Reports, at the date
hereof, the Company and its subsidiaries do not maintain or contribute to any
material employee benefit plans, programs, arrangements and practices (such
plans, programs, arrangements and practices of the Company and its subsidiaries
being referred to as the "Company Plans"), including employee benefit plans
within the meaning set forth in Section 3(3) of ERISA, or other similar material
arrangements for the provision of benefits (excluding any "Multi-employer Plan"
within the meaning of Section 3(37) of ERISA or a "Multiple Employer Plan"
within the
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meaning of Section 413(c) of the Code). Schedule 5.13(a) attached hereto lists
----------------
all Multi-employer Plans and Multiple Employer Plans which any of the Company or
its subsidiaries maintains or to which any of them makes contributions. Neither
the Company nor its subsidiaries has any obligation to create any additional
such plan or to amend any such plan so as to increase benefits thereunder,
except as required under the terms of the Company Plans, under existing
collective bargaining agreements or to comply with applicable law.
(b) Except as disclosed in the Company SEC Reports, (i) there have
been no prohibited transactions within the meaning of Section 406 or 407 of
ERISA or Section 4975 of the Code with respect to any of the Company Plans that
could result in penalties, taxes or liabilities which, singly or in the
aggregate, could have a Company Material Adverse Effect, (ii) except for
premiums due, there is no outstanding material liability, whether measured alone
or in the aggregate, under Title IV of ERISA with respect to any of the Company
Plans, (iii) neither the Pension Benefit Guaranty Corporation nor any plan
administrator has instituted proceedings to terminate any of the Company Plans
subject to Title IV of ERISA other than in a "standard termination" described in
Section 4041(b) of ERISA, (iv) none of the Company Plans has incurred any
"accumulated funding deficiency" (as defined in Section 302 of ERISA and Section
412 of the Code), whether or not waived, as of the last day of the most recent
fiscal year of each of the Company Plans ended prior to the date of this
Agreement, (v) the current present value of all projected benefit obligations
under each of the Company Plans which is subject to Title IV of ERISA did not,
as of its latest valuation date, exceed the then current value of the assets of
such plan allocable to such benefit liabilities by more than the amount, if any,
disclosed in the Company SEC Reports as of June 29, 1996, based upon reasonable
actuarial assumptions currently utilized for such Company Plan, (vi) each of the
Company Plans has been operated and administered in all material respects in
accordance with applicable laws during the period of time covered by the
applicable statute of limitations, (vii) each of the Company Plans which is
intended to be "qualified" within the meaning of Section 401(a) of the Code has
been determined by the IRS to be so qualified and such determination has not
been modified, revoked or limited by failure to satisfy any condition thereof or
by a subsequent amendment thereto or a failure to amend, except that it may be
necessary to make additional amendments retroactively to maintain the
"qualified" status of such Company Plans, and the period for making any such
necessary retroactive amendments has not expired, (viii) with respect to Multi-
employer Plans, neither the Company nor any of its subsidiaries has, made or
suffered a "complete withdrawal" or a "partial withdrawal," as such terms are
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respectively defined in Sections 4203, 4204 and 4205 of ERISA and, to the best
knowledge of the Company and its subsidiaries, no event has occurred or is
expected to occur which presents a material risk of a complete or partial
withdrawal under said Sections 4203, 4204 and 4205, (ix) to the best knowledge
of the Company and its subsidiaries, there are no material pending, threatened
or anticipated claims involving any of the Company Plans other than claims for
benefits in the ordinary course, and (x) the Company and its subsidiaries have
no current material liability, whether measured alone or in the aggregate, for
plan termination or complete withdrawal or partial withdrawal under Title IV of
ERISA based on any plan to which any entity that would be deemed one employer
with the Company and its subsidiaries under Section 4001 of ERISA or Section 414
of the Code contributed during the period of time covered by the applicable
statute of limitations (the "Company Controlled Group Plans"), and the Company
and its subsidiaries do not reasonably anticipate that any such liability will
be asserted against the Company or any of its subsidiaries. None of the Company
Controlled Group Plans has an "accumulated funding deficiency" (as defined in
Section 302 of ERISA and Section 412 of the Code).
(c) The Company SEC Reports or Schedule 5.13(c) contain a true and
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complete summary or list of or otherwise describe all material employment
contracts and other employee benefit arrangements with "change of control" or
similar provisions and all severance agreements with executive officers.
SECTION 5.14. Labor Controversies. Except as set forth in the
Company SEC Reports, (a) there are no significant controversies pending or, to
the knowledge of the Company, threatened between the Company or its subsidiaries
and any representatives of any of their employees, (b) to the knowledge of the
Company, there are no material organizational efforts presently being made
involving any of the presently unorganized employees of the Company or its
subsidiaries, (c) the Company and its subsidiaries have, to the knowledge of the
Company, complied in all material respects with all laws relating to the
employment of labor, including, without limitation, any provisions thereof
relating to wages, hours, collective bargaining, and the payment of social
security and similar taxes, and (d) no person has, to the knowledge of the
Company, asserted that the Company or any of its subsidiaries is liable in any
material amount for any arrears of wages or any taxes or penalties for failure
to comply with any of the foregoing, except for such controversies,
organizational efforts, non-compliance and liabilities which, singly or in the
aggregate, could not reasonably be expected to have a Company Material Adverse
Effect.
SECTION 5.15. Environmental Matters. Except as set forth in the
Company SEC Reports or in Schedule 5.15, (i) the
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Company and its subsidiaries have conducted their respective businesses in
compliance with all applicable Environmental Laws, including, without
limitation, having all permits, licenses and other approvals and authorizations
necessary for the operation of their respective businesses as presently
conducted, (ii) none of the properties owned, leased or operated by the Company
or any of its subsidiaries contains any Hazardous Substance in amounts exceeding
the levels permitted by, or which otherwise create liability under, applicable
Environmental Laws, (iii) neither the Company nor any of its subsidiaries has
received any notices, demand letters or requests for information from any
Federal, state, local or foreign governmental entity or third party indicating
that the Company or any of its subsidiaries may be in violation of, or liable
under, any Environmental Law in connection with the ownership or operation of
their businesses, or any of the properties owned, leased or operated by the
Company or any of its subsidiaries (iv) there are no civil, criminal or
administrative actions, suits, demands, claims, hearings, investigations or
proceedings pending or threatened, against the Company or any of its
subsidiaries relating to any violation, or alleged violation, of any
Environmental Law, (v) no reports have been filed, or are required to be filed,
by the Company or any of its subsidiaries concerning the release of any
Hazardous Substance or the threatened or actual violation of or any liability,
or alleged liability under any Environmental Law, (vi) no Hazardous Substance
has been disposed of or released at, from or onto any properties owned, leased
or operated by the Company or any of its subsidiaries during the time such
properties were owned, leased or operated by the Company or any of its
subsidiaries or to the best knowledge of Company and its subsidiaries at any
other time or at any other facility or site to which Hazardous Substances from
or generated by the Company or any of its subsidiaries have been taken at any
time in the past, (vii) there have been no environmental investigations,
studies, audits, tests, reviews or other analyses regarding compliance or
noncompliance with any applicable Environmental Law conducted by or which are in
the possession of the Company or its subsidiaries relating to the activities of
or properties owned, leased or operated by the Company or its subsidiaries which
have not been delivered to Parent prior to the date hereof, (viii) there are no
underground storage tanks on, in or under any properties owned, leased or
operated by the Company or any of its subsidiaries and no underground storage
tanks have been closed or removed from any of such properties during the time
such properties were owned, leased or operated by the Company or any of its
subsidiaries, or to the best knowledge of the Company and its subsidiaries at
any other time, (ix) there is no friable asbestos or asbestos containing
material present in any of the properties owned by the Company and its
subsidiaries, and no asbestos has been removed from any of such properties
during the time such properties were owned, leased or operated by the Company or
any of its
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subsidiaries, and (x) neither the Company, its subsidiaries nor any of their
respective properties are subject to any material liabilities or expenditures
(fixed or contingent) relating to any suit, settlement, court order,
administrative order, regulatory requirement, judgment or claim asserted or
arising under any Environmental Law, except for violations of the foregoing
clauses (i) through (x) that, singly or in the aggregate, would not reasonably
be expected to have a Company Material Adverse Effect.
