<PAGE>
As filed with the Securities and Exchange Commission on October 9, 1996.
Registration No. 333-13217
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
____________
AMENDMENT NO. 1 TO
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
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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)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock ($.0002 par value) 4,311,425 shares N/A $155,786,182. $47,207.93 (3)
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(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 October 4, 1996.
(3) Previously paid.
_________________________________________
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
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UNITED TRANSNET, INC.
1080 HOLCOMB BRIDGE ROAD
BUILDING 200, SUITE 140
ROSWELL, GEORGIA 30076
October 9, 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 the Renaissance Atlanta Hotel Concourse, One
Hartsfield Centre Parkway, 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 Special 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 the Special Meeting.
Sincerely,
Philip A. Belyew
Chairman of the Board
<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 the Renaissance Atlanta Hotel
Concourse, One Hartsfield Centre Parkway, 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 by and 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 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 Special Meeting.
By Order of the Board of Directors,
Philip A. Belyew
Chairman of the Board
Roswell, Georgia
October 9, 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>
PROXY STATEMENT AND PROSPECTUS
CORPORATE EXPRESS INC.
UNITED TRANSNET, INC.
This Proxy Statement and Prospectus (this "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") with and into United TransNet, Inc. ("United TransNet")
pursuant to an Agreement and Plan of Merger dated September 10, 1996, by and
among Corporate Express, Acquisition Sub and United TransNet (the "Merger
Agreement"). A copy of the Merger Agreement is attached hereto as Appendix I.
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 approximately 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"), of which 9,380,946 shares were
outstanding as of October 3, 1996. 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 the outstanding shares of Corporate
Express Common Stock, (iii) combines the 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
(the "Special Meeting"). See "The Special Meeting."
This Proxy Statement and Prospectus also constitutes a prospectus of
Corporate Express with respect to the 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 form of
proxy are first being mailed to stockholders of United TransNet on or about
October 9, 1996.
SEE "RISK FACTORS" BEGINNING ON PAGE 17 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 9, 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 ("Nasdaq") and reports, proxy statements
and other information concerning Corporate Express are available for inspection
and copying at the Public Reference Section of Nasdaq, 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 a 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(R) is a registered service mark of Corporate Express, Inc.
2
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----------------
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' fiscal years ended or ending 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. Corporate Express' Annual Report on Form 10-K for the fiscal year
ended March 2, 1996;
2. Corporate Express' Quarterly Report on Form 10-Q for the quarter ended
June 1, 1996;
3. Corporate Express' Current Report 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; and
4. The description of the Corporate Express Common Stock contained in
Corporate Express' Registration Statement on Form 8-A filed under the
Exchange Act, including any amendment or report filed for the purpose of
updating such description.
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,
Attention: Secretary.
In order to ensure timely delivery, any request for documents should be made
by October 31, 1996.
3
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TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
FORWARD-LOOKING STATEMENTS................................................ 2
AVAILABLE INFORMATION..................................................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE........................... 3
SUMMARY................................................................... 6
Corporate Express....................................................... 6
United TransNet......................................................... 8
Strategic Reasons for the Merger........................................ 8
The Special Meeting..................................................... 9
The Merger.............................................................. 9
Summary Combined Financial Statements................................... 13
Comparative Historical and Pro Forma Per Share Data..................... 14
Comparative Market Data................................................. 15
Dividend Policy......................................................... 16
RISK FACTORS.............................................................. 17
Risks Relating to Corporate Express..................................... 17
Risks Relating to United TransNet....................................... 19
Risks Relating to the Merger............................................ 20
THE SPECIAL MEETING....................................................... 21
Special Meeting of United TransNet Stockholders......................... 21
Quorum.................................................................. 21
Vote Required........................................................... 21
Record Date; Stock Entitled to Vote..................................... 21
Voting of Proxies....................................................... 22
Revocation of Proxies................................................... 22
Solicitation of Proxies................................................. 22
THE MERGER................................................................ 23
Merger Consideration.................................................... 23
Adjustments to Merger Consideration..................................... 23
Conversion of Shares; Procedures for Exchange of Certificates;