SECTION 5.16. Title to Assets. The Company and each of its
subsidiaries has good and marketable title in fee simple to all its real
property and good title to all its leasehold interests and other properties, as
reflected in the most recent balance sheet included in the Company Financial
Statements, except for properties and assets that have been disposed of in the
ordinary course of business since the date of such balance sheet, free and clear
of all mortgages, liens, pledges, charges or encumbrances of any nature
whatsoever, except (i) the lien for current taxes, payments of which are not yet
delinquent, (ii) such imperfections in title and easements and encumbrances, if
any, as are not substantial in character, amount or extent and do not materially
detract from the value, or interfere with the present use of the property
subject thereto or affected thereby, or otherwise materially impair the
Company's business operations (in the manner presently carried on by the
Company), (iii) as disclosed in the Company SEC Reports or (iv) as provided in
the credit facility, dated April 12, 1996, between the Company and its lending
banks, and except for such matters which, singly or in the aggregate, could not
reasonably be expected to have a Company Material Adverse Effect. All leases
under which the Company leases any substantial amount of real or personal
property are in good standing, valid and effective in accordance with their
respective terms, and there is not, under any of such leases, any existing
default or event which with notice or lapse of time or both would become a
default other than defaults under such leases which in the aggregate will not
have a Company Material Adverse Effect.
SECTION 5.17. Company Stockholders' Approval. The affirmative vote
of stockholders of the Company required for approval and adoption of this
Agreement and the Merger is a majority of the outstanding shares of Company
Common Stock.
SECTION 5.18 No Excess Parachute Payments. Except as set forth on
Schedule 5.18, the Company has no contracts, arrangements or understandings
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pursuant to which any person may receive any amount or entitlement from the
Company or any of its subsidiaries (including cash or property or the vesting of
property) that may be characterized as an "excess parachute payment" (as such
term is defined in Section 280G(B)(1) of the Code) (any such amount being an
"Excess Parachute Payment") as a
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result of any of the transactions contemplated by this Agreement. Except as set
forth on Schedule 5.18, to the best knowledge of the Company, no person is
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entitled to receive any additional payment from the Company, its subsidiaries or
any other person (a "Parachute Gross-up Payment") in the event that the 20
percent (20%) parachute excise tax of Section 4999(a) of the Code is imposed on
such person. Except as set forth on Schedule 5.18, the Board of Directors of
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the Company has not during the six months prior to the date of this Agreement
granted to any officer, director or employee of the Company any right to receive
any Parachute Gross-Up Payment.
SECTION 5.19 Trademarks and Intellectual Property Compliance. The
Company and its subsidiaries own or have the right to use, without any material
payment to any other party, all of their Intellectual Property Rights, and the
consummation of the transactions contemplated hereby will not alter or impair
such rights in any material respect. To the knowledge of the Company, no claims
are pending by any person with respect to the ownership, validity,
enforceability or use of any such Intellectual Property Rights challenging or
questioning the validity or effectiveness of any of the foregoing which claims
could reasonably be expected to have a Company Material Adverse Effect.
SECTION 5.20 Material Agreements. The Company has no material
agreements other than those filed as exhibits to the Company SEC Reports or as
set forth on Schedule 5.20 or which will be filed with the Registration
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Statement, copies of which (to the extent such agreements exist on and as of the
date hereof) have been delivered to Parent, or which will be delivered to Parent
promptly after they become available.
SECTION 5.21 Pooling Matters. To the Company's knowledge and based
upon consultation with its independent accountants, neither the Company nor any
of its affiliates has taken or agreed to take any action that would affect the
ability of Parent to account for the Merger as a pooling of interests.
SECTION 5.22 Transactions with Related Parties. Except as set forth
in the Company SEC Reports or on Schedule 5.22, (a) there have been no
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transactions by the Company or its subsidiaries with any officer or director of
the Company or beneficial owner of more than five percent (5%) of the Company
Common Stock or their affiliates ("Related Parties") which are required to be
disclosed pursuant to the Exchange Act and (b) there are no material agreements
or understandings now in effect between the Company or its subsidiaries and any
Related Party.
SECTION 5.23 Insurance. Except to the extent there would be no
Company Material Adverse Effect, all of the Company's
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and its subsidiaries' liability, theft, life, health, fire, title, worker's
compensation and other forms of insurance, surety bonds and umbrella policies,
insuring the Company and its subsidiaries and their directors, officers,
employees, independent contractors, properties, assets and business, are valid
and in full force and effect and without any premium past due or pending notice
of cancellation, are, in the reasonable judgment of the Company, adequate for
the business of the Company and its subsidiaries as now conducted, and there are
no claims, singly or in the aggregate, under such policies in excess of $250,000
(as to which the Company is self-insured), which, in any event, are not in
excess of the limitations of coverage set forth in such policies. The Company
and its subsidiaries have taken all actions reasonably necessary to insure that
their independent contractors obtain and maintain adequate insurance coverage.
All of the insurance policies referred to in this Section 5.23 are "occurrence"
policies and no such policies are "claims made" policies. Neither the Company
nor any of its subsidiaries has knowledge of any fact indicating that such
policies will not continue to be available to the Company and its subsidiaries
upon substantially similar terms subsequent to the Effective Time. The
provision and/or reserves in the Company Financial Statements are adequate for
any and all self insurance programs maintained by the Company or its
subsidiaries.
SECTION 5.24 Employment Agreements. Except as set forth on Schedule
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5.24, any and all employees of the Company who are parties to agreements that
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would provide to them cash compensation upon a change of control (as defined
therein) of the Company or upon a voluntary termination of employment by any
such employee (collectively, the "Employment Agreements") have executed
amendments and/or waivers of the cash compensation provisions applicable upon
such a change of control (as defined therein) or upon a voluntary termination of
employment by any such employee.
SECTION 5.25 Affiliate Agreements. Each person who may be deemed an
affiliate of the Company under Rule 145 of the Securities Act ("Rule 145"),
including, without limitation, all directors and executive officers of the
Company, has delivered an agreement to Parent agreeing to the resale
restrictions imposed by applicable securities laws and accounting rules
(including, but not limited to, Accounting Series Release No. 135 ("ASR 135")).
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 6.1. Conduct of Business by the Company Pending the Merger.
Except as otherwise contemplated by this
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Agreement, after the date hereof and prior to the Closing Date or earlier
termination of this Agreement, unless Parent shall otherwise agree in writing,
the Company shall, and shall cause its subsidiaries, to:
(a) conduct their respective businesses in the ordinary and usual
course of business and consistent with past practice;
(b) not (i) amend or propose to amend their respective charters or
by-laws, (ii) split, combine or reclassify their outstanding capital stock or
(iii) declare, set aside or pay any dividend or distribution payable in cash,
stock, property or otherwise, except for the payment of dividends or
distributions by a wholly-owned subsidiary of the Company;
(c) not issue, sell, pledge or dispose of, or agree to issue, sell,
pledge or dispose of, any additional shares of Company Common Stock, or any
options, warrants or rights of any kind to acquire any shares of their capital
stock of any class or any debt or equity securities convertible into or
exchangeable for such capital stock, except that the Company may issue shares
(i) upon conversion of convertible securities and exercise of options
outstanding on the date hereof; and (ii) in connection with the potential
acquisitions described in Schedule 6.1;
------------
(d) not (i) incur or become contingently liable with respect to any
indebtedness for borrowed money other than (A) borrowings in the ordinary course
of business or (B) borrowings to refinance existing indebtedness, (ii) redeem,
purchase, acquire or offer to purchase or acquire any shares of its capital
stock or any options, warrants or rights to acquire any of its capital stock or
any security convertible into or exchangeable for its capital stock, (iii) take
any action which to the knowledge of the Company would unreasonably jeopardize
the treatment of the Merger as a pooling of interests under APB 16, (iv) take or
fail to take any action which action or failure to the knowledge of the Company
would cause the Company or its stockholders (except to the extent that any
stockholders receive cash in lieu of fractional shares) to recognize gain or
loss for federal income tax purposes as a result of the consummation of the
Merger, (v) sell, pledge, dispose of or encumber any assets or businesses other
than sales in the ordinary course of business or (vi) enter into any contract,
agreement, commitment or arrangement with respect to any of the foregoing;
(e) use all reasonable efforts to preserve intact their respective
business organizations and goodwill, keep available the services of their
respective present officers and key employees, and preserve the goodwill and
business relationships with customers and others having business
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relationships with them and not engage in any action, directly or indirectly,
with the intent to adversely impact the transactions contemplated by this
Agreement;
(f) confer on a regular and frequent basis with one or more
representatives of Parent to report operational matters of materiality and the
general status of ongoing operations;
(g) not enter into or amend any employment, severance, special pay
arrangement with respect to termination of employment or other similar
arrangements or agreements with any directors, officers or key employees, except
in the ordinary course and consistent with past practice (excluding material
management non-competition and severance agreements);
(h) not adopt, enter into or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation, health
care, employment or other employee benefit plan, agreement, trust, fund or
arrangement for the benefit or welfare of any employee or retiree, except as
required to comply with changes in applicable law; and
(i) maintain with financially responsible insurance companies
insurance on its tangible assets and its businesses in such amounts and against
such risks and losses as are consistent with past practice.
SECTION 6.2. Conduct of Business by Parent and Subsidiary Pending
the Merger. Except as otherwise contemplated by this Agreement, after the date
hereof and prior to the Closing Date or earlier termination of this Agreement,
unless the Company shall otherwise agree in writing, Parent shall, and shall
cause its subsidiaries, to:
(a) conduct their respective businesses in the ordinary and usual
course of business and consistent with past practice;
(b) not (i) amend or propose to amend their respective charters or
by-laws, (ii) split, combine or reclassify (whether by stock dividend or
otherwise) their outstanding capital stock, or (iii) declare, set aside or pay
any dividend or distribution payable in cash, stock, property or otherwise,
except for the payment of dividends or distributions by a wholly-owned
subsidiary of Parent;
(c) not issue, sell, pledge or dispose of, or agree to issue, sell,
pledge or dispose of, any shares of Parent Common Stock, or any options,
warrants or rights of any kind to acquire any shares of their capital stock of
any class or any debt or equity securities convertible into or exchangeable for
such
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capital stock, except that Parent may issue shares (i) upon conversion of
convertible securities and exercise of options outstanding on the date hereof
and (ii) in connection with potential acquisitions;
(d) not (i) incur or become contingently liable with respect to any
indebtedness for borrowed money other than (A) borrowings in the ordinary course
of business or (B) borrowings to refinance existing indebtedness, (ii) redeem,
purchase, acquire or offer to purchase or acquire any shares of its capital
stock or any options, warrants or rights to acquire any of its capital stock or
any security convertible into or exchangeable for its capital stock, (iii) take
any action which to the knowledge of Parent would unreasonably jeopardize the
treatment of the Merger as a pooling of interests under APB No. 16, (iv) take or
fail to take any action which action or failure to take action would cause the
Company or its stockholders (except to the extent that any stockholders receive
cash in lieu of fractional shares) to recognize gain or loss for federal income
tax purposes as a result of the consummation of the Merger, (v) sell, pledge,
dispose of or encumber any assets or businesses other than sales in the ordinary
course of business or (vi) enter into any contract, agreement, commitment or
arrangement with respect to any of the foregoing;
(e) use all reasonable efforts to preserve intact their respective
business organizations and goodwill, keep available the services of their
respective present officers and key employees, and preserve the goodwill and
business relationships with customers and others having business relationships
with them and not engage in any action, directly or indirectly, with the intent
to adversely impact the transactions contemplated by this Agreement;
(f) confer on a regular and frequent basis with one or more
representatives of the Company to report operational matters of materiality and
the general status of ongoing operations;
(g) not enter into or amend any employment, severance, special pay
arrangement with respect to termination of employment or other similar
arrangements or agreements with any directors, officers or key employees, except
in the ordinary course and consistent with past practice; provided, however,
that Parent and its subsidiaries shall in no event enter into any written
employment agreement which provides for an annual base salary in excess of
$125,000 and has a term in excess of one year or enter into or amend any
material severance or termination arrangement;
(h) not adopt, enter into or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation, health
care, employment or other employee
38
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benefit plan, agreement, trust, fund or arrangement for the benefit or welfare
of any employee or retiree, except as required to comply with changes in
applicable law; and
(i) maintain with financially responsible insurance companies
insurance on its tangible assets and its businesses in such amounts and against
such risks and losses as are consistent with past practice.
SECTION 6.3. Control of the Company's Operations. Nothing contained
in this Agreement shall give to Parent, directly or indirectly, rights to
control or direct the Company's operations prior to the Effective Time. Prior
to the Effective Time, the Company shall exercise, consistent with the terms and
conditions of this Agreement, complete control and supervision of its
operations.
SECTION 6.4. Control of Parent's Operations. Nothing contained in
this Agreement shall give to the Company, directly or indirectly, rights to
control or direct Parent's operations prior to the Effective Time. Prior to the
Effective Time, Parent shall exercise, consistent with the terms and conditions
of this Agreement, complete control and supervision of its operations.
SECTION 6.5. Acquisition Transactions.
(a) After the date hereof and prior to the Effective Time or earlier
termination of this Agreement, the Company shall not, and shall not permit any
of its subsidiaries to, initiate or solicit, and the Company shall, and shall
use its best efforts to cause each of its subsidiaries to, cause any officer,
director or employee of, or any attorney, accountant, investment banker,
financial advisor or other agent retained by it, not to initiate or solicit, any
proposal or offer to acquire all or any substantial part of the business and
properties of the Company and its subsidiaries or any capital stock of the
Company and its subsidiaries, whether by merger, purchase of assets, tender
offer or otherwise, whether for cash, securities or any other consideration or
combination thereof in a transaction, upon the consummation of which the holders
of Company Common Stock will own less than a majority of the equity of the
offeror or resulting entity or have the right to elect no more than a minority
of the board of directors (or similar governing board) of the offeror or the
resulting entity (any such transactions being referred to herein as "Acquisition
Transactions").
(b) Notwithstanding any other provision of this Agreement, in response
to an unsolicited proposal or inquiry with respect to an Acquisition
Transaction, (i) the Company may engage in discussions or negotiations regarding
such proposal or inquiry with a third party who (without any solicitation or
initiation,
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directly or indirectly, by or with the Company or any Company representative
after the date of this Agreement) seeks to initiate such discussions or
negotiations and may negotiate with and furnish to such third party information
concerning the Company and its business, properties and assets, and (ii) if such
Acquisition Transaction is a tender offer subject to the provisions of Section
14(d) under the Exchange Act, the Company's Board of Directors may take and
disclose to the Company's stockholders a position contemplated by Rule 14e-2(a)
under the Exchange Act.
(c) In the event the Company shall determine to provide any
information or negotiate as described in paragraph (b) above, or shall receive
any offer of the type referred to in paragraph (b) above, it shall (i)
immediately provide Parent a copy of all information provided to the third
party, (ii) inform Parent that information is to be provided, that negotiations
are to take place or that an offer has been received, as the case may be, and
(iii) furnish to Parent the identity of the person receiving such information or
the proponent of such offer, if applicable, and, if any offer has been received,
unless the Board of Directors of the Company concludes that such disclosure is
inconsistent with its fiduciary duties under applicable law, a description of
the material terms thereof.
(d) The Company may terminate this Agreement, withdraw, modify or not
make its recommendation referred to in Section 7.3, if but only if (i) the
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Company shall have determined in good faith after consultation with the
independent financial advisors of the Company that such Acquisition Transaction
would be more favorable to the Company's stockholders from a financial point of
view than the Merger, (ii) the Board of Directors of the Company shall conclude
in good faith after consultation with its legal counsel that such action is
necessary in order for the Board of Directors of the Company to act in a manner
that is consistent with its fiduciary obligations under applicable law and (iii)
the Company shall have furnished the Parent with a copy of a definitive
agreement (if any) with an offeror of an Acquisition Transaction at least five
business days prior to its execution and Parent shall have failed within such
five business day period to offer to amend the terms of this Agreement so that
the Merger would be, in the good faith determination of the Board of Directors
of the Company, at least as favorable to the Company's stockholders from a
financial point of view as the Acquisition Transaction.
(e) Each party (i) acknowledges that a breach of any of its covenants
contained in this Section 6.5 will result in irreparable harm to the other party
which will not be compensable in money damages, and (ii) agrees that such
covenant shall be specifically enforceable and that specific performance and
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injunctive relief shall be a remedy properly available to the other party for a
breach of such covenant. In any event, if Company enters into an Acquisition
Transaction, it will immediately pay to Parent the sums described in Section 7.6
below.
ARTICLE VII
Additional Agreements
SECTION 7.1. Access to Information. (a) The Company and its
subsidiaries shall afford to Parent and Subsidiary and their respective
accountants, counsel, financial advisors and other representatives (the "Parent
Representatives") and Parent and its subsidiaries shall afford to the Company
and its accountants, counsel, financial advisors and other representatives (the
"Company Representatives") full access during normal business hours throughout
the period prior to the Effective Time to all of their respective properties,
books, contracts, commitments and records (including, but not limited to, Tax
Returns) and, during such period, shall furnish promptly to one another (i) a
copy of each report, schedule and other document filed or received by any of
them pursuant to the requirements of federal or state securities laws or filed
by any of them with the SEC in connection with the transactions contemplated by
this Agreement or which may have a material effect on their respective
businesses, properties or personnel and (ii) such other information concerning
their respective businesses, properties and personnel as Parent or Subsidiary or
the Company, as the case may be, shall reasonably request; provided that no
investigation pursuant to this Section 7.1 shall amend or modify any
representations or warranties made herein or the conditions to the obligations
of the respective parties to consummate the Merger. Parent and its subsidiaries
shall hold and shall use their reasonable best efforts to cause the Parent
Representatives to hold, and the Company and its subsidiaries shall hold and
shall use their reasonable best efforts to cause the Company Representatives to
hold, in strict confidence all non-public documents and information furnished to
Parent and Subsidiary or to the Company, as the case may be, in connection with
the transactions contemplated by this Agreement, except that (i) Parent,
Subsidiary and the Company may disclose such information as may be necessary in
connection with seeking the Parent Required Statutory Approvals, the Company
Required Statutory Approvals and the Company Stockholders' Approval and (ii)
each of Parent, Subsidiary and the Company may disclose any information that it
is required by law or judicial or administrative order to disclose.