Fractional Shares...................................................... 23
Nasdaq Listing.......................................................... 24
Background of the Merger................................................ 24
Recommendation of the United TransNet Board of Directors................ 27
Reasons for the Merger.................................................. 27
Opinion of United TransNet's Financial Advisor.......................... 28
Effective Time of the Merger............................................ 32
Interests of Certain Persons in the Merger.............................. 32
Certain Federal Income Tax Consequences................................. 33
Anticipated Accounting Treatment........................................ 33
Resale of Corporate Express Common Stock by Affiliates.................. 34
Certain Regulatory Matters.............................................. 34
Rights of Dissenting Stockholders....................................... 35
Comparison of Stockholder Rights........................................ 35
THE MERGER AGREEMENT...................................................... 41
Conditions to the Merger................................................ 41
Representations and Warranties.......................................... 43
Certain Covenants....................................................... 43
No Solicitation......................................................... 45
Additional Agreements................................................... 46
Termination, Amendment and Waiver....................................... 49
</TABLE>
4
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SELECTED CONSOLIDATED FINANCIAL DATA--CORPORATE EXPRESS................... 50
SELECTED FINANCIAL DATA--UNITED TRANSNET.................................. 52
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS--UNITED TRANSNET.............................................. 57
THE COMPANIES............................................................. 63
Corporate Express....................................................... 63
United TransNet......................................................... 64
PRINCIPAL STOCKHOLDERS OF UNITED TRANSNET................................. 72
LEGAL MATTERS............................................................. 73
EXPERTS................................................................... 73
APPENDIX I--AGREEMENT AND PLAN OF MERGER DATED AS OF SEPTEMBER 10, 1996
AMONG CORPORATE EXPRESS, ACQUISITION SUB AND UNITED TRANSNET ............
APPENDIX II--OPINION OF SMITH BARNEY INC..................................
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5
<PAGE>
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
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.
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.
6
<PAGE>
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 complementary 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 has 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 in the
United Kingdom, Germany and New Zealand in calendar 1996. 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 55 acquisitions, including 46 office products companies and ten
delivery companies. Of these acquisitions, 35 were in the United States, five
were in Canada, six 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.
7
<PAGE>
UNITED TRANSNET
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. 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.
STRATEGIC REASONS FOR THE MERGER
The Corporate Express Board of Directors and management continually review
strategic alternatives available to Corporate Express, including acquisitions,
product and service 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; (iii) enhance stockholder value through consolidations of
operations and administrative functions and reductions in costs; and (iv)
enhance its ability to capture national account business.
8
<PAGE>
THE SPECIAL MEETING
Meeting of Stockholders..... The Special Meeting of stockholders of United
TransNet will be held on Thursday, November 7,
1996 at 10:00 a.m. (local time) at the Renais-
sance Atlanta Hotel Concourse, One Hartsfield
Centre Parkway, Atlanta, Georgia.
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 adjust-
ments. See "The Merger--Merger Consideration" and
"--Adjustments to Merger Consideration." For ad-
ditional information relating to the Special
Meeting, see "The Special Meeting."
Quorum; Vote Required....... The presence, in person or by proxy, of the hold-
ers of a majority of the outstanding shares of
United TransNet Common Stock at the Special Meet-
ing is necessary to constitute a quorum at the
Special Meeting. Approval of the Merger Agreement
requires the affirmative vote of the holders of a
majority of the outstanding shares of United
TransNet Common Stock. See "The Special Meeting--
Vote Required" and "The Merger Agreement--Condi-
tions to the Merger."
Record Date................. Only stockholders of record of United TransNet
Common Stock at the close of business on October
3, 1996 (the "Record Date") are entitled to no-
tice 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 Agree-
ment at the Special Meeting.
Security Ownership of
Management................. As of the Record Date, the directors and execu-
tive officers of United TransNet as a group had
the power to vote approximately 32% of the out-
standing 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 with and into United TransNet, United
TransNet would continue as the surviving corpora-
tion (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 is-
sued and outstanding immediately prior to the
consummation of the Merger would be automatically
converted at the Effective Time (as defined be-
low) into the right to receive in the aggregate
approximately 4,221,425 shares of Corpo
- -------------------------------------------------------------------------------
9
<PAGE>
rate Express Common Stock, representing approxi-
mately 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 Ex-
press Common Stock (the "Exchange Ratio"). The
Exchange Ratio is subject to adjustment if Corpo-
rate 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 con-
verted at the Effective Time (as defined below)
into an option to purchase shares of Corporate
Express Common Stock. The number of shares which
each option holder shall have the right to pur-
chase, and the exercise price of such options,
will be adjusted to reflect the Exchange Ratio.