(b) In the event that this Agreement is terminated in accordance with
its terms, each party shall promptly redeliver to
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the other all non-public written material provided pursuant to this Section 7.1
and shall not retain any copies, extracts or other reproductions in whole or in
part of such written material. In such event, all documents, memoranda, notes
and other writings prepared by Parent or the Company based on the information in
such material shall be destroyed (and Parent and the Company shall use their
respective reasonable best efforts to cause their advisors and representatives
to similarly destroy their documents, memoranda and notes), and such destruction
(and reasonable best efforts) shall be certified in writing by an authorized
officer supervising such destruction.
(c) The Company shall promptly advise Parent and Parent shall
promptly advise the Company in writing of any change or the occurrence of any
event after the date of this Agreement having, or which, insofar as can
reasonably be foreseen, in the future may have, any material adverse effect on
the business, operations, properties, assets, condition (financial or other),
results of operations or prospects of the Company and its subsidiaries or Parent
and its subsidiaries, as the case may be, taken as a whole.
SECTION 7.2. Registration Statement and Proxy Statement. Parent and
the Company shall file with the SEC as soon as is reasonably practicable after
the date hereof the Joint Proxy Statement/Prospectus and shall use all
reasonable efforts to have the Registration Statement declared effective by the
SEC as promptly as practicable. Parent shall also take any action required to
be taken under applicable state blue sky or securities laws in connection with
the issuance of Parent Common Stock pursuant hereto. Parent and the Company
shall promptly furnish to each other all information, and take such other
actions, as may reasonably be requested in connection with any action by any of
them in connection with the first sentence of this Section 7.2.
SECTION 7.3. Stockholders' Approval. The Company shall, as promptly
as practicable, submit this Agreement and the transactions contemplated hereby
for the approval of its stockholders at a meeting of stockholders and, subject
to the fiduciary duties of the Board of Directors of the Company under
applicable law, or except to the extent contemplated by Section 6.5, shall use
its reasonable best efforts to obtain stockholder approval and adoption (the
"Company Stockholders' Approval") of this Agreement and the transactions
contemplated hereby. Such meeting of stockholders shall be held as soon as
practicable following the date upon which the Registration Statement becomes
effective. Subject to the fiduciary duties of the Board of Directors of the
Company under applicable law, or except as contemplated by Section 6.5, the
Company shall, through its Board of Directors, recommend to its stockholders
approval of the
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transactions contemplated by this Agreement. The Company (i) acknowledges that
a breach of its covenant contained in this Section 7.3 to convene a meeting of
its stockholders and call for a vote thereat with respect to the approval of
this Agreement and the Merger will result in irreparable harm to Parent which
will not be compensable in money damages and (ii) agrees that such covenant
shall be specifically enforceable and that specific performance and injunctive
relief shall be a remedy properly available to Parent for a breach of such
covenant.
SECTION 7.4. [Intentionally omitted.]
SECTION 7.5. Exchange Listing. Parent shall use its best efforts to
effect, at or before the Effective Time, authorization for listing on the
NASDAQ, upon official notice of issuance, of the shares of Parent Common Stock
to be issued pursuant to the Merger.
SECTION 7.6. Expenses and Fees.
(a) Except as provided in Section 7.6(b), all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such expenses, except that those
expenses incurred in connection with printing and mailing of the Joint Proxy
Statement/Prospectus shall be shared equally by Parent and the Company.
(b) The Company agrees to pay to Parent a fee equal to Three Million
Three Hundred Seventy-Five Thousand Dollars ($3,375,000) if (i) the Company
terminates this Agreement pursuant to Section 6.5, and (ii) within twelve (12)
months thereafter consummates the Acquisition Transaction to which such
termination is attributable or another Acquisition Transaction commenced within
sixty (60) days after such termination.
SECTION 7.7. Agreement to Cooperate.
(a) Subject to the terms and conditions herein provided, each of the
parties hereto shall use all reasonable efforts to take, or cause to be taken,
all action and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate and make effective
the transactions contemplated by this Agreement, including using its reasonable
efforts to obtain all necessary or appropriate waivers, consents and approvals
and SEC "no-action" letters to effect all necessary registrations, filings and
submissions and to lift any injunction or other legal bar to the Merger (and, in
such case, to proceed with the Merger as expeditiously as possible), subject,
however, to the requisite votes of the
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stockholders of the Company and the boards of directors of the Company and
Parent.
(b) Without limitation of the foregoing, each of Parent and the
Company undertakes and agrees to file as soon as practicable after the date
hereof a Notification and Report Form under the HSR Act with the Federal Trade
Commission (the "FTC") and the Antitrust Division of the Department of Justice
(the "Antitrust Division"). Each of Parent and the Company shall (i) use its
reasonable efforts to comply as expeditiously as possible with all lawful
requests of the FTC or the Antitrust Division for additional information and
documents and (ii) not extend any waiting period under the HSR Act or enter into
any agreement with the FTC or the Antitrust Division not to consummate the
transactions contemplated by this Agreement, except with the prior written
consent of the other parties hereto.
(c) In the event any litigation is commenced by any person or entity
relating to the transactions contemplated by this Agreement, including any
Acquisition Transaction, Parent shall have the right, at its own expense, to
participate therein, and the Company will not settle any such litigation without
the consent of Parent, which consent will not be unreasonably withheld.
SECTION 7.8. Public Statements and Filings. The parties shall
consult with each other prior to issuing any press release or any written public
statement with respect to this Agreement or the transactions contemplated hereby
and, except as required by law in the judgment of the issuing party, shall not
issue any such press release or written public statement prior to such
consultation. In addition, each party shall provide the other party with a
written copy of any of its SEC Reports to be filed at least 48 hours prior to
the filing of such report.
SECTION 7.9. Option Plans. Prior to the Effective Time, the Company
through the Compensation Committee of its Board of Directors and Parent shall
take such action as may be necessary to cause each unexpired and unexercised
option (each a "Company Option"), whether immediately exercisable, exercisable
at Closing by virtue of acceleration attributable to the Merger or exercisable
only after Closing, to be automatically converted at the Effective Time into an
option (each a "Parent Option") to purchase a number of shares of Parent Common
Stock equal to the number of shares of Company Common Stock that could have been
purchased under the Company Option multiplied by the Exchange Ratio, at a price
per share of Parent Common Stock equal to the option exercise price determined
pursuant to the Company Option divided by the Exchange Ratio and subject to the
same terms and conditions as the Company Option, including acceleration and
44
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period of exercise. At the Effective Time, all references in the stock option
agreements to the Company shall be deemed to refer to Parent. As of the
Effective Time, Parent shall assume all of the Company's obligations with
respect to Company Options as so amended and, from and after the Effective Time,
shall have reserved for issuance upon exercise of the Parent Options all shares
of Parent Common Stock covered thereby and, as of the Effective Time, shall have
filed an amendment to its Registration Statement on Form S-8 to register the
additional shares of Parent Common Stock subject to Parent Options granted in
replacement of Company Options.
SECTION 7.10. Notification of Certain Matters. Each of the Company,
Parent and Subsidiary agrees to give prompt notice to each other of, and to use
reasonable efforts to prevent or promptly remedy, (i) the occurrence or failure
to occur or the impending or threatened occurrence or failure to occur, of any
event which occurrence or failure to occur would be likely to cause any of its
representations or warranties in this Agreement to be untrue or inaccurate in
any material respect at any time from the date hereof to the Effective Time and
(ii) any material failure on its part to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to this Section 7.10
shall not limit or otherwise affect the remedies available hereunder to the
party receiving such notice.
SECTION 7.11. Directors' and Officers' Indemnification and Insurance.
(a) From and after the Effective Time, Parent shall, and Parent shall
cause the Surviving Corporation to, indemnify, defend and hold harmless the
present and former officers and directors of the Company (collectively, the
"Indemnified Parties") against all losses, expenses, claims, damages,
liabilities or amounts that are paid in settlement of, or otherwise in
connection with any claim, action, suit, proceeding or investigation (a
"claim"), based in whole or in part on the fact that such person is or was a
director or officer of the Company and arising out of actions or omissions
occurring at or prior to the Effective Time (including, without limitation, this
Agreement, the Merger and the transactions contemplated hereby), in each case to
the fullest extent permitted under the DGCL (and shall pay any expenses in
advance of the final disposition of any such action or proceeding to each
Indemnified Party to the fullest extent permitted under the DGCL, upon receipt
from the Indemnified Party to whom expenses are advanced of any undertaking to
repay such advances required under the DGCL). Parent shall, and Parent shall
cause the Surviving Corporation
45
<PAGE>
to, observe and comply with the Company's obligations pursuant to the
indemnification agreements listed on Schedule 7.11 hereto.
-------------
(b) Parent shall, and Parent shall cause the Surviving Corporation
to, cause to be maintained in effect until sixty (60) days after the running of
the statute of limitations the current policies of directors' and officers'
liability insurance maintained by the Company (provided that Parent or the
Surviving Corporation may substitute therefor policies of at least the same
coverage and amounts containing terms and conditions which are no less
advantageous to such officers and directors) with respect to claims arising from
facts or events which occurred at or before the Effective Time.
(c) In the event the Surviving Corporation or Parent or any of their
successors or assigns (i) consolidates with or merges into any other person and
shall not be the continuing or surviving corporation or entity of such
consolidation or merger or (ii) transfers all or substantially all of its
properties and assets to any person, then and in each such case, proper
provisions shall be made so that the successors and assigns of the Surviving
Corporation or Parent shall assume the obligations set forth in this Section
7.11.
(d) This Section 7.11 is intended to be for the benefit of, and shall
be enforceable by, the Indemnified Parties, their heirs and personal
representatives and shall be binding on Parent, the Surviving Corporation and
their respective successors and assigns.
SECTION 7.12. Corrections to the Joint Proxy Statement/Prospectus and
Registration Statement. Prior to the date of approval of the Merger by the
Company's stockholders, each of the Company, Parent and Subsidiary shall correct
promptly any information provided by it to be used specifically in the Joint
Proxy Statement/Prospectus and Registration Statement that shall have become
false or misleading in any material respect and shall take all steps necessary
to file with the SEC and have declared effective or cleared by the SEC any
amendment or supplement to the Joint Proxy Statement/Prospectus or the
Registration Statement so as to correct the same and to cause the Joint Proxy
Statement/Prospectus as so corrected to be disseminated to the stockholders of
the Company and Parent, in each case to the extent required by applicable law.
SECTION 7.13. [Intentionally omitted.]
SECTION 7.14. Irrevocable Proxies. Upon the execution hereof, the
Company will use its best efforts to cause its officers and directors to execute
and deliver to Parent irrevocable proxies in a form reasonably acceptable to
Parent
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<PAGE>
authorizing the Parent to vote all shares of Company Common Stock which such
executive officers and directors are entitled to vote in favor of the Merger.
SECTION 7.15. Tax-Free Treatment of Merger. The Parent, the
Subsidiary and Company shall each use its best efforts to cause the Merger to be
treated as a tax-free reorganization for federal income tax purposes.
SECTION 7.16. Parent's Periodic Reports Following the Merger.
Following the Effective Time, Parent shall file with the SEC a periodic report
under the Exchange Act which contains at least thirty (30) days of combined
results of operations of the Company and the Parent as required by ASR 135
within the time prescribed under the Exchange Act for the filing of such report.
SECTION 7.17. Grant of Options to Company Employees. Upon
consummation of the Merger, Parent shall grant non-qualified options to purchase
1,000,000 shares of Parent Common Stock at an exercise price equal to Fair
Market Value (as defined in Section 2.8 of Parent's 1994 Stock Option and
Incentive Plan, as amended) on the grant date (which shall be the Closing Date),
to certain employees of the Company as recommended to Parent by senior
management of the Company in accordance with Schedule 7.17 and as agreed to by
-------------
the compensation committee of the Parent's Board of Directors. Such options
will vest over five years (2.083% per month, for months thirteen (13) through
sixty (60), inclusive, following the Effective Time), expire ten (10) years from
the date of grant and otherwise be subject to the terms and conditions of
Parent's existing stock option plan, except that such options shall not qualify
as incentive stock options under the Code. Parent shall register under the S-8
the shares issuable pursuant to the options Parent has agreed to grant under
this Section 7.17,and shall use reasonable efforts to cause such shares to be
listed on Nasdaq.
ARTICLE VIII
Conditions
SECTION 8.1. Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) this Agreement and the transactions contemplated hereby shall
have been approved and adopted by the requisite vote of the stockholders of the
Company under applicable law and applicable listing requirements;
47
<PAGE>
(b) the shares of Parent Common Stock issuable in the Merger shall
have been authorized for listing on the NASDAQ upon official notice of issuance;
(c) the waiting period applicable to the consummation of the Merger
under the HSR Act shall have expired or been terminated;
(d) the Registration Statement shall have become effective in
accordance with the provisions of the Securities Act, and no stop order
suspending such effectiveness shall have been issued and remain in effect and no
proceeding for that purpose shall have been instituted by the SEC or any state
regulatory authorities;
(e) no preliminary or permanent injunction or other order or decree
by any federal or state court which prevents the consummation of the Merger
shall have been issued and remain in effect (each party agreeing to use its
reasonable efforts to have any such injunction, order or decree lifted);
(f) no action shall have been taken, and no statute, rule or
regulation shall have been enacted, by any state or federal government or
governmental agency in the United States which would prevent the consummation of
the Merger or make the consummation of the Merger illegal;
(g) all governmental waivers, consents, orders and approvals legally
required for the consummation of the Merger and the transactions contemplated
hereby, and all consents from lenders required to consummate the Merger, shall
have been obtained and be in effect at the Effective Time; and
(h) Coopers & Lybrand, certified public accountants for Parent, shall
have delivered a letter, dated the Closing Date, addressed to Parent, in form
and substance reasonably satisfactory to Parent, stating that the Merger will
qualify as a pooling-of-interests transaction under APB No. 16.
SECTION 8.2. Conditions to Obligation of the Company to Effect the
Merger. Unless waived by the Company, the obligation of the Company to effect
the Merger shall be subject to the fulfillment at or prior to the Closing Date
of the following additional conditions:
(a) Parent and Subsidiary shall have performed in all material
respects their agreements contained in this Agreement required to be performed
on or prior to the Closing Date and the representations and warranties of Parent
and Subsidiary contained in this Agreement shall be true and correct in all
material respects on and as of the date made and, on and as of the Closing
48
<PAGE>
Date as if made at and as of such date, and the Company shall have received a
certificate of the Chairman of the Board and Chief Executive Officer, the
President or a Vice President of Parent and of the President and Chief Executive
Officer or a Vice President of Subsidiary to that effect;
(b) the Company shall have received an opinion of Sullivan &
Worcester LLP, counsel to the Company, in form and substance reasonably
satisfactory to the Company, dated the Closing Date, to the effect that the
Company and holders of Company Common Stock will recognize no gain or loss for
federal income tax purposes as a result of consummation of the Merger (except to
the extent any stockholders receive cash in lieu of fractional shares);
(c) the Company shall have received an opinion or opinions from
Ballard, Spahr, Andrews & Ingersoll, counsel to Parent and Subsidiary, dated the
Closing Date, substantially in the form of Exhibit 8.2(c);
(d) the Company shall have received "comfort" letters in customary
form from Coopers & Lybrand, certified public accountants for Parent and
Subsidiary, dated the date of the Proxy Statement, the effective date of the
Registration Statement and the Closing Date (or such other date reasonably
acceptable to the Company) with respect to certain financial statements and
other financial information included in the Registration Statement and any
subsequent changes in specified balance sheet and income statement items,
including total assets, working capital, total stockholders' equity, total
revenues and the total and per share amounts of net income;
(e) since the date hereof, there shall have been no changes that
constitute, and no event or events shall have occurred which have resulted in or
constitute, a material adverse change in the business, operations, properties,
assets, condition (financial or other) or results of operations of Parent and
its subsidiaries, taken as a whole;
(f) all governmental waivers, consents, orders, and approvals legally
required for the consummation of the Merger and the transactions contemplated
hereby shall have been obtained and be in effect at the Closing Date, and no
governmental authority shall have promulgated any statute, rule or regulation
which, when taken together with all such promulgations, would materially impair
the value to Parent of the Merger; and
(g) the Company shall have received from Smith Barney Inc. (or other
nationally recognized investment banking firm reasonably acceptable to Parent)
an opinion, dated the date hereof, and, if requested by the Company, confirmed
as of the
49
<PAGE>
date of the Joint Proxy Statement/Prospectus, to the effect that the Exchange
Ratio is fair, from a financial point of view, to the holders of Company Common
Stock, and such opinion shall not have been withdrawn.