See "The Merger Agreement--Additional Agree-
ments."
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 stock-
holders and has unanimously approved the Merger
Agreement and the related transactions. The
United TransNet Board of Directors unanimously
recommends that United TransNet stockholders ap-
prove the Merger Agreement. See "The Merger--Rec-
ommendations of the Board of Directors," "--Back-
ground 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 the date of this Proxy
Statement and Prospectus 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 the date of this Proxy State-
ment and Prospectus, which sets forth the assump-
tions 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 Fi-
nancial Advisor."
Effective Time of the The Merger will become effective at the time pro-
Merger..................... vided in a certificate of merger (the "Certifi-
cate of Merger") to be filed with the Secretary
of State of Delaware (the "Effective Time"). The
filing
10
<PAGE>
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 condi-
tions to the Merger contained in the Merger
Agreement have been satisfied or waived. See "The
Merger Agreement--Conditions to the Merger."
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
Nasdaq upon 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 un-
der 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 prohibi-
tion preventing the consummation of the Merger;
(vi) the receipt by each party of various legal,
financial and accounting opinions, comfort let-
ters 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 of all agreements by each
party; and (viii) the absence of any material ad-
verse change in the business or financial condi-
tion 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 Ef-
fective Time, it will not initiate or solicit any
proposal or offer to acquire all or any substan-
tial part of the business and properties of
United TransNet and its subsidiaries or any capi-
tal stock of United TransNet and its subsidiar-
ies, whether by merger, purchase of assets, ten-
der offer or otherwise. See "The Merger--No So-
licitation."
Termination, Amendment and
Waiver..................... The Merger Agreement may be terminated at any
time prior to the Effective Time by mutual con-
sent 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 mate-
rial respect any of its covenants under the
Merger Agreement or (iv) United TransNet's stock-
holders fail to approve the Merger. In addition,
either Corporate Express or United TransNet may
extend the time for performance of any of the ob-
ligations of the other party or may waive condi-
tions with respect to those obligations. United
TransNet may terminate the Merger Agreement in
connection with consummating an alternative Ac-
quisition 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
11
<PAGE>
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 com-
pliance 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 Cor-
porate 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 fi-
nancial 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.
See "The Merger-- Interests of Certain Persons in
the Merger" for a description of such arrange-
ments.
12
<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
AS OF
JUNE 1, 1996
------------
UNAUDITED COMBINED BALANCE
SHEET DATA:
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) The merger of six ground and air courier companies forming United TransNet
and United TransNet's initial public offering were completed as of December
20, 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, 1995
through December 31, 1995 due to immateriality.
13
<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>
THREE MONTHS
YEAR ENDED ENDED
MARCH 2, 1996 JUNE 1, 1996
----------------- --------------
<S> <C> <C>
Net income per common and common equivalent
share from continuing operations:
Corporate Express Historical............... $ .04 $ .13
Corporate Express and United TransNet
Combined.................................. .04 .13
<CAPTION>
THREE MONTHS
PERIOD ENDED ENDED
DECEMBER 31, 1995 MARCH 30, 1996
----------------- --------------
<S> <C> <C>
United TransNet Historical................. $ .31 $ .18
United TransNet Pro forma equivalent(1).... .02 .06
<CAPTION>
MARCH 2, 1996 JUNE 1, 1996
----------------- --------------
<S> <C> <C>
Stockholders' equity per common share:
Corporate Express Historical............... $7.19 $7.38
Corporate Express and United TransNet
Combined.................................. 7.03 7.36
<CAPTION>
DECEMBER 31, 1995 MARCH 30, 1996
----------------- --------------
<S> <C> <C>
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.
(2) Represents the Corporate Express and United TransNet combined stockholders'
equity per common share multiplied by the Exchange Ratio.