SECTION 8.3. Conditions to Obligations of Parent and Subsidiary to
Effect the Merger. Unless waived by Parent and Subsidiary, the obligations of
Parent and Subsidiary to effect the Merger shall be subject to the fulfillment
at or prior to the Effective Time of the following additional conditions:
(a) the Company shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior to
the Closing Date and the representations and warranties of the Company contained
in this Agreement shall be true and correct in all material respects on and as
of the date made and on and as of the Closing Date as if made at and as of such
date, and Parent shall have received a Certificate of the President and Chief
Executive Officer or of a Vice President of the Company to that effect;
(b) Parent shall have received an opinion from Sullivan & Worcester
LLP, counsel to the Company, dated the Closing Date, substantially in the form
of Exhibit 8.3(b);
(c) Parent shall have received "comfort" letters in customary form
from Price Waterhouse, certified public accountants for the Company, dated the
date of the Proxy Statement, the effective date of the Registration Statement
and the Closing Date (or such other date reasonably acceptable to Parent) with
respect to certain financial statements and other financial information included
in the Registration Statement and any subsequent changes in specified balance
sheet and income statement items, including total assets, working capital, total
stockholders' equity, total revenues and the total and per share amounts of net
income;
(d) since the date hereof, there shall have been no changes that
constitute, and no event or events shall have occurred which have resulted in or
constitute, a material adverse change in the business, operations, properties,
assets, condition (financial or other) or results of operations of the Company
and its subsidiaries, taken as a whole;
(e) all governmental waivers, consents, orders and approvals legally
required for the consummation of the Merger and the transactions contemplated
hereby shall have been obtained and be in effect at the Closing Date, and no
governmental authority shall have promulgated any statute, rule or regulation
which, when taken together with all such promulgations, would materially impair
the value to Parent of the Merger; and
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(f) Parent shall have received from Donaldson, Lufkin & Jenrette
Securities Corporation (or other nationally recognized investment banking firm
reasonably acceptable to the Company) an opinion, dated the date hereof, and, if
requested by Parent, confirmed as of the date of the Joint Proxy
Statement/Prospectus, to the effect that the Exchange Ratio is fair, from a
financial point of view, to Parent's stockholders, and such opinion shall not
have been withdrawn.
ARTICLE IX
Termination, Amendment and Waiver
SECTION 9.1. Termination. This Agreement may be terminated at any
time prior to the Closing Date, whether before or after approval by the
stockholders of the Company, as follows:
(a) The Company shall have the right to terminate this Agreement:
(i) if the Merger is not completed by December 31, 1996
otherwise than account of delay or default on the part of the Company or
any of its 5% stockholders or any of their affiliates or associates;
(ii) if the Merger is enjoined by a final, unappealable court
order not entered at the request or with the support of the Company or any
of its 5% stockholders or any of their affiliates or associates;
(iii) if the terms and conditions of Section 6.5(d), the last
sentence of Section 6.5(e) and Section 7.6(b) are satisfied;
(iv) if the Company's shareholder vote is not sufficient to
approve the Merger;
(v) if Parent (A) fails to perform in any material respect any
of its material covenants in this Agreement and (B) does not cure such
default in all material respects within 30 days after written notice of
such default is given to Parent by the Company; or
(vi) if (A) Parent is subjected to any claim, suit, action or
proceeding, the existence or threat of which has not been disclosed to the
Company as of the date hereof, that could reasonably be expected to have a
Parent Material Adverse Effect, and (B) the Company notifies Parent within
ten days after the Company receives notice of such claim, suit, action or
proceeding that the Company is terminating this Agreement.
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(b) Parent shall have the right to terminate this Agreement:
(i) if the Merger is not completed by December 31, 1996
otherwise than account of delay or default on the part of Parent or any of
its 5% stockholders or any of their affiliates or associates;
(ii) if the Merger is enjoined by a final, unappealable court
order not entered at the request or with the support of Parent or any of
its 5% stockholders or any of their affiliates or associates;
(iii) if the Company's shareholder vote is not sufficient to
approve the Merger;
(iv) if the Company (A) fails to perform in any material respect
any of its material covenants in this Agreement and (B) does not cure such
default in all material respects within 30 days after written notice of
such default is given to the Company by Parent; or
(v) if (A) the Company is subjected to any claim, suit, action
or proceeding, the existence or threat of which has not been disclosed to
Parent as of the date hereof, that could reasonably be expected to have a
Company Material Adverse Effect, and (B) Parent notifies the Company within
ten days after Parent receives notice of such claim, suit, action or
proceeding that Parent is terminating this Agreement.
SECTION 9.2. Effect of Termination. In the event of termination of
this Agreement by either Parent or the Company, as provided in Section 9.1, this
Agreement shall forthwith become void and there shall be no further obligation
on the part of the Company, Parent, Subsidiary or their respective officers or
directors (except as set forth in this Section 9.2 and in Sections 7.1, 7.6 and
7.8, all of which shall survive the termination). Nothing in this Section 9.2
shall relieve any party from liability for any breach of this Agreement.
SECTION 9.3. Amendment. This Agreement may not be amended except
by action taken by the parties' respective Boards of Directors or duly
authorized committees thereof and then only by an instrument in writing signed
on behalf of each of the parties hereto and in compliance with applicable law.
SECTION 9.4. Waiver. At any time prior to the Effective Time, the
parties hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the
52
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representations and warranties contained herein or in any document delivered
pursuant thereto and (c) waive compliance with any of the agreements or
conditions contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid if set forth in an instrument in writing
signed on behalf of such party.
ARTICLE X
General Provisions
SECTION 10.1. Non-Survival of Representations and Warranties. All
representations and warranties in this Agreement shall not survive the Merger,
and after effectiveness of the Merger neither the Company, Parent, Subsidiary or
their respective officers or directors shall have any further obligation with
respect thereto.
SECTION 10.2. Brokers. The Company represents and warrants that no
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee (except for the fee payable to the investment banking firm described
in Section 8.2(g)) or commission in connection with the Merger or the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of the Company. Parent and Subsidiary represent and warrant that no
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee (except for the fee payable to the investment banking firm described
in Section 8.3(f)) or commission in connection with the Merger or the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Parent or Subsidiary.
SECTION 10.3. Notices. All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered personally,
mailed by registered or certified mail (return receipt requested) or sent via
facsimile to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) If to Parent or Subsidiary to:
Corporate Express, Inc.
325 Interlocken Parkway
Broomfield, Colorado 80021
Attention: Jirka Rysavy
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with a copy to:
Ballard Spahr Andrews & Ingersoll
1735 Market Street
Philadelphia, Pennsylvania 19103
Attention: Justin P. Klein
(b) If to the Company, to:
United TransNet, Inc.
1080 Holcomb Bridge Road
Building 200, Suite 140
Roswell, Georgia 30076
Attention: Philip A. Belyew
with a copy to:
Sullivan & Worcester LLP
One Post Office Square
Boston, Massachusetts 02109
Attention: Harvey E. Bines
SECTION 10.4. Interpretation. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. In this Agreement, unless a
contrary intention appears, (i) the words "herein", "hereof" and "hereunder" and
other words of similar import refer to this Agreement as a whole and not to any
particular Article, Section or other subdivision and (ii) reference to any
Article or Section means such Article or Section hereof. No provision of this
Agreement shall be interpreted or construed against any party hereto solely
because such party or its legal representative drafted such provision.
SECTION 10.5. Miscellaneous. This Agreement (including the documents
and instruments referred to herein) (a) constitutes the entire agreement and
supersedes all other prior agreements and understandings, both written and oral,
among the parties, or any of them, with respect to the subject matter hereof,
(b) is not intended to confer upon any other person any rights or remedies
hereunder, except for rights of indemnified Parties under Section 7.11 and (c)
shall not be assigned by operation of law or otherwise, except that Subsidiary
may assign this Agreement to any other wholly-owned subsidiary of Parent. THIS
AGREEMENT SHALL BE GOVERNED IN ALL RESPECTS, INCLUDING VALIDITY, INTERPRETATION
AND EFFECT, BY THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO CONTRACTS
EXECUTED AND TO BE PERFORMED WHOLLY WITHIN SUCH STATE.
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SECTION 10.6. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
SECTION 10.7. Parties In Interest. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and except as set
forth in the exception to Section 10.5(b), nothing in this Agreement, express or
implied, is intended to confer upon any other person any rights or remedies of
any nature whatsoever under or by reason of this Agreement.
SECTION 10.8. Exhibits and Schedules. All Exhibits and Schedules
referred to in this Agreement shall be attached hereto and are incorporated by
reference herein. A disclosure in any Schedule referred to this Agreement shall
constitute disclosure for purposes of each other Schedule referred to in this
Agreement.
IN WITNESS WHEREOF, Parent, Subsidiary and the Company have caused
this Agreement to be signed by their respective officers as of the date first
written above.
CORPORATE EXPRESS, INC.
By: /s/ Clayton K. Trier
---------------------------
Name: Clayton K. Trier
Title: Authorized Signatory
BEVO ACQUISITION CORP., INC.
By: /s/ Clayton K. Trier
---------------------------
Name: Clayton K. Trier
Title: Authorized Signatory
UNITED TRANSNET, INC.
By: /s/ Philip A. Belyew
---------------------------
Name: Philip A. Belyew
Title: Chief Executive Officer
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EXHIBIT 2.2
September 10, 1996
United TransNet, Inc.