14
<PAGE>
- --------------------------------------------------------------------------------
COMPARATIVE MARKET DATA
Corporate Express Common Stock has been traded on 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 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 October 3)........................... 39.13 32.63
</TABLE>
As of October 3, 1996, Corporate Express Common Stock was held by
approximately 565 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 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
Fiscal 1996
First Quarter................................................ 23.38 14.50
Second Quarter............................................... 29.00 20.13
Third Quarter ............................................... 24.88 10.25
Fourth Quarter (through October 3)........................... 17.25 16.63
</TABLE>
As of October 3, 1996, United TransNet Common Stock was held by approximately
75 holders of record.
The following table sets forth the closing price per share of Corporate
Express Common Stock and United TransNet Common Stock on 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 $14.74
</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."
- --------------------------------------------------------------------------------
15
<PAGE>
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 governing Corporate Express' 9 1/8% Senior
Subordinated Notes prohibits any dividend which would cause a default under
such indenture or which would cause the failure to comply with certain
financial covenants.
United TransNet does not anticipate paying any dividends on United TransNet
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 United TransNet Common Stock. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--United TransNet--Liquidity and Capital Resources."
16
<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 55 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 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. 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
17
<PAGE>
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. In 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.
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
18
<PAGE>
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."
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
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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."
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% 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' businesses 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
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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."
THE SPECIAL MEETING
SPECIAL MEETING OF UNITED TRANSNET STOCKHOLDERS
The Special Meeting will be held at the Renaissance Atlanta Hotel Concourse,
One Hartsfield Centre Parkway, Atlanta, Georgia, on November 7, 1996, at 10:00
a.m., local time.
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 with and 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 to acquire United TransNet Common Stock (a "United TransNet
Option") would be converted into an equivalent option 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.
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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. 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 with and 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 to
purchase United TransNet Common Stock which is outstanding at the Effective
Time shall automatically be converted into an option 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.
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 the outstanding
shares of any class of Corporate Express Common Stock into a greater number of
shares; (iii) combines the 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 Option 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 options to purchase Corporate Express Common Stock, 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 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.
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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 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 Nasdaq, upon
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 business 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.
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
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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, Colorado. Further discussions were arranged in
order to consider United TransNet's financial information in more detail.
From June 3, 1996 through June 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 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, 1996 through June 18, 1996, certain members of Delivery's
management and outside legal counsel conducted legal due diligence at the
offices of United TransNet's outside legal counsel in Boston, Massachusetts.
On June 19, 1996 and June 20, 1996, certain members of Delivery's senior
management and United TransNet's senior management and United TransNet's
outside legal 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 that 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, 1996 through July 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, 1996 and July 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, 1996 and July 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, 1996 and July 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, 1996 through July 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 ratio.
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, 1996 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, 1996.
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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.
Also 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
the Exchange Ratio.
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
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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 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. Smith Barney has confirmed its opinion dated
September 10, 1996 by delivery of a written opinion dated the date of this
Proxy Statement and Prospectus. In connection with its opinion dated the date
of this Proxy Statement and Prospectus, Smith Barney updated certain of the
analyses performed in connection with its opinion dated September 10, 1996 and
reviewed the assumptions on which such analyses were based and the factors
considered in connection therewith.
In arriving at its opinion, Smith Barney reviewed the Merger Agreement and,
in connection with its opinion dated the date of this Proxy Statement and
Prospectus, reviewed this Proxy Statement and Prospectus, 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
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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, 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 THE DATE OF THIS
PROXY STATEMENT AND PROSPECTUS, 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 performed by Smith
Barney in connection with its opinion dated September 10, 1996. 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
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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 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 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.
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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 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 approved 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
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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 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 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
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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 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 the exception of sales of a de minimis number of shares, 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,
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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 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
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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 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
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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 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 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
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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, by-laws, 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 by-laws, 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 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
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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
Nasdaq 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 Nasdaq 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 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
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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 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's or attorney's 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
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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.
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 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.
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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:
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 United TransNet 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 DLJ (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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<PAGE>
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 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.
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<PAGE>
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 to the knowledge of United TransNet 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
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).
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
44
<PAGE>
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 Corporate Express
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 Corporate
Express 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 Corporate Express 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
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 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,
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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.
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 applicable law 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
46
<PAGE>
have the Registration Statement 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 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 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 "1995 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 1995 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.
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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 an undertaking to repay such 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 approved 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. All 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.
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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.
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--CORPORATE EXPRESS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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 Young
acquisition (effective February 27, 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>
THREE MONTHS
FISCAL YEAR ENDED
-------------------------------------------------- --------------------
MAY 27, JUNE 1,
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- ---------- -------- ----------
<S> <C> <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 $ 500,624
Cost of Sales(1)........ 144,418 175,309 254,698 681,962 1,173,255 243,586 369,178
Merger related inventory
provisions(2).......... -- -- 1,146 -- 5,952 -- --
-------- -------- -------- -------- ---------- -------- ----------
Gross profit........... 51,365 62,164 81,250 245,956 410,897 86,808 131,446
Warehouse operating and
selling expenses....... 38,489 49,383 69,851 188,464 297,275 62,611 95,309
Corporate general and
administrative
expenses............... 5,088 7,139 8,690 23,852 46,980 9,243 15,933
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 20,204
Interest expense, net... 5,109 4,087 4,463 15,610 15,396 4,203 3,279
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 16,925
Income tax expense...... 1,326 947 1,894 6,164 10,952 4,297 7,079
-------- -------- -------- -------- ---------- -------- ----------
Income (loss) before
minority interest..... 873 (3,721) (5,450) 12,218 4,180 6,621 9,846
Minority Interest....... -- -- 152 69 1,436 115 230
-------- -------- -------- -------- ---------- -------- ----------
Income (loss) from
continuing
operations............ 873 (3,721) (5,602) 12,149 2,744 6,506 9,616
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 9,616
Extraordinary item(6)... -- -- (1,169) 586 -- -- --
-------- -------- -------- -------- ---------- -------- ----------
Net income (loss)...... $ 438 $ (8,292) $ (6,633) $ 12,735 $ 2,744 $ 6,506 $ 9,616
======== ======== ======== ======== ========== ======== ==========
Per common share:
Income (loss) from
continuing
operations............ $ (.21) $ .24 $ .04 $ .10 $ .13
======== ======== ========== ======== ==========
Net Income (loss)...... $ (.25) $ .25 $ .04 $ .10 $ .13
======== ======== ========== ======== ==========
Shares used to compute
per share amounts...... 32,265 49,195 68,057 62,971 75,139
======== ======== ========== ======== ==========
BALANCE SHEET DATA:
Working capital......... $ 21,061 $ 25,560 $ 68,084 $131,202 $ 217,243 $194,738 $ 201,353
Total assets............ 83,682 108,811 387,477 568,161 910,523 673,334 1,114,652
Long-term debt and
capital lease
obligations............ 39,339 38,576 161,881 166,427 137,468 200,712 252,378
Shareholders' equity and
redeemable
preferred(7)........... 14,502 25,528 100,045 240,470 496,514 303,736 512,297
</TABLE>
- --------
(1) Cost of sales include occupancy and delivery expenses.
(2) Reflects the write-down to market value of certain inventory which
Corporate Express has decided to eliminate from its product line in
connection with the Delivery, Young and Lucas mergers.
50
<PAGE>
(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.
(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 Corporate Express 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.
51
<PAGE>
SELECTED FINANCIAL DATA--UNITED TRANSNET
Simultaneous with the closing of United TransNet's initial public offering
on December 20, 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"). Immediately prior to such mergers (the
"Founding Company Mergers"), Lanter transferred certain assets and liabilities
to a related entity; the remaining business is sometimes hereinafter referred
to as the "Districts."
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."
52
<PAGE>
<TABLE>
<CAPTION>
COMBINED FOUNDING COMPANIES(1)
--------------------------------------------------- UNITED TRANSNET, INC.