1080 Holcomb Bridge Road
Building 200, Suite 140
Roswell, Georgia 30076
Gentlemen:
Corporate Express, Inc. and United TransNet, Inc. contemplate entering into
an Agreement and Plan of Reorganization (the "Merger Agreement") concurrently
with the execution of this letter. In connection therewith, certain of your
employees will be granted non-qualified options to purchase 1,000,000 shares of
Parent Common Stock (as defined in the Merger Agreement). This letter confirms
our understanding that, following completion of Parent's 1996 fiscal year which
ends March 1, 1997, the Compensation Committee of the Board of Directors of
Parent will review the financial and operating performance of the business units
formerly under the control of the Company's employees for the period from
September 1, 1996 to March 1, 1997, and grant up to an additional 200,000
non-qualified options. Such options will vest over five years (2.083% per month,
for months thirteen (13) through sixty (60), inclusive, following the Effective
Time), expire ten (10) years from the date of grant and otherwise be subject to
the terms and conditions of Parent's existing stock option plan, except that
such options shall not qualify as incentive stock options under the Code.
Capitalized terms not otherwise defined herein shall have the meanings ascribed
to them in the Merger Agreement.
If the foregoing accurately reflects our agreement, please so indicate by
signing this letter in the space provided below.
Sincerely yours,
By: /s/ Clayton K. Trier
----------------------------
Name: Clayton K. Trier
Title: Director
AGREED AND ACCEPTED
this 10th day of September, 1996
By: /s/ Philip A. Belyew
----------------------------
Name: Philip A. Belyew
Title: Chief Executive Officer
<PAGE>
Exhibit 11.1
Corporate Express, Inc.
Statement Regarding Computation of Net Income (Loss) Per Share
Primary Earnings Per Share
<TABLE>
<CAPTION>
Year Ended Year Ended
February 28, 1995 March 2, 1996
----------------- -----------------
<S> <C> <C>
Income (loss) from continuing operations $ 12,149,000 $ 2,744,000
Preferred stock dividend (432,000) -
Discontinued operations - -
Extraordinary item 586,000 -
----------------- -----------------
Net income (loss) 12,303,000 2,744,000
================= =================
Income (loss) per share:
Continuing operations 0.24 0.04
Discontinued operations - -
Extraordinary item 0.01 -
----------------- -----------------
Net income (loss) per share $ 0.25 $ 0.04
================= =================
Weighted average shares outstanding 42,274,000 63,893,000
Common Stock Equivalents:
Preferred stock 3,192,000 -
Stock options and warrants 2,418,000 4,164,000
Convertible notes - (A)
Items issued within one year of IPO:
Preferred stock 460,500 (B) -
Stock options and warrants 318,000 (B) -
Common stock 532,500 (B) -
----------------- -----------------
Total weighted average shares outstanding 49,195,000 68,057,000
================= =================
</TABLE>
Fully Diluted Earnings Per Share
Fully diluted earnings per share differs from primary earnings per share by less
than 3%.
- ----------------------------------------------------
(A) Amounts are excluded from the calculation as they are anti-dilutive.
(B) Amounts represent stock issued within one year of the initial filing of the
registration statement in connection with the initial public offering at
below the IPO price and are net of shares repurchased under the treasury
stock method.
<PAGE>
Exhibit 11.1
Corporate Express, Inc.
Statement Regarding Computation of Net Income (loss) Per Share
Primary Earnings Per Share
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
June 1, 1996 May 27, 1995
---------------- ----------------
<S> <C> <C>
Net income $ 9,616,000 $ 6,506,000
================ ================
Net income per share $ 0.13 $ 0.10
================ ================
Weighted average shares outstanding 69,111,690 59,086,500
Common Stock Equivalents:
Stock options and warrants 6,027,034 3,884,500
---------------- ----------------
Total weighted average shares outstanding 75,138,724 62,971,000
================ ================
</TABLE>
Fully Diluted Earnings Per Share
Fully diluted earnings per share differs from primary earnings per share by less
than 3%.
- -------------------------------------------------------------------------------
<PAGE>
EXHIBIT 21.1
Corporate Express of the South, Inc. (Delaware)
Schooley, Inc. (Delaware)
Lake Charles Office Plus, Inc. (Louisiana)
CE Miami Real Estate, Inc. (Delaware)
Columbia Office Supply Co. (South Carolina)
Jim Ammons Office Supply, Inc. d/b/a/ Ammons Office Plus (North Carolina)
Forms & Supplies, Inc. (Tennessee)
Precision Business Supplies, Inc. (Georgia)
Corporate Express of the West, Inc. (Colorado)
Corporate Express of Texas, Inc. (Delaware)
Lamb Printing & Stationery Co., Inc. (Texas)
Enbee Company (Texas)
General Stationers, Inc. (Texas)
Brown & Parker, Inc. d/b/a Texas Office Supply (Texas)
Schendel Atkins Office Supply, Inc. (Texas)
Corporate Express of the East, Inc. (Delaware)
Federal Sales Service, Inc. (Virginia)
Contemporary Office Products, Inc. (Ohio)
Laser Perfect Products, Inc. (Massachusetts)
Office Essentials of Madison, Inc. (Wisconsin)
Holly Property Management, Inc. d/b/a Tapper Business Supplies (New Jersey)
OP2000, Inc. (Delaware)
Office Products Network of North America, Inc. (Maryland) (No assets)
Richard Young Journal, Inc. (Delaware)
International Business Supplies Corporation (Maryland)
Ross-Martin Company, Inc. (Delaware)
Corporate Express Real Estate, Inc. (Delaware)
ASAP Software Express, Inc. (Illinois)
Corporate Express (Holdings) Limited
Corporate Express (UK) Ltd (51%)
The Harrison Terry Group
Clix Magna plc
<PAGE>
Caldwells The Stationers Limited
Chisholm's Limited
Highmead Stationers Limited
Chisholm's Mail Order Limited
Corporate Express Canada, Inc.
Corporate Express (Deutschland) GmbH
Corporate Express South Pacific Pty. Ltd.
Corporate Express Holdings Australia Pty Limited
Corporate Express Finance Australia Pty Limited\
Corporate Express Australia Limited (52%)
Arnell Pty Limited
Stationery Supermarket (Wholesale) Pty Limited
Ballment Manufacturing Co. Pty Limited
Ballment Office Products Pty Limited
Apex Office Products Pty Ltd
Illawarra Office Products (NSW) Pty Ltd
Ballment Group Superannuation Pty Ltd
Illawarra Office Products (Qld) Pty Limited
Barries (Aust.) Pty Limited
Adelaid Office Products Distributors Pty Ltd
Boulton Robinson Office Supplies Pty Limited
Revson Australia Pty Limited
2
<PAGE>
U.S. Delivery Systems, Inc.:
U.S. Delivery Systems - Intermountain, Inc. (Delaware)
(formerly U.S. Delivery Systems - West Central, Inc.)
U.S. Delivery Leasing - Intermountain, Inc. (Delaware)
(formerly U.S. Delivery Leasing - West Central, Inc.)
U.S. Delivery - Mid-Atlantic, Inc. (Delaware)
U.S. Delivery Leasing - Mid-Atlantic, Inc. (Delaware)
U.S. Delivery Systems - Mid-West, Inc. (Delaware)
(formerly U.S. Delivery Systems - North Central, Inc.)
U.S. Delivery Leasing - Mid-West, Inc. (Delaware)
(formerly U.S. Delivery Leasing - North Central, Inc.)
U.S. Delivery Systems - New England, Inc. (Delaware)
U.S. Delivery Leasing - New England, Inc. (Delaware)
U.S. Delivery Systems - Northeast, Inc. (Delaware)
U.S. Delivery Leasing - Northeast, Inc. (Delaware)
U.S. Delivery Systems - Southeast, Inc. (Delaware)
(formerly U.S. Delivery Systems - South Central, Inc.)
U.S. Delivery Leasing - Southeast, Inc. (Delaware)
(formerly U.S. Delivery Leasing - South Central, Inc.)
U.S. Delivery Systems - Southwest, Inc. (Delaware)
U.S. Delivery Leasing - Southwest, Inc. (Delaware)
U.S. Delivery Systems - West Coast, Inc. (Delaware)
U.S. Delivery Leasing - West Coast, Inc. (Delaware)
American Delivery System, Inc. (Michigan)
American Distribution System, Inc. (Michigan)
CallCenter Services, Inc (Delaware)
Connecticut Courier, Inc. (Connecticut)
Florida Overnight Courier Association, Inc. (minority interest owned in this
corporation)
<PAGE>
JZP Acquisition, Inc. (Delaware)
L.E.D.F.O.O.T. Express, Inc. (New York)
New Delaware Delivery, Inc. (Delaware)
S.R.G. Enterprises, Inc. (New York)
U.S. Delivery Administration, Inc. (Nevada)
U.S. Delivery Management Business Trust (Delaware)
USDS Canada, Ltd. (Canada)
Visex Courier Services Inc.