PERIOD FROM PERIOD FROM COMBINED
YEAR ENDED DECEMBER 31, JANUARY 1 TO DECEMBER 20, YEAR ENDED
------------------------------------- DECEMBER 19, TO DECEMBER 31, DECEMBER 31,
1991(3) 1992 1993 1994 1995 1995 1995(2)
-------- -------- -------- -------- ------------ --------------------- ------------
(IN THOUSANDS, EXCEPT
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 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 common
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
-------- -------- -------- -------- ---------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
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>
53
<PAGE>
<TABLE>
<CAPTION>
COMBINED UNITED
FOUNDING COMPANIES(1) TRANSNET, INC.
----------------------- --------------------
FOR THE FOR THE
SIX MONTHS SIX MONTHS
ENDED 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
administrative expenses.. 26,570 30,585
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 share:
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
====================
Pro Forma 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>
54
<PAGE>
- --------
(1) The Founding Companies collectively are considered predecessors to United
TransNet. The following table represents selected information of the
individual Founding Companies for the two most recent fiscal years, the
period from January 1 to December 19, 1995, and the six month period
ended June 30, 1995.
<TABLE>
<CAPTION>
FOR THE
YEAR ENDED PERIOD FROM SIX MONTHS
DECEMBER 31, JANUARY 1 TO ENDED
------------------ DECEMBER 19, JUNE 30,
1993 1994 1995 1995
-------- -------- ------------ ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Courier Dispatch
Net revenues..................... $ 70,631 $104,614 $133,701 $ 66,819
Gross profit..................... 20,671 27,929 33,905 17,588
Selling, general and
administrative.................. 17,443 24,060 28,533 14,498
Net loss......................... (319) (1,768) (2,076) (680)
======== ======== ======== ========
Tricor
Net revenues..................... $ 32,504 $ 34,288 $ 37,252 $ 18,323
Gross profit..................... 8,778 9,442 10,080 5,423
Selling, general and
administrative.................. 6,789 7,058 6,898 3,387
Net income....................... 1,666 4,112 3,156 1,994
======== ======== ======== ========
Film Transit
Net revenues..................... $ 24,692 $ 24,717 $ 22,352 $ 11,685
Gross profit..................... 8,613 7,888 7,786 3,820
Selling, general and
administrative.................. 7,348 7,351 7,155 3,535
Net income....................... 688 253 396 174
======== ======== ======== ========
Lanter
Net revenues..................... $ 19,647 $ 21,431 $ 21,777 $ 11,170
Gross profit..................... 5,195 5,629 5,309 2,889
Selling, general and
administrative.................. 3,511 3,816 3,845 1,953
Net income....................... 1,317 1,431 1,095 745
======== ======== ======== ========
Sunbelt
Net revenues..................... $ 11,882 $ 14,187 $ 16,629 $ 8,251
Gross profit..................... 2,616 2,984 3,542 1,826
Selling, general and
administrative.................. 2,135 2,096 2,320 1,114
Net (loss) income................ (176) 54 272 197
======== ======== ======== ========
3D
Net revenues..................... $ 12,545 $ 14,862 $ 14,815 $ 7,422
Gross profit..................... 3,918 3,904 4,687 2,287
Selling, general and
administrative.................. 3,869 4,014 4,693 2,083
Net loss......................... (65) (217) (227) 130
======== ======== ======== ========
Combined
Net revenues..................... $171,901 $214,099 $246,526 $123,670
Gross profit..................... 49,791 57,776 65,309 33,833
Selling, general and
administrative.................. 41,095 48,395 53,444 26,570
Net income....................... 3,111 3,865 2,616 2,560
======== ======== ======== ========
</TABLE>
(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 for the period from December 20 to December
31, 1995.
(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.
55
<PAGE>
(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 $2,164,000
related to the deferred tax assets of Courier Dispatch and (ii) the
recording of a net deferred tax asset of $243,000 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 Company 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.
56
<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. 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>
57
<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 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, selling, general and administrative 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 selling, general and administrative
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. Selling, general and administrative
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.
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.
58
<PAGE>
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 the pro forma rate for the six
months ended June 30, 1995 being calculated on a discrete basis due to the
lack of combined operating history versus the rate for the six months ended
June 29, 1996 being calculated on an annualized basis. In addition, at June
30, 1995, Courier Dispatch had an increase in its valuation allowance.
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 totaled $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.
The effective pro forma tax rate was 12.6% in 1995 compared to 41.8% 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
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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 pro forma tax rate was 41.8% in 1994 compared to 54.5% in
1993. The decrease was primarily attributable to the non-taxable officers'
life insurance proceeds offset by an increase in non-deductible goodwill. 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.
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.
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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 which primarily consisted of the net
proceeds from the issuance of United TransNet Common Stock totaling $6.18
million, net of interest and underwriting discounts and commissions, and the
issuance of 226,921 shares of United TransNet 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 United TransNet 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
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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 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.
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
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 companies offering complementary 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
has 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.
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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. 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, Corporate Express
has completed 55 acquisitions, including 46 office products companies and ten
delivery companies. Of these acquisitions, 35 were in the United States, five
were in Canada, six 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
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. United TransNet's fleet of
approximately 4,300 ground transportation vehicles facilitates its broad
geographic coverage.
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 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
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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.
--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
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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 its 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.
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 United TransNet's 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
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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>
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
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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.
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 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.
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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 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
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<PAGE>
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 largest of these companies.
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.
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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:
<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.
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
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 and Note 8 to Notes to
Consolidated Financial Statements of United TransNet for additional
information concerning insurance and casualty claims.
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<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 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 United TransNet Common
Stock shown as beneficially owned by them.
(2) The beneficial ownership of Corporate Express Common Stock after the
Merger reflects the number of shares of Corporate Express Common Stock
purchasable pursuant to options which would become currently exercisable
as a result of the Merger and 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."
(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 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.
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<PAGE>
(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.
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 its 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
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<PAGE>
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 herein by reference 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.
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.
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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.
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<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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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 the
registration statement of which this Prospectus and Proxy Statement are a part
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 $119,973 $ 159,865
Receivables, net....... 292,062 25,974 318,036 19,868 -- 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 39,069 117,800 701,171
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 $168,491 $1,430,461
========== ======= ========== ======= ======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable....... $ 213,346 $15,913 $ 229,259 $12,452 $(45,183) $ 196,528
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 (40,250) 315,179
Capital lease
obligations............ 10,694 84 10,778 122 0 10,900
Long-term debt.......... 241,684 29,207 270,891 8,084 208,092 487,067
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 29,774 167,557 860,079
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 $168,491 $1,430,461
========== ======= ========== ======= ======== ==========
</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.... $ 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.... $ 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 5,123 530 (3) 27,724
Other expense (income).. (724) (307) 131 (67) 207 (5) (760)
---------- -------- -------- ------- ------- ----------
Income before income
taxes & minority
interest.............. 15,132 3,533 23,124 (6,152) 12 35,649
Income tax expense...... 10,952 989 3,473 1,441 1,733 (4) 19,097
509 (8)
---------- -------- -------- ------- ------- ----------
Income (loss) before
minority interest..... 4,180 2,544 19,651 (8,102) (1,721) 16,552
Minority interest....... 1,436 -- -- -- -- 1,436
---------- -------- -------- ------- ------- ----------
Income (loss) from
continuing
operations............ 2,744 2,544 19,651 (8,102) (1,721) 15,116
-- -- -- -- -- --
---------- -------- -------- ------- ------- ----------
Net income (loss)...... $ 2,744 $ 2,544 $ 19,651 $(8,102) $(1,721) $ 15,116
========== ======== ======== ======= ======= ==========
Net income per common
share:
Continuing operations.. $ 0.04 $ 0.64 $ 0.21
========== ======== ==========
Net income............. $ 0.04 $ 0.64 $ 0.21
========== ======== ==========
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) $ 154,616
(8,407)(2)
164,389 (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 28,338 117,800 666,589
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 40,933 166,759 1,339,807
========== ======= ======= ======== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable...... 213,346 5,481 6,971 (72)(8) 180,615
(45,111)(3)
Accrued liabilities... 61,834 2,178 3,606 670 (4) 68,257
(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 (40,250) 288,872
Capital lease
obligations............ 10,694 -- 122 -- 10,816
Long-term debt.......... 241,684 394 7,690 (17,287)(2) 457,860
-- (1)
(241)(8)
9,620 (9)
216,000 (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 21,694 167,557 799,686
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 $166,759 $1,339,807
========== ======= ======= ======== ==========
</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, capitalization of debt issuance
costs, and repayment of the Senior Credit Facility and ASAP note payable.