Swift Messenger Service Canada, Ltd.
2-Point Courier, Inc. (California)
Elite Courier, Ltd. (Connecticut)
Classic Air, Inc. (Georgia)
H & H Associates, Inc. (Georgia)
Pronto Delivery Service, Inc. (Texas)
Innovative Transportation Concepts, Inc. (New York)
John C. Brimo and Associates, Inc. (New York)
NYC Express, Inc. (New York)
Rushtrucking, Inc. (California)
2
<PAGE>
EXHIBIT 23.2
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 June 11, 1996 on our audits of the consolidated financial statements and
financial statement schedule of Corporate Express, Inc. as of March 2, 1996 and
February 25, 1995, and for the years ended March 2, 1996, February 25, 1995, and
February 28, 1994 and to the incorporation by reference in this Registration
Statement of our report dated August 30, 1996 on our audit of the balance sheet
of Check Office Equipment Company as of February 29, 1996, and the related
statements of operations, stockholders' equity (parent company investment), and
cash flows for the year then ended. We also consent to the reference to our
firm under the caption "Experts."
Coopers & Lybrand L.L.P.
Denver, Colorado
September 27, 1996
<PAGE>
EXHIBIT 23.3
[LETTERHEAD OF HORNE CPA GROUP APPEARS HERE]
September 26, 1996
Corporate Express
c/o Mr. Keith Miller
325 Interlocken Parkway
Broomfield, Colorado 80021
We consent to the incorporation by reference in this Form S-4 registration
statement of Corporate Express, Inc. of our report dated February 21, 1996 on
our audit of the financial statements of Forms and Supplies, Inc. as of December
31, 1995 and for the year ended December 31, 1995.
HORNE CPA GROUP
/s/ Avril K. Stanford
Avril K. Stanford
Shareholder
pm
<PAGE>
EXHIBIT 23.4
[LETTERHEAD OF SCHUTRUMPF & KOREN, P.C. APPEARS HERE]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Form S-4 registration
statement of Corporate Express, Inc. of our report dated March 4, 1996 on our
audit of the financial statements of Virginia Impression Products Co., Inc. as
of December 31, 1995 and for the year then ended.
/s/ Schutrumpf & Koren
Schutrumpf & Koren, P.C.
Certified Public Accountant
September 26, 1996
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Form S-4 registration statement of our reports on the audited
financial statements of Dock Truck Express, Inc., dated August 29, 1996, Pronto
Delivery Service, Inc., dated August 15, 1996, and RUSHTRUCKING, Inc., dated
August 22, 1996 included in the Form 8-K as filed by Corporate Express, Inc., on
September 19, 1996, and to all references to our Firm included in this
registration statement.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Houston, Texas
September 26, 1996
<PAGE>
EXHIBIT 23.6
[LETTERHEAD OF KPMG APPEARS HERE]
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement in
this Form S-4 of Corporate Express, Inc. of our report dated April 4, 1996
relating to the consolidated balance sheet of Miller Stationers Ltd. as of
January 31, 1996 and the related statements of earnings and retained earnings
and changes in financial position for the year then ended.
/s/ KPMG
Chartered Accountants
Edmonton, Canada
September 27, 1996
<PAGE>
EXHIBIT 23.7
[Letterhead of McGee, Wheeler & Co., P.C.]
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the incorporation by reference in this Form S-4 registration
statement of Corporate Express, Inc. of our report dated February 26, 1996,
except for Note 13 as to which the date is March 4, 1996, on our audit of the
financial statements of Enbee Company as of December 31, 1995 and for the year
then ended.
McGee, Wheeler & Co., P.C.
/s/ McGee, Wheeler & Co., P.C.
Certified Public Accountants
Houston, Texas
September 26, 1996
<PAGE>
EXHIBIT 23.8
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-4) for the registration of 4,221,425 shares of its common stock of our report
dated February 19, 1996, except Note 9 for which the date is May 13, 1996, with
respect to the consolidated financial statements of ASAP Software Express, Inc.
included in Corporate Express, Inc.'s Current Report on Form 8-K/A dated June
19, 1996 filed with the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Chicago, Illinois
September 26, 1996
<PAGE>
EXHIBIT 23.9
[LETTERHEAD OF SAMSON BELAIR DELOITTE & TOUCHE APPEARS HERE]
September 26, 1996
Monsieur Claude Valentine, C.G.A.
Vice-president finances
Boulevard Produits de Bureau Inc.
1616, rue Eiffel
Boucherville PQ J4B 7W1
Claude,
We consent to the incorporation by reference in this Form S-4 registration
statement of Corporate Express, Inc. of our report dated December 5th, 1995 on
our audit of the financial statements of Boulevard Office Products Inc. as at
October 31, 1995 and for the year ended 1995.
/s/ Samson Belair Deloitte & Touche
Chartered Accountants
Bernard Bougie, C.A.
Partner
<PAGE>
EXHIBIT 23.10
[Letterhead of Arthur Andersen LLP]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report
dated May 2, 1994 relating to the financial statements of Corporate Express of
Delaware, Inc. included in or made a part of this Form S-4.
/s/ Arthur Andersen LLP
Baltimore, Maryland
September 26, 1996
<PAGE>
EXHIBIT 23.11
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 (No. 33-_______) of Corporate Express, Inc.
of our reports dated March 12, 1996 relating to the consolidated financial
statements of United TransNet, Inc. as of and for the twelve days ended December
31, 1995; the combined financial statements of the Combined Founding Companies
as of and for the years ended December 31, 1993 and 1994 and the period ended
December 19, 1995; the consolidated financial statements of CDG Holding Corp.,
and its subsidiary, Courier Dispatch Group, Inc. as of and for the years ended
December 31, 1993 and 1994 and the period ended December 19, 1995; the combined
financial statements of Tricor America, Inc. as of and for the years ended
December 31, 1993 and 1994 and the period ended December 19, 1995; the
consolidated financial statements of Film Transit, Incorporated and its
subsidiary as of and for the years ended December 31, 1993 and 1994 and the
period ended December 19, 1995; the combined financial statements of Lanter
Courier Corporation as of and for the years ended December 31, 1993 and 1994 and
for the period ended December 19, 1995; the consolidated financial statements of
Salmon Acquisition Corporation and its subsidiary as of and for the years ended
December 31, 1993 and 1994 and for the period ended December 19, 1995; and the
consolidated financial statements of 3D Distribution Systems, Inc. and its
subsidiaries as of and for the years ended December 31, 1993 and 1994 and for
the period ended December 19, 1995, which appear in such Prospectus. We also
consent to the reference to us under the heading "Experts" in such Prospectus.
PRICE WATERHOUSE LLP
Atlanta, Georgia
September 27, 1996
<PAGE>
EXHIBIT 23.12
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" in the
Registration Statement (Form S-4) of Corporate Express, Inc. and to the
incorporation by reference therein of our report dated May 1, 1996 with respect
to the financial statements of Eddy Messenger Service, Inc. included in the
Registration Statement (Form S-4, No. 333-xxx) and related Prospectus of
Corporate Express, Inc. for the registration of 4,221,425 shares of its common
stock, filed on September 27, 1996.
White Plains, New York
September 27, 1996
<PAGE>
Exhibit 99.1
------------
[Record Number of Shares will appear here]
UNITED TRANSNET, INC.
1080 HOLCOMB BRIDGE ROAD, BUILDING 200, SUITE 140
ROSWELL, GEORGIA 30076
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints PHILIP A. BELYEW, RONALD J. BAROWSKI and
GEORGE E. GLASER, and each of them, as Proxies of the undersigned, each with
the power to appoint his substitute, and hereby authorizes a majority of them,
or any one if only one be present, to represent and to vote, as designated
below, all the Common Stock, $.001 par value per share, of United TransNet, Inc.
held of record by the undersigned or with respect to which the undersigned is
entitled to vote or act at the Special Meeting of Stockholders to be held on
November 7, 1996 or any adjournments thereof.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholders. If no direction is made, this proxy
will be voted FOR the following Proposal:
Approval and adoption of the Agreement and Plan of Merger, dated as of
September 10, 1996, by and among Corporate Express, Inc., Bevo
Acquisition Corp., Inc., a wholly owned subsidiary of Corporate Express,
Inc. and United TransNet,Inc., pursuant to which each share of United
TransNet, Inc. common stock will be converted into forty-five one
hundredths (.45) of one share of common stock of Corporate Express, Inc.
[_] FOR [_] AGAINST [_] ABSTAIN
Dated: , 1996
------------
--------------------------------
(Signature)
--------------------------------
(Signature if held jointly)
Note: Please sign exactly as name appears hereon. Joint owners should each
sign. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such. If a corporation, please sign
in full corporate name by an authorized officer or if a partnership
please sign in partnership name by an authorized person.