(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) 22,131
-- -- -- -- 1,300 (4)
-- -- -- -- (537)(5)
-- -- -- -- (9,976)(6)
Other expense (income).. (724) -- -- 131 (67)(1) (660)
---------- -------- ------- -------- ------- ----------
Income before income
taxes & minority
interest.............. 15,132 10,256 2,656 10,212 (7,882) 30,374
Income tax expense...... 10,952 200 1,028 2,245 1,441 (7) 15,866
---------- -------- ------- -------- ------- ----------
Income (loss) before
minority interest..... 4,180 10,056 1,628 7,967 (9,323) 14,508
Minority interest....... 1,436 -- -- -- -- 1,436
---------- -------- ------- -------- ------- ----------
Net income (loss)...... $ 2,744 $ 10,056 $ 1,628 $ 7,967 $(9,323) $ 13,072
========== ======== ======= ======== ======= ==========
Net income per common
share.................. $ 0.04 $ 0.19
========== ==========
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 28, 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 EVENT
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 EVENT
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 EVENT
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 EVENT
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 EVENT
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>
APPENDIX I
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");
WITNESSETH:
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 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.
A-2
<PAGE>
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;
(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;
(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
A-3
<PAGE>
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 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 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 Parent Common Stock or
dividends or distributions thereon delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
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(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 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.
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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 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 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
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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
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 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"),
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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
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 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
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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 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 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
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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 Multiemployer 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 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 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
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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 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
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,
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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 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
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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 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 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
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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 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 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
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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 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
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
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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 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 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
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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 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 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
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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 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 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
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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 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 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 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 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 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
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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 5.24,
any and all employees of the Company who are parties to agreements that 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 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
relationships with them and not
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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 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
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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 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, 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.
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(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 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 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 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.
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(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 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
stockholders of the Company and the boards of directors of the Company and
Parent.
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(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 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
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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 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 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.
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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;
(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
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
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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 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
(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.
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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.
(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
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
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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
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)
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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.
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:/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
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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
-------------
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;
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(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.
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(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
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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]
October 9, 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 the Proxy
Statement and Prospectus dated the date hereof of United TransNet and
Corporate Express relating to the proposed Merger, 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
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
<PAGE>
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.
A-2
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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
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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
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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.
__________________
* Previously filed.
** Filed in connection with Corporate Express' Form S-3 dated
September 20, 1996.
*** Filed herewith.
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 8, 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 8, 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.
__________________
* Previously filed.
** Filed in connection with Corporate Express' Form S-3 dated
September 20, 1996.
*** Filed hereiwth.
<PAGE>
[LETTERHEAD OF BALLARD SPAHR ANDREWS & INGERSOLL APPEARS HERE]
October 9, 1996
Corporate Express, Inc.
325 Interlocken Parkway
Broomfield, Colorada 80021
Ladies and Gentlemen:
We have acted as your counsel in connection with the proposed issuance of
shares of common stock in connection with the proposed merger (the "Merger")
pursuant to which Bevo Acquisition Corp., Inc., a wholly owned subsidiary of
Corporate Express, Inc. (the "Company"), will be merged with and into United
TransNet, Inc. and pursuant to which United TransNet, Inc. will become a wholly
owned subsidiary of the Company, as more fully described in the Registration
Statement on Form S-4, as amended (Registration No. 333-13217), and filed with
the Securities and Exchange Commission under the Securities Act of 1933, as
amended.
In this connection, we have examined and relied upon such corporate records
and other documents, instruments and certificates and have made such other
investigation as we deemed appropriate as the basis for the opinion set forth
below.
Based upon the foregoing, we are of the opinion that the shares of common
stock to be issued by you have been duly authorized and, when duly executed,
delivered and paid for in accordance with the terms of the Merger, and upon
satisfaction of all applicable conditions, will be duly and validly issued,
fully paid and nonassessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to the firm under the caption "Legal
Matters"" in the Prospectus forming a part thereof.
Very truly yours,
/s/ Ballard Spahr Andrews & Ingersoll
